NY Nonprofit Revitalization Act of 2013

By: Gary M. Schuster, Esq.

[email protected]

The New YorkNonprofit

Revitalization Act of 2013

mailto:[email protected]

© 2014 Jacobowitz and Gubits, LLP

Biggest change since passage of the Not-for-Profit Corporation Law

1969

Previous: Membership Corporations Law 1909

Nonprofit Revitalization Act of 2013

Legislature passed it in June 2013

Signed by Governor Cuomo 12/18/13

Most of it takes effect 7/1/2014

Some is delayed until 1/1/2015



1. Make Life EasierFaster, Simpler, Less Expensive

Make NYS More Competitive

2. Increase Transparency and AccountabilityWatch the Money

Conflicts of Interest© 2014 Jacobowitz and Gubits, LLP


Two Primary Purposes


No More Typos

As of July 1, Department of State staff will be able to correct “any typographical, or similar non-material error” in papers by obtaining written authorization from the filer by fax or email


NPCL §105(a)


No More TypesNew York is the only state with "types” of nonprofits. Very troublesome, causing delays and confusion: “A” – civic, social, social, fraternal, business chambers and leagues “B” – charitable, educational, religious, scientific, cultural “C” – business purpose to achieve a public objective “D” - authorized by another New York law

Come July, there will only be “charitable” and “non-charitable”

As will become non-charitableBs and Cs will become charitable

Ds – case by case


NPCL §201

To Do: “Charitable” need not have members; consider amending bylaws


No More Activities

When forming a new non-profit, no longer necessary to specifically describe planned activities

Sufficient to state the tax-exempt purposes Shorter papers, less opportunity for rejection


NPCL §402(a)(2)


No More RegentsNow, any new corporation that might be chartered by the NYS Board of Regents must obtain their consent. Covers any entity planning to "educate," "teach" or have "classes.” Very burdensome.

Come July 1st only corporations with these purposes must obtain such approval:

Schools Colleges UniversitiesLibraries Historical Societies Museums

Other corporations that might be chartered will only need to send a certified copy of their certificate of incorporation.

Same as to changes of purpose, mergers, consolidations, dissolutions.


NPCL §404(d)To Do: Determine what you are.


Less Paper

Notices of member and board meetings can be sent by fax, email or other electronic means. NPCL §605(a), 711.

Unanimous votes can be electronic. NPCL §708(b).

Meetings can be held by video conference (Skype). NPCL §708(c).

Annual financial reports and other mandatory filings can be submitted electronically. Exec. Law §177, EPTL §8-1.4


To Do: Review/amend bylaws to permit the above.


Changes to CommitteesDistinction between Standing and Special committees is eliminated.

Now there are “Board committees” and “Corporation committees.”

“Board committees” are composed only of directors, at least 3. They have power to bind the corporation if so authorized. Certain actions prohibited.

“Corporation committees” may be created by the Board or by the members, and may have anyone as members. They never have power to bind the corporation.

Committee members are treated as officers for purposes of conflict of interest, related party transactions, and so on.


NPCL §712

To Do: Review/amend bylaws to comply.


Easier Real Property VotesNow, a 2/3 vote of the “entire board” is required to

purchase, sell, lease, exchange or mortgage real property. Come July:

Not All or Substantially All

All or Substantially All Assets

Majority vote of Board or an authorized committee of the Board

Board < 21: 2/3 of entire Board

Board of 21 or more: Majority of entire Board


NPCL §509(a), (b)

To Do: Review/amend bylaws to comply.


The "Entire" BoardNew definition:

The total number of directors entitled to vote which the corporation would have if there were no vacancies.

If the bylaws provide that the board shall consist of a fixed number of directors, then the "entire board" shall consist of that number of directors.

If the bylaws provide that the board may consist of a range between a minimum and maximum number of directors, then the "entire board" shall consist of the number of directors within such range that were elected as of the most recently held election of directors.


NPCL §102(6-a)To Do: Review/amend bylaws to comply.


More Privacy

Nonprofits no longer have to disclose

the residence addresses of directors and officers.


NPCL §718


Less Court

Court approval is now required for dissolutions, mergers and substantial sales of assets.

Come July, only approval from the Attorney General will be required.

Court is still available if there is a dispute or the desire for an extra level of approval.


NPCL §907, 907-a, 907-b; 1001, 1002, 1002-a, 1003, 1007


Easier Mergers

Relaxed rules for mergers of

religious corporations and

educational corporations


RCL §208, 209; Educ. Law §216-a, 223


Less AuditingAll nonprofits formed, operating or soliciting in NY must register and

file annual financial statements with the Attorney General. In addition:

Today 7/1/14 7/1/17 7/1/21

No Review or Audit

< $100,000 < $250,000 < $250,000 < $250,000

Review by CPA

$100K - $250K

$250K - $500K

$250K - $750K

$250K - $1 M

Full Audit >$250,000 >$500,000 >$750,000 + > $1 M


Executive Law §172-b

Attorney General has power to require audit of anyone.


But More to Do With the Audit


The Board, or an Audit Committee of the Board, must

1. Engage or renew the auditor2. Review audit results and management letter with the auditor (and presumably address any deficiencies), and3. Oversee adoption and compliance with Conflict of Interest and Whistleblower policies

NPCL §712-a


Audit Committee


A separate Audit Committee is not required.

