Recent Updates to New York's Not-for-Profit Corporation Law

On December 11, 2015, Governor Cuomo signed legislation amending New York’s Not-for-Profit Corporation Law. The amendment include updates the law to correct ambiguous terms,  revises specific elements of the law so they are clear to non-profit organizations, and makes the law more consistent with the original intent of the New York State Legislature.

Updated Definitions

The term “related party” as used in the statute is expanded to 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.”

The term “affiliate” now excludes an entity under common control with the non-profit corporation or charitable trust. “Affiliate” now means organizations that are actually controlled by or in control of the non-profit corporation or charitable trust. The result is that fewer transactions will qualify as related party transactions, especially in a hospital, university, or corporate foundation setting.

The term “independent director” has been expanded to include a director or a director with a relative who is a current owner, director, officer or employee of an organization that conducts the corporation’s annual audit or has conducted the corporation’s audit in the past three years. This provision further ensures the annual non-profit audit procedure is truly independent.

The term “entire board” has been further clarified to allow the non-profit board to internally define what constitutes the “entire board” by setting forth a range of numbers in the by-laws and having the majority of the board vote on a specific number within the range. If the “entire board” has not been set by board action, then the default is the number of directors who were elected or appointed at the last annual meeting plus any directors with unexpired terms.

Conflict of Interest Provisions Explained

The amendments clarify that if a director cannot participate in a vote due to a related party transaction or a conflict of interest, the director is still considered “present” at the meeting for quorum purposes. This has the practical effect of his vote being counted as a “no”. Additionally, if a director is prohibited from voting on a matter, said director can still present information or answer questions at a meeting prior to the vote. Directors may now give their annual conflict of interest disclosure statements to either the secretary or a designated compliance officer.

The amendments also clear up confusion over whether directors could participate in compensation decisions. Directors may participate in decisions regarding their own compensation as long as the terms of the compensation are the same for all directors.

Whistleblower Policy Posting

The amendments provided guidance on how to comply with the requirement that a non-profit provide its whistleblower policy to volunteers and employees. To comply, a non-profit can post its whistleblower policy on its website or at its office, where it will be visible and accessible to employees and volunteers.

Religious Corporations Now Included

The amendments eliminate the requirement that religious corporations may only receive approval from the New York Supreme Court before selling, obtaining a mortgage or leasing real property. Religious corporations (like non-profit corporations) now have the ability to simply seek approval from the Attorney General. As a general rule of thumb, Attorney General approval is quicker and more cost effective than going through the New York Supreme Court.

Prohibition of Employee Serving as Chair or President Delayed

The amendment delayed the effective date, from January 1, 2016 to January 1, 2017, for the prohibition of a non-profit employee serving as Chair of the Board, President or CEO of the organization. Employees of non-profits (usually with title of Executive Director or something similar) may continue to serve as Chair of the Board, President, or CEO until that date.

Article written by Ryan M. Mead, Esq. and Alexandra N. Sullivan, Esq. If you would like additional literature, guidance on steps you can take to comply with the new law, or are interested in a meeting to discuss the law, please contact attorney Ryan M. Mead at (607) 231-6928 or via email at rmead@hhk.com, attorney Jeremy P. Sedelmeyer at (607) 231-6854 or via email at jsedelmeyer@hhk.com, or attorney Alexandra N. Sullivan at
(607) 231-6753 or via email at asullivan@hhk.com.

 

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