Relates to the reform of charitable organizations; repealer

Summary of specific provisions

PART A

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

Section 2 amends section 515 of the Not-for-Profit Corporation Law to clarify that compensation paid to members, directors, officers or key employees must be fair, reasonable and commensurate with services provided to the corporation.

Section 3 amends paragraph (a) of section 713 of the Not-for-Profit Corporation Law and adds a new paragraph (f) to prohibit any employee of a nonprofit corporation from also serving as chair of its board. The intent of this provision is to promote clear lines of accountability between management and the board and ensure independent board leadership.

Section 4 creates a new section 715-a of the Not-for-Profit Corporation Law to require that nonprofits adopt written conflict of interest policies. Section 4 also creates a new section 715-b of the Not-for-Profit Corporation Law to require that nonprofits with twenty or more employees and annual revenue exceeding $1 million adopt whistleblower policies.

Section 5 creates a new section 8-1.9 of the Estates, Powers and Trusts Law to make applicable to charitable trusts the new requirements concerning conflict of interest policies and whistleblower policies that are made applicable to charitable corporations by section 4 of the bill.

Section 6 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.

Section 8 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" nonprofits that have already formed as particular types so they will not have to file new paperwork or amend contracts.

Sections 7, 9 and 10 make conforming changes to the Not-for-Profit Corporation Law to facilitate the simplification of corporate "types" pursuant to section 8 of the bill.

Section 11 amends section 115 of the Not-for-Profit Corporation Law to provide that no corporation required to obtain approval from, or provide notice to, an administrative agency in the course of incorporating may solicit funds until it does so.

Sections 12 and 13 amend sections 304 and 306 of the Not-for-Profit Corporation Law to correct technical errors.

Section 14 amends section 402 of the Not-for-Profit Corporation Law to make clearer that nonprofits 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 15 amends section 404 of the Not-for-Profit Corporation Law to eliminate the requirement that certain types of nonprofits 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 nonprofits 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 16, 18 and 44 make conforming changes to the Not-for-Profit Corporation Law to implement section 15 of the bill, the intent of which is to expedite and simplify the incorporation process.

Section 17 amends section 804 of the Not-for-Profit Corporation Law to require that governmental agencies be notified within 10 days of acceptance by the Department of State of any certificate of amendment that ads, changes or eliminates a purpose, power or provision whose original inclusion would require the consent from, or notice to, that governmental agency. The section is also revised to allow charities to seek approval of changes from the Attorney General, in addition to the traditional option of approval by the courts

Sections 19-43 and 45-67 make conforming changes to the Not-for-Profit Corporation Law to facilitate the simplification of corporate "types" pursuant to section 8 of the bill.

Sections 68-84 make conforming changes to various statutes to facilitate the simplification of corporate "types" pursuant to section 8 of the bill.

Section 85 is the effective date.

PART B

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

Section 2 and 4 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, or board committees, undertake an independent review of transactions between the nonprofit and related parties, and affirmatively determine that such transactions are in the nonprofit's best interest. The amendments will also provide clearer authority for the Attorney General to remedy self-dealing.

Section 3 creates a new section 712-a of the Not-for-Profit Corporation Law to require that, in cases where nonprofits are required by the Executive Law to obtain independent CPA audits, boards or board committees 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 5 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 6 amends section 723 of the Not-for-Profit Corporation Law to make a clarifying change concerning indemnification of directors and officers.

Section 7 amends section 724 of the Not-for-Profit Corporation Law to make clear that the Attorney General is to be provided notice when an application for indemnification is made to the court..

Section 8 creates a new section 8-1.9 of the Estates, Powers and Trusts Law to make applicable to charitable trusts the new requirements concerning audits and related party transactions that are applied to charitable corporations by sections 3 and 4 of the bill.

Section 9 amends the Surrogates Court Procedure Act to effect the provisions of section 8 of the bill.

Section 10 amends section 509 of the Not-for-Profit Corporation Law to permit a majority vote of the nonprofit'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 nonprofit'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 11-15, 17 & 18 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 16 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 19 and 20 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.

Sections 21 and 32 repeal sections 406(b-1) of the Not-for-Profit Corporation Law and 81.8(b-1) 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 22 amends section 520 of the Not-for-Profit Corporation Law to add a reference to the Executive Law.

Section 23 amends section 555 of the Not-for-Profit Corporation Law to make clear the continuing availability to the courts of the doctrine of deviation.

Section 24 amends section 718 of the Not-for-Profit Corporation Law to protect the privacy of nonprofit 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,

Sections 25 - 29 amend sections 1207, 1211, 1215, 1218 and 1611 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 30, 36, 39, 43. 45 and 47 are intentionally omitted.

Sections 31 and 35 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 33 amends section 171-a of the Executive Law to clarify that individuals who function solely as grant writers are not "fundraising counsel."

Section 34 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 nonprofits 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 nonprofits and bring New York's reporting requirements into line with those of other states.

Sections 37 and 38 amend section 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. Nonprofits will retain the right to seek court approval of the transaction following the Attorney General's review.

Sections 40-42 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. Nonprofits will retain the right to seek court approval of the transaction following the Attorney General's review.

Sections 44, 46 and 48 amend sections 1001, 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 49 and 50 amend sections 216-a and 223 of the Education Law to permit education corporations to enter into merger transactions in addition to consolidation transactions. The intent of these amendments is to simplify mergers and treat educational nonprofits more equitably.

Sections 51 - 54 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 these amendments is to simplify mergers and treat religious nonprofits more equitably.

Section 55 is the effective date.

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 nonprofits and a more business-friendly environment for existing ones;:htaing 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 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, 2014, provided that section 713(f) of the Not-for-Profit Corporation Law, as added by section three of Part A of the bill shall take effect January 1, 2015. Section 712-a of the Not-for-Profit Corporation Law and paragraph (d) of section 8-1.9 of the Estates, Powers and Trusts Law, as added by sections 3 and 8 of Part B of the bill, shall not be applicable until January 1, 2015 to any corporation or trust with annual revenues of less than $10,000,000 in the last fiscal year ending prior to January 1, 2014.