The document outlines significant amendments to the Michigan Nonprofit Corporation Act effective January 15, 2015, affecting trade associations, with changes to voting procedures, management structures, and liability of directors. Key amendments include the introduction of ballot voting, adjustments to quorum requirements, and provisions for indemnification of directors. Nonprofit corporations are advised to consult legal counsel to understand the implications of these changes.

1. A Summary of the Changes to the
Michigan Nonprofit Corporation Act
that Affect Trade Associations
by Edward J. Castellani, J.D., C.P.A.

2. Effective January 15, 2015, Governor Snyder signed into
law Senate Bills 623, 624 and 929. These three Bills
amend the Michigan Nonprofit Corporation Act (the "Act")
which is the law under which most trade associations
operate. Some of the amendments described below will
require action by management to amend bylaws or articles
of incorporation, but most will not.

3. Amendments were made to approximately 200
sections of the Act. Today we will review some, but
not all, of the important amendments to the Act.
There may be changes to the Act that affect your
organization not summarized below.

4. Four legal sources that govern Michigan nonprofit
corporation associations:
1. Bylaws,
2. Federal Law,
3. Michigan Nonprofit Corporation Act, and
4. Case law.

5. 1. Amendments to the Act that affect notice of meetings,
procedure and voting at shareholder, member and director
meetings:
a) Provide that for a nonprofit corporation organized on a directorship basis, a
director may give a proxy to another person to vote for directors, unless the
articles of incorporation or bylaws provide otherwise.
b) Provide that a nonprofit corporation must have an annual member or shareholder
meeting to elect directors and conduct other business, unless the members act by
written consent or vote for directors by ballot, as explained below.
c) Introduce a new concept known as ballot voting under which shareholders and
members can vote by ballot for directors or other matters without a meeting, if
allowed by the articles of incorporation or bylaws.

6. d) Clarify that for a nonprofit corporation that is organized on a directorship
basis that has members, the members are not entitled to vote on any
matter, including any action to limit their rights as members.
e) Provide that a notice of shareholder or member meeting must include
notice of any proposal a shareholder or member intends to propose if it is
known to the corporation.
f) Provide that a shareholder or member's attendance at a meeting waives
the notice requirement for a proposal that is not described in the notice.

7. g) Allows a nonprofit corporation to hold a shareholder or member meeting
without notice or with the notice in the bylaws, if the meeting does not
involve election of directors or other action involving control or governance
of the corporation.
h) Provide that at each meeting of shareholders and members a chair shall be
appointed as provided in the bylaws or appointed by the directors. The
chair shall preside at the meeting and shall determine the order of business
and establish rules for the meeting.

8. i) Provides that a shareholder or member may give their proxy to authorize another person
to vote for them for election of director. Proxy may be given by a signed writing or
electronically.
j) Provide that unless provided otherwise in the articles of incorporation, abstaining from a
vote is not considered a vote cast or counted as a vote.
k) Allow articles of incorporation to allow cumulative voting in which a person voting for
directors may cumulate their votes by giving one candidate as many votes as the
number of director to be elected multiplied by the number of votes held by the person, or
by distributing the votes on the same principle among any number of the candidates.

9. 2. Amendments to the Act that affect management of the
corporation
a) Provide that unless the articles of incorporation or bylaws provide
otherwise, the majority of the board shall constitute a quorum unless
the board provides for a larger or smaller number to constitute a
quorum. However, a quorum may not be less than one-third of the
members of the board.
b) Provide that a corporation must distribute to its shareholders and
members, or to directors if organized on a directorship basis, its
income statement, year-end balance sheet and statement of source
and application of funds.

10. c) Unless otherwise provided in the articles or bylaws, the Board
resolution appointing a committee must include the purpose of the
committee, the term and qualification of committee members, and the
members in which committee members are appointed and removed
committee members do not have to be members, officers or directors.
This type of committee is not an executive committee and does not
have the authority of the board of directors.
d) A committee that is designated as an executive committee by the
board, or in bylaws or articles of incorporation, may exercise all of the
authority of the board.

11. e) Allow a nonprofit corporation to provide in its articles of incorporation that
one or more members, shareholders, or other persons have the right to
manage the business and affairs of the corporation which is otherwise
reserved to the board of directors and officers.

12. f) Allow the shareholders, members or directors of a nonprofit corporation to
enter into an agreement that restricts the discretion of the board of directors,
governs the making of distributions to shareholders or members, establishes
who shall be officers and directors, governs the exercise or division of voting
rights by the shareholders, members and directors, transfers to one or
shareholders, members or other persons all or part of the authority to
manage the business and affairs of the corporation including resolution of
deadlock, or it otherwise governs the exercise of the corporate powers or the
management of the business.

