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(3) sold to or purchased by any person.
OFFICIAL COMMENT

A nonprofit corporation's membership list is a valuable asset. For public benefit and religious corporations, the membership list may represent a list of contributors. For mutual benefit corporations the list may represent a list of members of a trade association, social club, political organization or other significant group. Section 16.05 sets forth the basic premise that a membership list may not be obtained or use by any person for any purpose unrelated to a member's interest as a member. It then provides that a membership list may not be used in any of the following three purposes without the board's consent:

(1) The solicitation of money or property unless such money or property will be used solely to solicit the votes of members in an election held by the corporation. A membership list therefore cannot be used by members who in good faith believe the organization has strayed from its purposes and want to solicit the members to contribute to a competitive organization that is carrying out the true purposes of the corporation whose membership list is sought. Nor can members use a membership list to solicit contributions for a non-competitive organization, even if the non-competitive organization has laudable purposes.

(2) Used for any commercial purpose. Commercial organizations frequently desire to use membership lists of nonprofit organizations to contact members. Such use is only allowed if approved by the board of directors of the nonprofit corporation.

(3) Sold to or purchased by any person. Members of a nonprofit organization do not have the right to sell a membership list to any person. Nor may a person seeking a membership list purchase it except from the corporation with the approval of the board of directors.

A corporation must have some factual basis for believing that the members seeking the membership list will violate the provisions of section 16.05 to deny inspection rights pursuant to section 16.05. If a corporation has a legitimate doubt as to the purposes for which a member seeks a membership list, the matter can be heard by a court pursuant to section 16.04. The court should closely scrutinize the transaction to determine whether a member has a legitimate purpose or whether the corporation was simply using section 16.05 as a ruse to prevent and frustrate a member's rights. See Official Comment to Section 16.04 for the circumstances in which a court may order the corporation to pay attorney fees and costs.

This section had no counterpart under prior statutory law.

Section 33-31-1620. Financial statements for members.

(a) Except as provided in the articles or bylaws of a religious corporation, a corporation upon written demand from a member or the Attorney General shall furnish the demanding party its latest annual financial statements, which may be consolidated or combined statements of the corporation and one or more of its subsidiaries or affiliates, as appropriate, that include a balance sheet as of the end of the fiscal year and statement of operations for that year. If financial statements are prepared for the corporation on the basis of generally accepted accounting principles, the annual financial statements also must be prepared on that basis.

(b) If annual financial statements are reported upon by a public accountant, the accountant's report must accompany them. If not, the statements must be accompanied by the statement of the president or the person responsible for the corporation's financial accounting records:

(1) stating the president's or other person's reasonable belief as to whether the statements were prepared on the basis of generally accepted accounting principles and, if not, describing the basis of preparation; and

(2) describing any respects in which the statements were not prepared on a basis of accounting consistent with the statements prepared for the preceding year.
OFFICIAL COMMENT

Nonprofit organizations are not required to mail annual financial statements to any member unless the member makes a written demand for the latest financial statements. The cost of an automatic mailing to all members would be prohibitive for some nonprofit organizations. In many instances, the only financial report that members receive is an oral report at an annual meeting. While the bylaws of some organizations require that annual financial statements be delivered to all members, section 16.20 only requires that the latest annual financial statement be furnished to a member upon written demand of that member. In addition, members have the right to receive a report on the financial condition of the corporation at the annual meeting. Section 7.01(c).

Because there is so much diversity in nonprofit organizations and because accounting treatment of nonprofit corporations is in a transition state, section 16.20 does not require that financial statements be prepared on the basis of generally accepted accounting principles. However, if the

There is no requirement that the annual financial statements be audited. Where, however, they are audited, the accountant's report must accompany the statement.

"Section 16.20 refers to a `public accountant.' The same terminology is used in section 8.30 (standards of conduct for directors) of the Model Act. In various states, different terms are employed to identify those persons who are permitted under the state licensing requirements to act as professional accountants. Phrases like `independent public accountant,' `certified public accountant.' `public accountant,' and others may be used. In adopting the term `public accountant,' the Model Act uses the words in a general sense to refer to any class or classes of persons who, under the applicable requirements of a particular jurisdiction, are professionally entitled to practice accountan- cy." Official Comment to Model Business Corporation Act Section 16.20.