If there is no separate Audit Committee, the Board must perform the required functions.

An Audit Committee must be a Board Committee and must be composed only of Independent Directors.

NPCL §712-a


Independent Directors


• Is not and has not within 3 years been employed by the nonprofit

• Is not related to a key employee of the nonprofit

• Has not received more than $10,000 in compensation from the nonprofit, and is not related a person who has

• Is not an employee or principal of an entity doing business with the nonprofit exceeding the lesser of $25,000 or 2% of gross revenue

NPCL §102(21)

To Do: Review current bylaws, procedures.


$ 1 Million Nonprofits


• Prior to audit, review with auditor the scope and planning

of audit

• After audit, discuss with auditor

1. Any weaknesses in internal controls

2. Restriction on auditors activities or access to

information

3. Significant disagreements between auditor and

management

4. Adequacy of accounting and financial reporting

processes

• Every year, review performance and independence of

auditor

NPCL §712-aEffective Date 1/1/15


Conflict of Interest PolicyEvery nonprofit must adopt one having at least these

provisions:


NPCL §715(a)

1. Define Conflict of Interest

2. Establish procedure for disclosing Conflict of Interest to audit committee or Board if none

3. Prohibit person with alleged Conflict of Interest from attending deliberations or voting on conflict

4. Prohibit person with alleged conflict from attempting to influence deliberation or voting

5. Require documenting the existence and resolution of the conflict

6. Establish procedure for disclosing, dealing with and documenting Related Party Transactions

7. Require written Conflict of Interest statements before a director is elected and then annually

To Do: Adopt or amend conflict of interest policy.


Whistleblower Policy

Mandatory for nonprofits with

1. 20 or more employees, and

2. More than $1 million annual revenue

Nonprofits already having policies in compliance with other federal, state or local laws may be deemed in

compliance.


NPCL §715-b

To Do: Adopt or amend whistleblower policy.


Related Party Transactions


NPCL §715(a)

No corporation shall enter into any related party transaction unless the transaction is determined by the board to be fair, reasonable and in the corporation's best interest at the time of such determination.

Any director, officer or key employee who has an interest in a related party transaction shall disclose … the material facts concerning such interest.




NPCL §102(24)

“Related party transaction" means any transaction,

agreement or any other arrangement in which a related

party has a financial interest and in which the

corporation or any affiliate of the corporation is a

participant.


Related Party"Related party" means

1. Any director, officer or key employee of the corporation or any affiliate of the corporation;

2. Any relative of any director, officer or key employee of the corporation or any affiliate of the corporation; or

3. Any entity in which any individual described in (1) and (2) above has a 35% or greater interest or, in the case of a partnership or professional corporation, a direct or indirect ownership interest in excess of 5%.


NPCL §102(23)


“Relative”


NPCL §102(22)

Spouse

Ancestors

Siblings (whether whole or half blood)

Children (whether natural or adopted)

Grandchildren and great-grandchildren

Spouses of siblings, children, grandchildren, and great-grandchildren

Domestic partner


“Key Employee”


NPCL §102(25)

Any person who is in a position to exercise substantial influence over the affairs of the corporation.

About the same as the IRS definition.

To Do: Adopt or amend bylaws or policy to comply.



Involving Charitable Corporations


NPCL §715(b)

Prior to entering into the transaction, the Board shall

1. Consider alternative transactions to the extent available;

2. Approve the transaction by majority vote; and

3. Include in the meeting minutes the basis for the board's approval, including consideration of alternatives.

To Do: Adopt or amend bylaws to comply.


No More Employee-Chairs

The Board may elect a Chair or President or both. NPCL §713(a).

No employee may serve as Chair/President by whatever title.

NPCL §713(e).

Effective Date 1/1/15


To Do: Modify current practice if necessary.


No More Voting on Your Own

CompensationPeople who may be paid by the nonprofit can no longer participate in the deliberations or votes on such compensation. They can make a presentation but must then leave.


NPCL §515(b)

To Do: Adopt or amend bylaws or policy to comply.

NYS Attorney General’s website

www.charitiesnys.com

New York Council of Nonprofits (NYCON)

www.nycon.org



Further Information


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1. Piggyback on County’s contracts with its Vendors

High Volume Low Prices

FurnitureOffice Supplies

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Cell PhonesUniforms

And much more… Ask for what you want



2. County uses procurement card of PFM Bank

No interest or penaltiesDiscount for early payment

Dispute chargesAnnual rebates up to 3.5%

More spending bigger rebateRebates apportioned pro-rata based on spending



Who is Eligible?

501(c)(3) nonprofits501(c)(6) nonprofits

Other nonprofits should ask about eligibility

Governmental units: Towns, villages, fire, police, schools, EMT, etc.



Contact:

James BurpoeOrange County Commissioner of General

Services

[email protected]

(845) 291-2792

158 Orange AvenueWalden, New York 12586

(845) 778-2121

Gary M. Schuster, Esq.

[email protected]


NY Nonprofit Revitalization Act of 2013

Education

Transcript of NY Nonprofit Revitalization Act of 2013