2012-01-10 DC Bar New Nonprofit Law

DC Bar New
Nonprofit Law
James M. Goldberg, Goldberg & Associates, PLLC

January 10, 2012

Thrive. Grow. Achieve.

DC BAR NEW NONPROFIT LAW

HOW DID WE GET TO LAW 18-378?

• 1992 - Amendments to DC Business Code
• 2007 - Informal group formed to update DC Nonprofit Corporation Act
• 2008 – DC Bar DC Affairs Section project to make DC more corporation “friendly”
• 2009 – Introduction of B18-500
• 2010 – Council hearing in March
• 2010 – Final Council passage December 21
• 2011 – Effective date July 2
• 2012 – Applicability date January 1

New Nonprofit Law/ Page 2


TITLE 29: BUSINESS ORGANIZATIONS

• 1. General Provisions.
• 2. Entity Transactions.
• 3. Business Corporations.
• 4. Nonprofit Corporations.
• 5. Professional Corporations.
• 6. General Partnerships.
• 7. Limited Partnerships.
• 8. Limited Liability Companies.
• 9. General Cooperative Associations.
• 10. Limited Cooperative Associations.
• 11. Unincorporated Nonprofit Associations.
• 12. Statutory Trusts.



CHAPTER 1. GENERAL PROVISIONS

• Generally applicable definitions
̵ Other chapters have specific rules for types of entities
• Entity filing requirements, names
• Registered Agent provisions
• Foreign Entities
• Two-year Reports



CHAPTER 2. ENTITY TRANSACTIONS

• Change of entity type or transactions between entities of different types (the so-
called “switching station”
̵ Merger

̵ Interest Exchange

̵ Conversion

̵ Domestication



NEW CONCEPTS IN LAW 18-378

• Delegates
̵ Membership corporation may provide for people elected or appointed to vote in a
representative capacity for election of directors or other matters

• Designated body
̵ Person or group other than Board committee vested with powers, which if not vested,
would be required to be exercised by Board or members




• Standards of conduct and standards of liability for directors and officers
̵ Essentially codifies common law

̵ Extensive sections on indemnification and advance of expenses

̵ New rule on taking advantage of a business opportunity




• Domestication
̵ Foreign nonprofit can become a domestic nonprofit if allowed by state of incorporation

• Commercial registered agents
̵ Individual or company can be a CRA

̵ Idea is to streamline filing




• Charitable corporations
̵ Operated primarily or exclusively for charitable purpose

̵ Must give notice of dissolution to AG

• Religious corporations
̵ A church or other whose “principal purpose is the advancement of religion”

̵ Applicability of canon law



DIRECTORS

• Must be at least three directors
• Term cannot exceed five years
• Elected by directors or members
• No requirement to hold an annual meeting
• Meetings may be held via conference call
• Quorum set in governing documents
• Proxy or ballot voting not allowed
• Separate notice not required for regular meeting



OFFICERS

• Must have two officers
̵ One responsible for organization management

̵ One responsible for financial affairs

̵ President/Chair and Secretary may be the same person

• Role of “administrative” officers
̵ Important to clarify given new fiduciary duties and indemnification provisions



COMMITTEES

• Appointment of committees to carry out responsibilities of Board
̵ Cannot delegate authority to authorize distributions, fill BoD/committee vacancies,
amend Bylaws, propose matters to be voted on by members

̵ Must be created by BoD

• Only directors may serve on such committees
̵ If non-BoD members serve, then is Advisory Committee or Designated Body



DESIGNATED BODY

• Body consisting of individuals (including non-directors) or entities that have
authority to exercise some, but not all powers of BoD or members
• If such powers are invested in designated body, BoD is relieved of legal
responsibility with respect to such powers
• Designated committee stands in lieu of BoD with regard to notice,
indemnification, etc.



