Enacts the "non-profit revitalization act"; repealer

Summary of specific provisions

Section 1 of the bill establishes the title of the Act as the "Nonprofit Revitalization Act".

Section 1-a adds new definitions to section 102 of the Not-for-Profit Corporation Law to implement provisions of the bill.

Sections 2, 3, 6 - 8, 12 - 14, 16, 21 - 23, 28, 31, 47, 52, 53, 57, 59, 62, 63, 65, 66, 71, 72, 74 - 95, and 97 make conforming changes to the Not-for-Profit Corporation Law to facilitate the simplification of corporate "types" pursuant to section 10 of the bill.

Section 4 amends section 105 of the Not-for-Profit Corporation Law to allow the Department of State to correct non-material typographical errors in certificates of incorporation and other instruments upon written authorization from the incorporator.

Sections 5 and 45 amend sections 112 and 715 of the Not-for-Profit Corporation Law to create new requirements to protect against self-dealing. The amendments require that boards undertake an independent review of transactions between the nonprofit and related parties, and affirmatively determine that such transactions are in the non-profit's best interest. The amendments will also provide clearer authority for the Attorney General to remedy self-dealing.

Sections 9, 15, 19, 58 and 73 make conforming changes to the Not-for-Profit Corporation Law to implement section 18 of the bill, the intent of which is to expedite and simplify the incorporation process.

Section 10 amends section 201 of the Not-for-Profit Corporation Law to simplify corporate "types," creating only two categories of corporations ("charitable corporations" and "non-charitable corporations") instead of four (A, B, C and D). The amended section will "grandfather" non-profits that have already formed as a particular type so that they will not have to file new paperwork or amend contracts.

Sections 11, 37, 49 and 50 are intentionally omitted.

Section 17 amends section 402 of the Not-for-Profit Corporation Law to make clearer that non-Profits need only state their corporate purposes, and not specific activities they plan to undertake, when completing certificates of incorporation for delivery to the Department of State.

Section 18 amends section 404 of the Not-for-Profit Corporation Law to eliminate the requirement that certain types of non-profits obtain pre-approval from the State Education Department prior to incorporation. Under these amendments, schools, libraries, museums and historical societies will continue to require the State Education Department's approval, but other non-profits may notify the State Education Department of their formation after incorporation. The intent of this amendment is to streamline the incorporation process without hampering oversight by the State Education Department.

Sections 20 and 99 repeal sections 406(b-1) of the Not-for-Profit Corporation Law and 81.8(b-l) of the Estates, Powers and Trusts Law to eliminate the requirement that private foundations advertise the availability of their annual financial reports in print newspapers. The intent of this amendment is to reduce costs without affecting transparency, as such reports are free and available to the public online.

Section 24 amends section 509 of the Not-for-Profit Corporation Law to permit a majority vote of the non-profit's board or a committee of the board, rather than a two thirds vote of the entire board, to approve non-substantial real estate transactions. The two-thirds voting requirement is maintained for transactions involving property that constitutes all or substantially all of the non-profit's assets. The intent of this amendment is to reduce administrative burdens associated with routine real estate transactions while preserving stricter requirements for more significant transactions.

Sections 25 - 27 amend sections 510 and 511 and create a new section 511-a of the Not-for-Profit Corporation Law to allow nonprofit corporations seeking to sell, lease, exchange or dispose of all or substantially all of their assets to go through a one-step approval process (Attorney General approval) instead of a more cumbersome two-step process (court approval following Attorney General review). The intent of this provision is to expedite the often-lengthy approval process and reduce legal costs. Non-Profits will retain the right to seek court approval of the transaction following the Attorney General's review.

Section 29 amends section 515 of the Not-for-Profit Corporation Law to require that any compensation paid or benefits conferred upon

members, officers and directors is done in accordance with new requirements governing executive compensation practices and related party transactions enacted by sections 43 and 45 of the bill.

Section 30 amends section 520 of the Not-for-Profit Corporation Law to add a reference to the Executive Law.

Sections 32 - 36, 39 and 40 amend sections 605, 606, 609, 614, 621, 708, 711 of the Not-for-Profit Corporation Law to allow electronic transmission of board and membership meeting notices, waivers of notice and votes requiring unanimous written consent. These amendments will also allow board members to participate in meetings via video conference, Skype, and other forms of video communication. The intent of these amendments is to utilize technology to allow for more effective participation by directors who are unable to attend meetings in person.

Section 38 amends section 702 of the Not-for-Profit Corporation Law to remove the definition of "entire board." The bill creates a new definition for this term in section 102 of the statute, the purpose of which is to correct ambiguities caused by the existing definition.

Sections 41 and 42 amend section 712 of the Not-for-Profit Corporation Law to simplify the classification of board committees by eliminating the distinction between standing and special committees.

Section 43 creates a new section 712-a of the Not-for-Profit Corporation Law to require that, in cases where non-profits are required by the Executive Law to obtain independent CPA audits, boards perform certain oversight responsibilities. The intent of this provision is to ensure that boards are aware of and respond to issues and risks identified by auditors. Section 43 also creates a new section 712-b of the Not-for-Profit Corporation Law to set forth new requirements for setting and reviewing executive compensation. The bill will require that compensation is fair, reasonable, and commensurate with services provided, and that boards of larger non-profits follow particular procedures in determining that compensation meets this standard.

Section 44 creates a new section 713(f) of the Not-for-Profit Corporation Law to prohibit the CEO or any other employee of a nonprofit corporation from also serving as chair of the board. The intent of this provision is to promote clear lines of accountability between management and the board and ensure independent board leadership.

