Alabama abolishes member derivative suits against nonprofits — and gives associations a new ground to refuse records
Alabama abolishes member derivative suits against nonprofits — and gives associations a new ground to refuse records
2026-09-10 · Alabama · Legislation
The most consequential change to Alabama community-association law in a decade took effect on August 1, 2026, and it did not arrive in a bill about homeowners associations. It arrived in a 121-page rewrite of the Alabama Business and Nonprofit Entities Code.
House Bill 248 became Act 2026-495, signed by Governor Kay Ivey on April 14, 2026.1 Because nearly every incorporated Alabama HOA and condominium association is a membership nonprofit corporation governed by Chapter 3A of Title 10A, the act's member-facing provisions reach them directly — whatever their declaration says.
Member derivative actions are gone
Section 3 of the act adds a new Code section that runs to two sentences and a heading. In full:
“§10A-3A-6.14 No derivative actions in nonprofit corporations. A person shall not have any right to commence or maintain a derivative action in the right of a nonprofit corporation to enforce a right of the nonprofit corporation.”
A derivative action is the suit a member brings on the corporation's behalf when the board will not sue itself — the classic vehicle for a member alleging that directors engaged in self-dealing, or contracted with entities they control. As of August 1, 2026, that vehicle no longer exists for an Alabama nonprofit corporation.
The change did not come out of nowhere. In December 2024 the Alabama Supreme Court had already held in Ex parte Caribe Resort Condominium Association Board of Directors that Ala. Code § 10A-3A-2.44(2) gave nonprofit members no general right to bring a derivative action, leaving a narrow exception where officers or directors exceed their authority. Act 2026-495 states the rule flatly and without the exception.
A new ground to deny a records request
The act also amends the records-inspection sections, §§ 10A-3A-4.02, -4.03 and -4.04. The most significant addition is a new subsection (h) of § 10A-3A-4.02, which reads:
“(h) The right of a member to inspect and copy the records described in subsections (a) and (b) may be denied by the membership nonprofit corporation if the membership nonprofit corporation determines that the demanding member has within two years preceding his, her, or its demand improperly used any information secured through any prior examination of the records of the membership nonprofit corporation.”
The determination is the corporation's to make in the first instance. Nothing in the subsection defines “improperly used.”
Two further changes sit alongside it. A member who sends an agent or attorney to inspect must now supply authority: § 10A-3A-4.03(a) adds that “the demand shall be accompanied by a power of attorney or other writing which authorizes the agent or attorney to so act on behalf of the member.” And § 10A-3A-4.02(g)(2) — the clause that expressly preserved “the power of a court, independently of this chapter, to compel the production of corporate records” — is struck.
What else the act moved
Financial statements for members, repealed. Section 10A-3A-4.20, headed “Financial Statements for Members,” is repealed outright, along with its business-corporation twin at § 10A-2A-16.10. The cross-reference that made the certificate-of-incorporation limit on inspection “Subject to Section 10A-3A-4.20” is struck with it, so § 10A-3A-4.02(f) now reads simply that “The right of inspection granted by subsection (b) may be limited by a membership nonprofit corporation's certificate of incorporation.”
Forum selection, with arbitration still barred. Section 10A-3A-2.07 keeps the prohibition on bylaws that force internal corporate claims out of Alabama courts or into arbitration, but adds a new subsection permitting forum-selection provisions for claims that are not internal corporate claims.
Safe harbours for directors and officers. New §§ 10A-3A-8.61 and 10A-3A-8.62, plus a new Division G at § 10A-3A-8.70, supply conflict-of-interest and corporate-opportunity safe harbours, including a members'-approval route to cleanse a conflicting-interest transaction.
Registered agents. A registered agent may no longer perform its duties virtually — a mail-forwarding address or virtual office will not do. Associations using a registrar service should check what address is actually on file.
The deadline nobody is publicising: December 31, 2026
Section 7 of the act is the part with a clock on it. A nonprofit corporation governed by Chapter 3A and in existence before August 1, 2026 may elect, on or before December 31, 2026, to amend its certificate of incorporation to state:
“This nonprofit corporation shall be governed by Chapter 3A of Title 10A, Code of Alabama 1975, as in effect immediately prior to August 1, 2026, and not by any amendments or additions to Chapter 3A of Title 10A, Code of Alabama 1975, made by Act 2026-___.”
The election is revocable at any time by a further amendment removing the provision, at which point the corporation is governed by the chapter as it then stands.
Read plainly, that is an opt-out available only to associations formed before August 1, 2026, exercisable only in the roughly five months from the effective date to year end, and requiring an actual amendment to the certificate of incorporation — which for most associations means whatever member or board vote their governing documents demand for a certificate amendment. An association that wants the pre-August rules and misses December 31 does not get a second window.
Section 6 separately provides that no amendment applies to any civil action completed or pending on or before August 1, 2026.
What it changes for boards and managers
The practical shape of the change is that it moves power toward the board and away from the individual member, on two fronts at once.
On the litigation front, a member who believes the board is contracting with itself has lost the derivative suit. Direct claims — a member suing in their own right for an injury personal to them — are untouched, as are the association's own claims and any remedy a declaration supplies. But the representative action brought in the corporation's name is not available.
On the records front, a board now has a codified reason to say no that turns on the requesting member's past conduct rather than on the purpose of the current request. Boards that adopt that ground should expect the fight to be about what “improperly used” means, and should document the determination at the time they make it.
For managers, the near-term work is administrative: confirm the registered agent is a real address, review any bylaw arbitration or forum clause against the amended § 10A-3A-2.07, and put the December 31 opt-out question in front of the board while there is still time to hold the vote.
An unusual reporting note
This act has been widely recorded as having failed. The Community Associations Institute's own end-of-session report for Alabama lists the Business and Nonprofit Entities Code revision under bill numbers HB 248 / SB 187 with the status “Bill died and Indefinitely Postponed.”
What died was SB 187, the Senate companion, which was indefinitely postponed on April 7, 2026 — the ordinary fate of a companion once its twin has cleared. HB 248 itself passed the House 102–0 on March 31, passed the Senate as amended 30–0 on April 8, and was concurred in by the House 104–0 on April 9, the final day of the session. We verified the enacted provisions against the enrolled text of HB 248 rather than against any summary.
What to watch next
Three things. Whether any Alabama association actually files the Section 7 opt-out before December 31, 2026 — certificate amendments are recorded, so this will be observable. Whether § 10A-3A-4.02(h) draws a construction from an Alabama court, since the phrase “improperly used” carries the whole subsection. And whether the abolition of derivative actions produces pressure in the 2027 session for an association-specific remedy to replace it; nothing of the kind has been filed, and under the Legislature's own rules nothing can be prefiled before January 12, 2027.
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