MEMBERS

• Right to vote for directors, delegates, or on a “fundamental” transaction
• Designated body to the extent it has such powers
• Members have certain statutory rights
• Others can be called “members” but they do not have those rights
• Individual must consent to be a member
• Members not liable for organization debts
̵ Exception: members may be liable to creditor for amount of unpaid dues



BOOKS AND RECORDS

• Affirmative duty to maintain certain records
̵ Minutes of BoD, member, designated body meetings

̵ Appropriate accounting records

̵ Membership list

• Members can inspect and copy records with at least five days’ notice



BOOKS AND RECORDS

• Maintain at principal office

̵ 1) Articles of Incorporation

̵ (2) Bylaws

̵ (3) Minutes (3 years)

̵ (4) Communications to members generally and financial statements produced on
demand by member under §413.20 (3 years)

̵ (5) Names, business addresses of officers, directors

̵ (6) Most recent biennial report

̵ (7) IRS Form 990 (3 years)(not required by DC law, but by IRS); also Form 1023 or 1024



INSPECTION RIGHTS

• Members” may inspect and copy on five days notice
̵ Items 1-6 [§413.01(e) records]

• Also requires good faith and proper purpose described in notice
̵ Items 1-6 [§413.01(e) records]
o Older minutes

o Accounting records beyond financial statements

o Membership list (subject to §413.07 limits on commercial use; alternative procedures
possible)



OTHER ISSUES

• Charitable corporations
̵ Domestic nonprofit corporation that is operated primarily or exclusively for one or more
charitable purposes

̵ Subordinate to canon law

• Formation of nonprofit LLC’s
• New rule for income/franchise tax exemption
• Federal chartered now foreign corporations



OLD ACT” CORPORATIONS

• In existence before adoption of 1962 law
̵ 10,000+ on DCRA list

• Dartmouth College case disallows changes to corporate statute absent reserved
power of amendment 17 U.S. (4 Wheat.) 518 (1819)
̵ 1901 law did not have such reservation

• Status under Law 18-378 unclear
̵ If have elected coverage under 1962 Act, then status is clear




• “This chapter shall apply to all domestic nonprofit corporations in existence on
its effective date that were incorporated under any general statute of the District
providing for incorporation of nonprofit corporations”
̵ 29-414.01

̵ Will be fixed with reference to “except as otherwise provided in 29-107.01(b)”




• 29-107.01(b)
̵ “[An old Act corporation] that has not elected to avail itself of the provisions of [the current
code], within 2 years of the applicability date of this title, shall file a notice with the Mayor that
includes the corporation’s articles of incorporation, or other public organic record, and the
names and street and mailing addresses of its current directors and officers….”

̵ “A corporation that does not fully comply with these requirements within the specified period
[i.e., by January 1, 2014] shall thereafter be barred from asserting that it is not subject to this
title.”

̵ “If the corporation desires to do business in the District, the corporation must file articles of
incorporation with the Mayor and otherwise comply with this title (emphasis added).”




• Is filing of AoI in third sentence different from 2-year filing in first sentence?
• How does corporation that makes the 2-year filing assert that it is not governed
by the Act?
• What law governs “old Act” corporation during the first 2 years before filing is
due?
̵ 1901 law has been repealed

• When is filing in third sentence due?



TRANSITION GUIDANCE

• What should a DC-incorporated nonprofit do?
̵ Review AoI and Bylaws for compliance with new law

• What will DCRA be doing?
̵ Publication of regulations in DC Register
o Fee increase already in effect

̵ New 2-year report filing deadline
o April 1 for all (not January 15)

o Can file on-line



OPEN QUESTIONS

“Technical and Harmonizing Amendment Act”
̵ B19-352
̵ Hearing January 31
̵ Says nothing about “old Act” corporations



QUESTIONS?

JAMES M. GOLDBERG

GOLDBERG & ASSOCIATES, PLLC

1776 K STREET, N.W.

SUITE 800

WASHINGTON, DC 20006-2333

202-628-2929

JIMCOUNSEL@AOL.COM

WWW.ASSNLAW.COM


2012-01-10 DC Bar New Nonprofit Law

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Viewers also liked

Viewers also liked (6)

Similar to 2012-01-10 DC Bar New Nonprofit Law

Similar to 2012-01-10 DC Bar New Nonprofit Law (20)

More from Raffa Learning Community

More from Raffa Learning Community (20)

2012-01-10 DC Bar New Nonprofit Law