Enacts the "non-profit revitalization act"; repealer

Summary of specific provisions

This bill establishes the title of the Act as the "Nonprofit Revitalization Act of 2013".

It amends section 171-a of the Executive Law to clarify that individuals who function solely as grant writers, are not "fund raising counsel."

It raises the gross revenue thresholds triggering the requirement to obtain an independent CPA's audit from $250,000 to $1,000,000. The Attorney General will have authority to request an independent CPA's audit from nonprofits with gross revenue over $250,000 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.

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

It amends section 216 of the Education Law to make clear that only schools, colleges, universities and entities providing postsecondary education may not be incorporated without the consent of the commissioner of the state education department. It further 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.

The bill makes conforming changes to various statutes to effect the simplification of corporate "types" into charitable and non-charitable corporations instead of four (A, B, C and D). Corporations formed for both charitable and non-charitable purposes under the Not-for-Profit Corporation Law will be deemed charitable for purposes of this statute. The amended section will "grandfather" nonprofits that have already formed as a particular type so that they will not have to file new paperwork or amend contracts.

The bill amends 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.

It further amends 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.

The bill 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. If a committee approves the transaction, it must promptly notify the board. 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.

It amends 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 at any time.

The bill amends section 515 of the Not-for-Profit Corporation Law to clarify that individuals who may benefit. from compensation paid by the corporation cannot participate in deliberations or voting on their own compensation.

Further, the bill amends sections 605, 606, 609, 614, 621, 708, 711 of the Not-for-Profit Corporation Law to allow facsimile and 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 videoconference, 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.

The bill 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. State and local authorities, which are required by the Public Authorities Law to perform substantially similar audit oversight, will be deemed to be in compliance with this section.

The bill 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.

This bill creates a new section 715-a of the Not-for-Profit Corporation Law to require that nonprofits adopt written conflict of interest policies. It 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. Corporations that adopt conflict of interest and whistleblower policies pursuant to any other law that are substantially similar to those required will be deemed in compliance with these new sections.

It amends section 804 of the Not-for-Profit Corporation Law to require that governmental agencies be notified within 30 business days of acceptance by the Department of State of any certificate of amendment that adds, 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.

It amends section 907 and add new sections 907-a and 907-b to the Not-forProfit 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 at any time.

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, 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 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 July 1, 2014, provided that section seventy-three of this act shall take effect January 1, 2015; provided further that section seventy-two of this act and paragraph (b) of section 81.9 of the estates, powers and trusts law as added by section one hundred thirty of this act shall not be applicable until January 1, 2015 for any corporation or trust that had annual revenues of less than 10,000,000 dollars in the last fiscal year ending prior to January 1, 2014.