Sections 46 creates a new section 715-a of the Not-for-Profit Corporation Law to require that non-profits adopt written conflict of interest policies. Section 46 also creates a new section 715-b of the Not-for-Profit Corporation Law to require that non-profits with five or more employees and annual revenue exceeding $1 million adopt whistleblower policies.

Section 48 amends section 718 of the Not-for-Profit Corporation Law to protect the privacy of non-profit directors and officers. Upon demand from a member of the corporation or a law enforcement agency,

the corporation will have to produce a list of its directors and officers but will no longer have to disclose their home addresses.

Section 51 amends section 720 of the Not-for-Profit Corporation Law to add key employees to the list of individuals against whom actions may be brought to remedy violations of the section.

Sections 54 - 56 amend section 907 and add new sections 907-a and 907-b to the Not-for-Profit Corporation Law to allow not-for-profit corporations seeking to merge to go through a one-step approval process (Attorney General approval) instead of a more cumbersome two-step process (court approval following Attorney General review). The intent of this provision is to expedite the often-lengthy approval process and reduce legal costs. Non-profits will retain the right to seek court approval of the transaction following the Attorney General's review.

Sections 60 - 62 and 64 amend sections 1001, 1002, 1002-a and 1007 of the Not-for-Profit Corporation Law to grant the Attorney General authority to approve charitable corporations' plans of dissolution. Charitable corporations will retain the right to appeal to the courts if the Attorney General does not approve. The Attorney General will have the option to refer petitions for dissolution to the courts if judicial review is more appropriate. The intent of these provisions is to reduce the costs of dissolution so that charitable assets can be more quickly redirected for other charitable purposes.

Sections 67 - 70, 96 and 97 amend sections 1207, 1211, 1215, 1218, 1611 and 1613 of the Not-for-Profit Corporation Law to allow entities in receivership and land banks to provide certain notices online, rather than in a print newspaper. The intent of these provisions is to improve dissemination of information and reduce costs.

Sections 98 and 105 amend section 8-1.4 of the Estates, Powers and Trusts Law and section 177 of the Executive Law to make clear in these statutes that the Attorney General may accept nonprofit registrations and other filings electronically.

Section 100 creates a new section 8-1.9 of the Estates, Powers and Trusts Law to make applicable to charitable trusts the new requirements concerning audit oversight, executive compensation, related party transactions, conflict of interest policies, and whistleblower policies that are made applicable to charitable corporations in sections 43, 45 and 46.

Section 101 makes conforming changes to the Surrogates Court Procedure Act to implement substantive provisions of the bill.

Sections 102, 112, 113, and 115- 129 make conforming changes to various statutes to facilitate the simplification of corporate "types" pursuant to section 10 of the bill.

Section 103 amends section 171-a of the Executive Law to clarify that individuals who function solely as grant writers are not "fundraising counsel."

Section 104 amends section 172 of the Executive Law to require that non-profits required to register with the Attorney General file with the Attorney General conflict-of-interest and whistleblower policies adopted pursuant to the newly-enacted sections 712-a and 712-b of the Not-for-Profit Corporation Law and 8-1.9 of the Estates, Powers and Trusts Law.

Section 104-a amends section 172-b of the Executive Law to raise the gross revenue thresholds triggering the requirement to obtain an independent CPA's audit from $250,000 to $500,000 and an independent CPA's review from $100,000 to $250,000. The Attorney General will have authority to request an independent CPA's audit from non-profits with gross revenue of $250,000 to $500,000 after reviewing their annual filings. The intent of these amendments is to reduce costs and burdens on smaller non-profits and bring New York's reporting requirements into line with those of other states.

Sections 106 and 107 amend sections 216-a and 223 of the Education Law to permit educational corporations to enter into merger transactions in addition to consolidation transactions. The intent of this amendment is to simplify mergers and treat educational non-profits more equitably.

Sections 108 - 111 amend sections 13, 15-a, 208 and 209 of the Religious Corporations Law to permit religious corporations to enter into merger transactions in addition to consolidation transactions. The intent of this amendment is to simplify mergers and treat religious non-profits more equitably.

Section 114 amends section 1825 of the Public Authorities Law to correct outdated references to the repealed Membership Corporation Law.

Section 130 is the effective date; this act shall take effect January 1, 2013, provided that section 713(f) of the Not-for-Profit Corporation Law as added by section forty-four of this act shall take effect January 1, 2014.

Justification

For too long, New York law and regulatory practices have placed unnecessary and costly burdens on the nonprofit sector. Redundancies throughout the system waste scarce taxpayer and nonprofit dollars. New York must become a more hospitable environment for nonprofits. This bill will modernize key provisions of New York law governing formation, dissolution, transactions, and board procedures, reducing unnecessary burdens and costs without sacrificing oversight or accountability. Implementing these changes will create a more welcoming environment for new non-profits and a more business friendly environment for existing ones, helping to ensure our state remains home to the country's strongest and most vibrant nonprofit sector.

At the same time, the success of the nonprofit sector depends on maintaining the public's trust. This requires that boards provide effective oversight over the charitable funds entrusted to them, and that the Attorney General have the necessary tools to protect charities and donors from fraud and abuse. This bill strengthens New York law to enhance governance and accountability by setting forth

clearer expectations of board duties in key areas, such as setting compensation and providing financial oversight. It also includes new provisions to limit and, when necessary, remedy self-dealing.

Prior legislative history

New bill.

Fiscal implications

There is no fiscal impact on the state.

Effective date

This act shall take effect January 1, 2013; provided however, that section 713(f) of the Not-for-Profit Corporation Law as added by section forty-four of this act shall take effect January 1, 2014.