If the financial statements are not reported upon by an accountant, they must be accompanied by a report of the president or other person in charge of the corporation's financial accounting records. The object of the report is to describe the basis upon which the financial statements were prepared so the members will have a basis for evaluating them. The report must:

(1) indicate the reporting person's reasonable belief as to whether the statements were prepared on the basis of generally accepted accounting principles. If not, the report should describe the basis on which the statements were prepared. The financial statements may, for example, be prepared on a cash basis. If so, the report should so indicate.

In some circumstances, the financial records of the organization may be in a state of disarray. If so, this fact should be disclosed. The report should indicate how the statements were prepared. If appropriate, the report may have to state that the financial statements do not fairly reflect the condition and operations of the corporation.

(2) describe any respects in which the financial statements were not prepared on a basis consistent with the statements prepared for the preceding year. Members are entitled to know whether the financial statements were prepared on a consistent basis so they can determine whether a year-to-year comparison of financial reports will yield comparable figures.

Business and nonprofit corporations control subsidiaries through stock ownership. Nonprofit corporations control other nonprofit corporations

This section changes previously applicable statutory law, found at Section 33-16-200 of the South Carolina Business Corporation Act, in several ways:

1. It contains an exemption for religious corporations.

2. It does not require that financials be mailed, but only that they be provided on demand.

3. A provision is added empowering the Attorney General to demand nonprofits' financial statements.

4. Under subsection (b), the president is not solely responsible for certifying the basis of preparation of financial statements.

Section 33-31-1621. Report of indemnification to members.

If a corporation indemnifies or advances expenses to a director under Section 33-31-851, 33-31-852, 33-31-853, or 33-31-854 in connection with a proceeding by or in the right of the corporation, the corporation shall report the indemnification or advance in writing to the members with or before the notice of the next meeting of members.
OFFICIAL COMMENT

Section 16.21 requires that members be notified of indemnification of directors under sections 8.51, 8.52 and 8.54 and advances for expenses under section 8.53. The report must be made only if the payment or advances were made in a derivative action. The report must be made with or before the notice of the next members' meeting.
SOUTH CAROLINA REPORTERS' COMMENTS

This section makes no change from the previously applicable statute, Section 33-16-210(a) of the South Carolina Business Corporation Act.

Section 33-31-1701. Application to Existing Domestic Corporations

(a) This chapter applies to all domestic corporations which on this chapter's effective date were governed by Title 33, Chapter 31 of the 1976 Code.

(b) This chapter applies to each domestic corporation in existence on its effective date, organized other than under Title 33, Chapter 31, Code of Laws of South Carolina, 1976, upon such corporation's filing with the Secretary of State an irrevocable election to be governed by the provisions of this chapter. The irrevocable election shall contain all the information

(c) This chapter applies to all domestic corporations resulting from the merger of any corporation with a corporation organized under this chapter, when the latter is designated as the surviving corporation.
OFFICIAL COMMENT

The underlying concept of the Model Act is that it applies to all or substantially all nonprofit corporations organized in a state. Many states have a general nonprofit corporation statute and special laws for particular types or categories of nonprofit corporations. The Model Act provides an opportunity to adopt a unified, consistent, and understandable law applicable to all or substantially all nonprofit organizations in a state. States adopting the Model Act should specify the statutes it replaces.

The concept of a uniform law is enhanced by the mandate of section 17.01 that the Model Act is applicable on its effective date to all corporations subject to its provisions. See section 17.06 [Section 33-31-1705] for provisions relating to the effective date.

Section 17.01 applies to corporations formed under statutes that have reserved the right to amend or repeal their provisions. The Model Act may therefore be made applicable to all corporations to which it can be constitutionally applied. As most statutes adopted in this century have "reservation of power" clause the act will have general applicability to most nonprofit corporations.

