The New York Non-Profit Revitalization Act of 2013 (the “Act”), which was passed by the New York State legislature in June, was signed into law by Governor Andrew Cuomo last week. The Act seeks to modernize the New York Not-For-Profit Corporation Law (the “NPCL”), and is the first major overhaul of the NPCL in four decades.
The Act goes into effect on July 1, 2014.
Details of some of the changes to the NPCL include:
• In a critically important victory for common-sense corporate governance, notices and consents under the NPCL may be sent via e-mail and fax.
• Instead of defining not-for-profit corporations as Type A, B, C, or D (a classification system that has bedeviled New York lawyers for years), such entities will be simply “charitable” or “non-charitable.” Former Type-A corporations will be non-charitable, while all others will be charitable. Charitable purposes are defined as “charitable, educational, religious, scientific, literary, cultural or for the prevention of cruelty to children or animals.”
• The New York Executive Law requires submission of audit reports to the Attorney General for entities registered to solicit and collect funds for charitable purposes. The new law raises the gross revenue thresholds for such audits over time. Starting on July 1, 2014, certified audits will be required for those entities with revenue and support in excess of $500,000. The threshold will be raised to $750,000 as of July 1, 2017 and $1 million as of July 1, 2021.
• The new law focuses on corporate integrity by tightening the related-party transaction rules. The interested director must give notice of his interest and not participate except on request of the board to provide background. Before acting, the board, by its independent directors, must consider alternative transactions to the extent available (the law does not say if a formal request for proposal would be required), approve the transaction as fair and reasonable to the corporation by a majority of those participating at a meeting, and contemporaneously document the approval and consideration of alternatives. The Attorney General is given broad power to enjoin or seek recoupment from the beneficiaries of any improper transaction.
• In this regard, every corporation must have a conflict of interest policy, and every corporation with annual revenue in excess of $1 million and twenty or more employees must adopt a whistleblower policy as well.
• Certain major corporate actions, such as changes to the certificate of incorporation, mergers, sale of all or substantially all assets, and dissolutions may now be approved by the Attorney General, in lieu of obtaining a Supreme Court order.
• The requirements for certain real-property transaction approvals are clarified. Such transactions must be approved by a majority of the board or committee thereof unless the real property constitutes (or will constitute upon purchase) all or substantially all of the assets of the corporation. In the latter case the action must be approved by a majority of the entire board, except if there are fewer than 21 members, in which case two-thirds of the entire board must approve. “Entire board” is defined as the exact number set forth in the bylaws, or if the bylaws provide for a range of directors, the number of board members within such range who were actually elected at the last election of directors constitutes the entire board.
• Any person, by becoming a director, officer, key employee or agent of a not-for-profit corporation is subject to personal jurisdiction of the New York Supreme Court.
• No employee of an not-for-profit corporation, including its CEO, may serve as the chair of the corporation’s board or hold any other title with similar responsibilities.
There are numerous other conforming and less-significant changes (unless they are critical to the issue you one is dealing with) to the NPCL, such that a full review of the statutory changes is recommended. The full text of the Act can be found here.