The New York Nonprofit Revitalization Act of 2013 (the Act) was amended in late 2015, and the New York State Attorney General's Charities Bureau has since updated its guide to sales and other dispositions of assets. The recent amendments also affect other aspects of nonprofit governance, and may impact updates to the bylaws and other governance documents of nonprofits that may have made since the Act was adopted.
The Act applies to nonprofits that are incorporated in New York, but certain provisions related to financial reporting and audit oversight apply to all nonprofits that are registered in New York for charitable solicitation purposes. The Act was the first major revision to New York's not-for-profit laws in over 40 years and made comprehensive updates to the New York Not-for-Profit Corporation Law (NPCL) and several other statutes related to nonprofits. Most changes took effect on July 1, 2014. The recent amendments made clarifying changes and technical corrections and extended the effective date of the provision that prohibits employees from serving as chair of a nonprofit's board.
For more information on the provisions of the Act, please see our prior articles on this topic: New York Legislature Passes Nonprofit Revitalization Act: Comprehensive, Significant Changes to New York Nonprofit Corporation Law on Horizon (July 30, 2013) and New York Nonprofit Revitalization Act Signed into Law (December 19, 2013). The Act was previously amended in 2014, and the New York Attorney General has published guidance and updated forms and publications in response to the Act and its amendments.
A number of clarifying changes to the NPCL, Estates, Powers and Trusts Law, and the Religious Corporations Law were enacted on December 11, 2015, including the following:
- Independent Directors: The definition of "independent directors" was amended (i) to exclude directors who are (or have relatives who are) owners, officers, directors or employees of the corporation's outside auditor or who worked on the corporation's audit during the past three years, and (ii) to clarify that "payments" exclude dues or fees paid to the corporation for services which the corporation performs as part of its nonprofit purposes, provided that such services are available to individual members of the public on the same terms, thereby allowing directors who have relationships with entities that pay such dues or fees to maintain independent director status. Pursuant to the Act, only independent directors may participate in any board or committee deliberations or voting relating to certain audit, conflict of interest, and whistleblower matters.
- Related Parties: Under the act, "related party" was defined as any director, officer, or key employee of the corporation or any affiliate of the corporation. This definition was expanded to also include "any other person who exercises the powers of directors, officers or key employees over the affairs of the corporation or any affiliate of the corporation" and any relative of such parties. Related party transactions with the corporation require additional scrutiny under the Act.
- Information from Interested Persons: The amendments clarify that a person who cannot be present for or participate in deliberations or voting because of a lack of independence, a related party transaction, or a conflict of interest may present information as background or answer questions prior to the commencement of deliberations or voting on such issue.
- Quorum and Voting: The amendments clarified that a director who must leave a meeting for a vote due to a conflict of interest or related party transaction is still considered "present" at the time of the vote, so the director would be counted for quorum and voting purposes.
- Affiliates: The definition of "affiliate" was narrowed to exclude entities under common control. Following the 2015 amendments, only entities controlled by or in control of a corporation are included in the definition of "affiliate."
- Relatives: The definition of "relative" was expanded to include domestic partners of brothers, sisters, children, grandchildren, and great-grandchildren. Previously, the individual's domestic partner was included in the definition, but only spouses (and not domestic partners) of the individual's family members were included.
- Conflict of Interest Disclosures: The amendments provided that conflict of interest disclosure statements may be submitted to either the secretary or to a designated compliance officer.
- Entire Board: The amendments clarified that when the bylaws provide that the board may consist of a range between a minimum and maximum number of directors and the number within that range has not been fixed by the board, the "entire board" consists of the number of directors elected or appointed as of the most recently held election, as well as any directors whose terms have not yet expired.
- Whistleblower Policy Distribution: The amendments clarified that the distribution requirement for whistleblower policies may be satisfied by posting the policy on the corporation's website or in a conspicuous location at the corporation's offices.
- Committees of the Corporation: The amendments clarified that non-directors may serve on committees of the corporation. Committees of the corporation do not have the authority to bind the board, whereas committees of the board, which must be comprised solely of directors, may be vested with such authority, subject to certain limitations.
- Change in Number of Directors of a Corporation without Members: The amendments clarified that the board of directors of a corporation without members may increase or decrease the number of directors pursuant to a specific provision of a bylaw allowing them to do so.
- Board Compensation: The amendments added that no director shall be prohibited from deliberating or voting concerning compensation for board service that is to be made available to all directors on the same or substantially similar terms.
- Religious Corporation Real Property Dispositions: The Religious Corporations Law was amended to give religious corporations the option of seeking approval of either the New York Supreme Court or the New York Attorney General for authorization to sell, mortgage, or lease for more than five years any of their real property under the streamlined procedures that the Act made applicable under the NPCL. Prior to the 2015 amendments, certain religious corporations had been required to seek Court approval on notice to the New York Attorney General.
In addition, certain technical corrections to the Act were enacted on September 25, 2015. These technical corrections included making certain terms gender neutral, correcting inconsistent terms, and amending certain provisions of the NPCL, the Education Law, and the Mental Hygiene Law to conform to the provisions of the Act.
Delayed Prohibition on Employee Serving as Chair
The Act added a provision to the NPCL that prohibits employees of not-for-profit corporations from serving as chair of the board or in an officer position with similar responsibilities. Initially scheduled to take effect on January 1, 2015, the effective date of this prohibition was previously delayed until January 1, 2016. On October 26, 2015, Governor Andrew M. Cuomo signed into law an amendment which further delayed the effectiveness of this prohibition until January 1, 2017. According to the New York State Assembly Memorandum in support of the amendment, the Legislature requires more time to study the impact of this prohibition on not-for-profit corporations.
New York Attorney General Guidance
The New York State New York Attorney General's Charities Bureau has updated many of its forms and publications in response to the Act and its subsequent amendments. It has also published guidance on topics such as revised audit thresholds, audit committees, conflicts of interest policies, and whistleblower policies under the Act. The New York Attorney General guidance does not have the weight of law, but it provides direction for interpreting certain provisions of the Act and insight into how the New York Attorney General may enforce such provisions. Certain aspects of the guidance were codified in the recent amendments.
Nonprofit corporations that have not yet updated their policies and procedures in response to the Act should carefully review their governance documents for compliance with the Act as well as the recent amendments, which may require updating bylaws, adopting or revising conflict of interest and, in some cases, whistleblower policies, and implementing audit oversight procedures, among other changes. Nonprofit corporations that have already updated their policies and procedures in response to the Act should revisit their governance documents to update definitions, if required, and otherwise ensure continued compliance in light of the recent amendments and New York Attorney General Guidance.
- The New York Nonprofit Revitalization Act of 2013
- The May 20, 2014 technical corrections
- The June 30, 2014 amendment which delayed the effective date of the prohibition on employees serving as chair
- The September 25, 2015 technical corrections
- The October 26, 2015 amendment which further delayed the effective date of the prohibition on employees serving as chair
- The December 11, 2015 clarifying amendments
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For questions or more information, please contact Susan Golden at 212.370.6254 or sgolden@Venable.com; or Sharon Connelly at 212.370.6278 or smconnelly@Venable.com.
This article is not intended to provide legal advice or opinion and should not be relied upon as such. Legal advice can be provided only in response to a specific fact situation.