Some states may wish to adopt optional subsection (b) which allows a few nonprofit corporations to decide whether or not to be governed by the provisions of the Model Act. Usually these corporations would be corporations formed under old statutes or charters that did not reserve the power of amendment, or religious corporations formed under some special statute. These corporations might prefer the Model Act and should be given the opportunity to come under its provisions in whole or in part.
SOUTH CAROLINA REPORTERS' COMMENTS

Subsection (a). Pursuant to section 33-31-1701(a), amended Title 33, Chapter 31 applies to all South Carolina corporations governed by former Title 33, Chapter 31 ("Nonprofit Corporations Generally"). The power to alter the statutory governance of existing corporations was reserved by the General Assembly by Code Section 33-1-102, which, by operation of

Subsection (b). Amended Title 33, Chapter 31 applies only to corporations chartered under former Title 33, Chapter 31 and its predecessors and not, therefore, to entities organized under any other chapter including, for example, Title 33, Chapters 35, 37, 39, 45, 47, 49, and 53 (expect that section 33-31- 834 specifically applies to electrical coops organized under Chapter 49). Subsection (b) entitles such entities to elect to be governed by Title 33, Chapter 31 by an irrevocable election filed with the Secretary of State. This subsection also permits corporations which were specifically legislatively chartered and those which may have been chartered by cities or other local governmental units to elect to be governed by this chapter. Such an election by a legislatively chartered corporation would constitute, in effect, the surrender by the latter of its legislative charter powers. Enactment of section 33-31- 1701 by the General Assembly constitutes that body's consent to the surrender of such powers and adoption by the corporation of the powers, rights, governance provisions, and obligations provided in this chapter.

Subsection (c). Subsection (c) is a non-Model Act provision, intended to make clear that any corporation may merge with a corporation governed by this chapter pursuant to any applicable merger statute and that the corporation organized under this chapter will be the surviving corporation, if so designated in the terms of merger. Such a merger between a corporation governed by this chapter and a corporation possessing a pre-1900 legislative charter would constitute, in effect, the surrender by the latter of its legislative charter powers. Enactment of Section 33-31-1701 by the General Assembly constitutes that body's consent to the surrender of such powers.

Section 33-31-1702. Application to Qualified Foreign Corporations

A foreign corporation authorized to transact business in this State on the effective date of this chapter is subject to this chapter but is not required to obtain a new certificate of authority to transact business under this chapter.
OFFICIAL COMMENT

Foreign corporations are subject to the Model Act as of its effective date. See section 17.06 [section 33-31-1705]. However, as a result of section 17.02, it is not necessary for foreign corporations to obtain a new certificate of authority to transact business.

Section 33-31-1703. Saving Provisions

(a) Except as provided in subsection (b), the repeal of a statute by this chapter does not affect:

(2) any ratification, right, remedy, privilege, obligation, or liability acquired, accrued, or incurred under the statute before its repeal;

(3) any violation of the statute or any penalty, forfeiture, or punishment incurred because of the violation, before its repeal;

(4) any proceeding, reorganization, or dissolution commenced under the statute before its repeal, and the proceeding, reorganization, or dissolution may be completed in accordance with the statute as if it had not been repealed; or

(5) any meeting of members or directors or action by written consent noticed or any action taken before its repeal as a result of a meeting of members or directors or action by written consent.

(b) If a penalty or punishment imposed for violation of a statute repealed by this chapter is reduced by this chapter, the penalty or punishment if not already imposed shall be imposed in accordance with this chapter.
OFFICIAL COMMENT

Section 17.03 is derived from section 25 of the Uniform Statutory Construction Act adopted by the National Conference of Commissioners on Uniform State Laws in 1965.
SOUTH CAROLINA REPORTERS' COMMENT

Section 33-31-1703 is substantially identical to section 33-20-105 of the South Carolina Business Corporation Act.

Section 33-31-1704. Severability

If any provision of this chapter or its application to any person or circumstance is held invalid by a court of competent jurisdiction, the invalidity does not affect other provisions or applications of this chapter that can be given effect without the invalid provision or application, and to this end the provisions of this chapter are severable.
OFFICIAL COMMENT

Section 17.04 is a standard severability provision.

Section 33-31-1705. Effective Date

As used in this chapter, the term `this chapter's effective date'or any similar variation means the effective date of the act which revised the provisions of Chapter 31 of Title 33 to enact the South Carolina Nonprofit Corporation Act of 1994.

