Corporate Governance Made Easier for New York Nonprofits

3 min

The New York Not-for-Profit Corporation Law (N-PCL) has been amended again, and this time, the amendments make decision-making easier for New York nonprofits. The new legislation, enacted in November 2022, (1) accommodates increased use by nonprofits of electronic portal technology for unanimous consent actions outside of Board and membership meetings; (2) allows a replacement Board member who is elected by the Board to serve for the full length of the unexpired term rather than the prior requirement of temporarily serving only until the next annual meeting; and (3) clarifies that conflicted Board members who leave a nonprofit's Board meeting can still be counted as present for maintaining quorum despite their recusal. These modernizing amendments, described in more detail below, reflect additional incremental steps taken over the past decade to reform corporate governance standards for nonprofit corporations incorporated in New York:

  1. More Ways to Approve Actions Without a Meeting. Members and directors of New York nonprofit corporations can now consent to decisions outside of a meeting by electronic means other than email. Members and directors are and will continue to be allowed to take actions without a meeting as long as all those entitled to participate consent to the actions to be taken. Previously, the required consent could be given either in writing or through email. Now, consent from directors and members may also be given through other electronic means, such as DocuSign and other kinds of electronic portals that organizations use to provide Board materials and facilitate voting. Intended to increase efficiency and align with practices that many nonprofits have already adopted, these amendments to the N-PCL explicitly allow use of electronic means other than email to collect member and director responses to consent actions.
  2. More Flexibility for Selecting Replacement Board Members. Board members of membership organizations who are selected to fill vacancies by the Board can now hold office until the end of the term of the Board member they replaced or until the next annual meeting. Formerly, replacement directors who were designated by the Board were only allowed to temporarily hold office until the next annual meeting of the members, where a permanent replacement would be appointed or elected. This change gives membership organizations additional flexibility to accommodate leadership needs specific to their membership and organizational circumstances, including the ability to maintain equal class sizes when a Board is staggered into multiple groups, where the terms of a defined number of Board members expire each year. Under prior law, a replacement Board member's tenure could be cut short at an annual meeting instead of the natural expiration of the original term, thereby often leading to uneven class sizes.
  3. Counting Conflicted Board Members for Quorum. Directors who must leave a Board meeting due to a conflict of interest will now be counted as present for determining if a quorum is satisfied. Under the N-PCL, a quorum must be present at the time of a Board vote. Of course, when Board members recuse themselves from participating in a meeting due to a conflict of interest, that serves to decrease the number of members present and could cause the meeting to no longer have a quorum. By eliminating this possibility, the amendment facilitates Boards' abilities to make decisions without being faced with the choice of being deadlocked or risking a procedurally defective vote — either because quorum was lost or because it could only be met with a conflicted Board member present.

As governance practices continue to evolve to accommodate the realities of the modern world, and as state legislatures continue to respond, nonprofit corporations should review and update their Certificate of Incorporation and Bylaws to reflect changes in practice and to take advantage of more flexible governance parameters.