Nonprofit Alert – Updates for New York Not-for-Profit Corporation Law
On December 11, 2015, legislation was signed by Governor Andrew Cuomo that amended the New York Not-for-Profit Corporation Law. The purpose of this legislation is to clarify certain provisions of the New York Non-Profit Revitalization Act of 2013, as well as remove some of the obstacles to implementation. While most of these changes should achieve these goals, as some of the following key highlights will show, the amendment may result in increased administrative burdens for not-for-profit organizations (“NFP’s”).
Clarification of Definitions
“Independent Director”- The amendment broadened the definition of a director that is deemed not to be independent, as it also includes a director who is, or has a relative who is a current owner, director, officer or employee of the corporation’s outside auditor, or who has worked on the corporation’s audit at any time during the past three years. This will make it even more difficult to find directors who are independent, and therefore, able to serve on an NFP’s audit committee.
“Related Party”- The original Act of 2013 emphasized the need for NFP’s to look very closely at any transactions involving related parties. The amendment expands the types of individuals that meet the criteria of a related party to now include “any other person who exercises the powers of directors, officers, or key employees over the affairs of the corporation or any affiliate of the corporation.” NFP’s will have to be even more cautious, and look more closely at transactions they enter into with individuals that may fit into the expanded criteria.
“Affiliate”- One change that may actually reduce administrative burdens on NFP’s is the exclusion from the definition of “affiliate” entities that are under common control with the organization (common parent). Therefore, affiliates are only entities that are under the control of the subject organization. Consequently, this should reduce the number of entities that are considered affiliates, meaning fewer individuals that could possibly be considered related parties, and fewer directors who may be deemed to be not independent.
Clarification of Provisions
- A director who is present at a meeting, but who has recused himself or herself from a vote due to a conflict of interest, or a related party interest, will still be considered present for purposes of determining a quorum.
- Non-directors may serve on committees of the NFP.
- While only independent directors may participate in board or committee deliberation, or voting relating to audit oversight, there is no prohibition against the board or committee requesting that a person with an interest present information as background, or answer questions at a meeting prior to the commencement of such deliberations or voting.
- A related party may present information as background, or answer questions at a meeting prior to the commencement of deliberations, or voting relating to a related party transaction.
- A person with a conflict of interest may present information as background, or answer questions at a meeting prior to the commencement of deliberations, or voting relating to a conflict of interest transaction.
- Regarding distribution of an NFP’s Whistleblower Policy, one of the ways that an organization may comply with this requirement is to post it on its website, or at its offices in a conspicuous location accessible by employees and volunteers.
- The provision that prohibits an employee from serving as Chair of the Board of Directors of a not-for-profit corporation, has been delayed until January 1, 2017.
If an organization has already adopted policies and documents that were updated due to the 2013 Act, the 2015 amendment to clarify its provisions should not necessarily cause the NFP to make any changes. However, due to the updated definitions discussed above, organizations would be advised to ensure the use of these terms are reflected accordingly.
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