(a) On the effective date of this chapter, each domestic corporation that is or becomes subject to this chapter shall be designated as a public benefit, mutual benefit, or religious corporation as follows:

(1) any corporation designated by statute as a public benefit corporation, a mutual benefit corporation or a religious corporation is the type of corporation designated by statute;

(2) any corporation that does not come within subsection (1) but is organized primarily or exclusively for religious purposes is a religious corporation;

(3) any corporation that does not come within subsection (1) or (2) but that is recognized as exempt under section 501(c)(3) of the Internal Revenue Code, or any successor provision, is a public benefit corporation;

(4) any corporation that does not come within subsection (1), (2) or (3), but that is organized for a public or charitable purpose and that upon dissolution must distribute its assets to a public benefit corporation, the United States, a state or a person that is recognized as exempt under section 501(c)(3) of the Internal Revenue Code or any successor provision, is a public benefit corporation; and

(5) any corporation that does not come within subsection (1), (2), (3), or (4) is a mutual benefit corporation.

(b) In any filing with the Secretary of State, an existing corporation may elect designation as a public benefit, mutual benefit, or religious corporation.
OFFICIAL COMMENT

Section 17.07 [Section 33-31-1706] sets forth the rules for determining whether nonprofit corporations existing on the effective date of the Model Act are public benefit, mutual benefit, or religious corporations.

Subsection (1) provides that corporations may be designated by a statute other than the Model Act as public benefit, mutual benefit, or religious corporations. Health maintenance organizations or other corporations may feel that the type of corporation they would be required to be under subsections (2) through (5) is inappropriate. If so, they can be designated as a public benefit, mutual benefit, or religious corporation under a law other than the Model Act.

A corporation not covered by subsection (1) that is organized primarily or exclusively for religious purposes is a religious corporation.

Under subsection (3) a corporation not falling within subsection (1) or (2) that is recognized as exempt under section 501(c)(3) of the Internal Revenue Code, or any successor section, is a public benefit corporation.

Subsection (4) provides that any corporation not falling under subsection (1), (2), or (3) is a public benefit corporation if: (i) it is organized for a public or charitable purpose; and (ii) upon dissolution its assets must be distributed to the United States, a public benefit corporation, a state, or a section 501(c)(3) organization. Because corporations described by subsection (4) have the same objectives as public benefit corporations and their members have no economic interest in their assets, they are in effect and the Model Act treats them as public benefit corporations. The Sierra Club or some other organization holding themselves out as operating for a public purpose, but that have lost or never obtained section 501(c)(3) tax status because of political activities would fall within the provisions of subsection (4) if their assets must be distributed to a public benefit corporation, the United States, a state, or a section 501(c)(3) organization.

A corporation that exists on the effective date of the Model Act may consider itself to be a public benefit corporation, but not have the dissolution clause described in subsection (4). If it wishes to become a public benefit corporation, it should amend its articles to insert an appropriate dissolution clause.

Subsection (5) is a catch-all provision. Any corporation not otherwise covered by subsections (1) through (4) is treated as a mutual benefit corporation by subsection (5). The members of many of these corporations have an economic interest in the corporate assets upon dissolution. Country clubs and social organizations typically fall within this category. Some corporations may be formed for the private benefit of their members, but must distribute their assets on dissolution to a section 501(c)(3) organization. They would be treated as mutual benefit corporations by subsection (5).
SOUTH CAROLINA REPORTERS' COMMENTS

Section 33-31-1706(a) is a default provision, applying to an existing nonprofit corporation unless and until it makes an election under subsection (b). Subsection (b), a non-Model Act provision, permits existing corporations to choose to be categorized as religious, mutual benefit or public benefit corporations (as may corporations which organize under this chapter after effectiveness).

(a) All domestic corporations in existence on the effective date of this act which are governed by this chapter, and all foreign nonprofit corporations authorized to transact business in this State on the effective date of this Act which do not then have on file with the Secretary of State either a current registered office or a current registered agent at that office shall file on or before January 2, 1996, a "Notification by Existing Corporation" form. Such form shall designate:

(1) the name of the corporation;

(2) the street address of the registered office in this State with zip code; and,

(3) the name of the registered agent whose office address shall be identical with the registered office.

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