NY Nonprofit Revitalization Act of 2013

By: Gary M. Schuster, Esq.

gms@jacobowitz.com

Nonprofit Revitalization Act of 2013

Biggest change since passage of the
Not-for-Profit Corporation Law
1969
Previous: Membership Corporations Law
1909
© 2014 Jacobowitz and Gubits, LLP


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 Easier
Faster, Simpler, Less Expensive
Make NYS More Competitive

2. Increase Transparency and Accountability
Watch the Money
Conflicts of Interest


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


NPCL §105(a)


New 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-charitable
Bs and Cs will become charitable
Ds – case by case
To Do: “Charitable” need not have members; consider amending bylaws

NPCL §201


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)


Now, 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
Universities
Libraries
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.

To Do: Determine what you are.

NPCL §404(d)


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.


Distinction 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.
To Do: Review/amend bylaws to comply.

NPCL §712


Now, 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)


New 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)


Nonprofits no longer have to disclose

the residence addresses of directors and officers.


NPCL §718


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


Relaxed rules for mergers of

religious corporations and
educational corporations
RCL §208, 209; Educ. Law §216-a, 223


All 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

< $100,000

< $250,000

< $250,000

< $250,000

$100K - $250K

$250K - $500K

$250K - $750K

$250K - $1 M

>$250,000

>$500,000

>$750,000 +

> $1 M

No Review or
Audit

Review by CPA
Full Audit

Attorney General has power to require audit of anyone.

Executive Law §172-b


The Board, or an Audit Committee of the Board, must
1. Engage or renew the auditor
2. Review audit results and management letter with the
auditor (and presumably address any deficiencies), and
3. Oversee adoption and compliance with Conflict of Interest
and Whistleblower policies


NPCL §712-a


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


• 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
To Do: Review current bylaws, procedures.

NPCL §102(21)


• 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
Effective Date 1/1/15

NPCL §712-a


Every nonprofit must adopt one having at least these provisions:
1. Define Conflict of Interest
2. Establish procedure for disclosing
Conflict of Interest to audit
committee or Board if none

5. Require documenting the existence
and resolution of the conflict
6. Establish procedure for disclosing,
dealing with and documenting
Related Party Transactions

3. Prohibit person with alleged Conflict
of Interest from attending
7. Require written Conflict of Interest
deliberations or voting on conflict
statements before a director is
elected and then annually
4. Prohibit person with alleged conflict
from attempting to influence
deliberation or voting

To Do: Adopt or amend conflict of interest policy.

NPCL §715(a)


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.

To Do: Adopt or amend whistleblower policy.

NPCL §715-b


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 §715(a)


“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.


NPCL §102(24)


"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)


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

NPCL §102(22)


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.

NPCL §102(25)


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.

NPCL §715(b)


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.


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

NPCL §515(b)


NYS Attorney General’s website

www.charitiesnys.com
New York Council of Nonprofits (NYCON)

www.nycon.org


1. Piggyback on County’s contracts with its Vendors
High Volume  Low Prices
Furniture
Office Supplies
Office Equipment
Equipment Leases
Cell Phones
Uniforms
And much more… Ask for what you want

2. County uses procurement card of PFM Bank
No interest or penalties
Discount for early payment
Dispute charges
Annual rebates up to 3.5%
More spending  bigger rebate
Rebates apportioned pro-rata based on spending


Who is Eligible?
501(c)(3) nonprofits
501(c)(6) nonprofits
Other nonprofits should ask about eligibility

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


Save Money in Orange County

Contact:
James Burpoe
Orange County Commissioner of General Services
jburpoe@orangecountygov.com
(845) 291-2792


158 Orange Avenue
Walden, New York 12586
(845) 778-2121

Gary M. Schuster, Esq.
gms@jacobowitz.com


NY Nonprofit Revitalization Act of 2013

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