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Changes to New York Law Impacting Not-For-Profit Corporation

May 19, 2014

Towards the end of December 2013, the Governor signed the “New York Non-Profit Revitalization Act of 2013” which contains a number of changes primarily to the Not-for-Profit Corporation Law most of which become effective July 1st of this year. Changes to the law can impact your company based on a number of different factors, such as its size and purpose. The following are some highlights that may affect your company.

  1. There used to be four classification types based upon an organization’s purpose (A-D). The statute now uses a different characterization scheme, where not-for-profit corporations are classified as being either “charitable” or “non-charitable.” This classification change has occurred automatically and your organization does not need to file any new paperwork in that regard.
  2. The Attorney General is granted some new enforcement powers which in large part relate to preventing improper private benefits at the corporation’s expense. Preventing improper transactions as a result of conflicts of interest is certainly a focus of this legislation. The takeaway for your company is that it is important for you to document your process relative to significant transactions in order to be able to prove that you have complied with the law, that your transactions were appropriate, and also to assist your company should the Attorney General’s Office become involved in reviewing your transactions.
  3. All Not-for-Profit Corporations need to adopt a conflict of interest policy unless one already exists. That policy needs to have six main components:
    • Define the circumstances that constitute a conflict of interest;
    • Provide the procedure for disclosing conflicts of interest;
    • Prohibit the person with the conflict of interest from being present at or participating in deliberations on the matter;
    • Prohibit any attempt by the person having the conflict to improperly influence deliberation or voting on the matter;
    • Require that the resolution of the conflict being documented in the corporate records; and
    • Provide procedures for disclosing, addressing, and documenting conflict of interest situations.
  4. Additionally, every director (board member) must submit annually a disclosure statement to the Board identifying any relationships or transactions which may give rise to a conflict of interest.
  5. Your organization may enter into transactions with “related parties” (defined as including any director, officer or key employee, a “relative” which extends to great-grandchildren) as long as it has been determined by your governing body that the transaction is fair, reasonable and in the best interests of your company. To the extent that there is a “substantial financial interest” in this transaction by the “related party,” the company also must consider (1) available alternatives to the extent possible, (2) approve the transaction by a majority vote; and (3) at the same time document the basis for the approval including the consideration of alternatives.
  6. There is a prohibition now that committees for the corporation (those including non-directors) shall not have the authority to bind the board or the company. To the extent that your company had delegated that level of authority to a committee, it should be restructured so the final decision resides with the board or the company.
  7. The financial threshold for required CPA reviews and/or audits have also been amended. Ultimately, your fiscal year gross revenue determines what would be required of your company.
  8. There is a “whistleblower policy” requirement for not-for-profit corporations that have twenty or more employees and, in the prior fiscal year, had annual revenue greater than one million dollars.
  9. There were some changes to allow certain board and member activities to be dealt with via fax or email. Board members are permitted to participate in board and committee meetings via video conference or other forms of video communication.
  10. Additionally, meeting notices and waivers of meeting notices will also be permitted to occur by fax/email. As you may know, the Not-for-Profit Corporation Law currently requires that a written notice of any meeting where any action is to be taken be provided to each member stating the place, date, and time of the meeting. That notice currently needs to be provided personally (via hand delivery) or by mail. As of July 1, 2014, those notices can be provided by facsimile or email. Please note that those are the only acceptable forms of providing the notice. In other words, a listing of meeting dates in a Bylaw or policy, a posting on a bulletin board, or a message on Facebook does not constitute personal, mail, fax, or email notice. Generally, a notice must be provided at least 10 days, but not more than 50 days, before the meeting depending upon the type of meeting. It also should state what action(s) may be taken at the meeting, as well as who has called for it.

That meeting notice may be waived by any member either in person or by proxy before or after a particular meeting. After July 1, 2014, that waiver of notice may be written or provided by email or facsimile.

Of course, whether or not the actions of your company ever come under review is something only time will tell. Nonetheless, it only makes sense that the law is followed so that those actions are authorized and then not likely to be disturbed.

This is a general summary of some of these recent changes. There are more detailed requirements contained in the law so they should be consulted in greater detail. If you have questions or concerns relative to these changes and how they impact your company, please do not hesitate to contact the offices of HoganWillig at 716-636-7600.