13. g) Provide that a nonprofit corporation may not make distribution to members
or shareholders if after the distribution it would not be able to pay its debts
as they become due or its assets would be less than its liabilities, unless the
articles of incorporation provide otherwise. Directors who approve
distributions in violation of this rule expose themselves to personal liability
for the corporation's liabilities.

14.
3. Amendments to the Act that affect director, shareholder and
member rights:
a) Provide that a member or shareholder of a corporation organized on a membership basis
may inspect, for any proper purpose, certain books and records of the corporation, like
shareholders in a profit corporation. Notwithstanding this provision, the articles of
incorporation, bylaw or a board resolution may provide that the shareholders and
members do not have the right to inspect certain records if the shareholders, members or
directors that approved the limitation make a good faith determination that:
i. Allowing inspection of certain records would impair the rights or privacy of the
shareholders or members.
ii. Allowing inspection of certain records would impair the lawful purposes of the corporation.
iii. Opening list of donors or donations for inspection is not in the best interest of the
corporation or the donors.

15. A corporation that limits inspection of lists of its shareholders and
members, as provided above, shall provide a reasonable way for
shareholders or members to communicate with all other
shareholders or members concerning the election of directors and
other affairs of the corporation.

16. b) Provide that a director may examine certain books and records for a purpose reasonably
related to his or her position as a director.
c) Allow a director of a corporation organized on a directorship basis, a shareholder of a
corporation organized on a stock basis and a member of a corporation organized on a
membership basis to bring an action in court to establish that the acts of the directors,
shareholders or members are illegal, fraudulent, or willfully unfair and oppressive to the
corporation, the director, shareholder or member.

17. d) Allows a court to award damages to a member or purchaser or the
shareholder or member interest.
e) Allow a corporation to provide for shareholder preemptive rights in its articles
of incorporation. Preemptive right allows shareholders to purchase
additional shares of the corporation when new shares are issued.

18. 4. Amendments to the Act that affect liability of the corporation
and its directors, shareholders and members:
a) Allow a nonprofit corporation to eliminate a director's or volunteer's liability
to the corporation, its members or its shareholders for any action taken or
failure to take action as a director or volunteer officer subject to certain
exceptions. Prior law had allowed the limit of liability only for a breach of the
director or officer's duty of loyalty. Recent changes remove exception for
directors gross negligence and remove the requirement that the director
must be a volunteer.

19. b) Nonprofit corporations that have language in their articles of incorporation to eliminate
the liability of directors will not have to amend their articles of incorporation to adopt
these changes.
c) Provide that in legal action commenced by a ten percent or more shareholder or by ten
percent of the members, a director may be removed from office if the director was
involved in fraudulent, illegal, or dishonest conduct or gross abuse of authority or
discretion and removal is in the best interest of the corporation.

20. d) Provide that a transaction in which a director or officer is determined to have an interest
shall not be set aside or give rise to damages if the director or officer establishes that the
transaction was fair to the corporation, the material facts and the interest of the director
or member were disclosed or known to the board, and the material facts and the interest
of the director or officer were disclosed or known to the shareholders or members entitled
to vote.
e) Provide that a shareholder or member who receives a dividend or distribution with
knowledge of facts that it is contrary to the Nonprofit Corporation Act, the articles of
incorporation or bylaws, is liable to the corporation for the amount received in excess of
the amount the corporation could lawfully distribute.

21. f) Clarify and expand the indemnification law and procedure for approving and making
indemnification payments. The new law provides that a nonprofit corporation may make
indemnification in advance of final disposition of a proceeding if the person furnishes the
corporation a written agreement to repay the advance if it is determined that the person
did not meet the standard of conduct required by the law. The new law also contains
language on how indemnification payments are authorized and provides that if the
corporation has amended its articles of incorporation to eliminate the liability of a director
a corporation may indemnify a director without a determination that the director has met
the standard of conduct, subject to certain exceptions.

22. 5. Other Amendments to the Act:
a) Provide that any charitable purpose organization must notify and obtain the written
consent of the Attorney General's Office prior to any merger or dissolution, or certain
amendments or restatement of its articles of incorporation.
b) Merger of a nonprofit corporation with more than 20 members or shareholders may be
approved by a majority of members present at the meeting.
c) Require that the board of directors of a nonprofit Michigan corporation consist of three or
more directors, unless the corporation is a private foundation or a corporation formed to
provide care to dentally underserved population which may have one or more directors.

23. d) Allow two nonprofit corporations that participate in a partnership or joint venture to use
the same name if they both consent to the use.
e) Allow a nonprofit corporation to issue shares that are convertible into bonds or
redeemable by the corporation.
f) Allow for the electronic mailing by the State of Michigan to the resident agent of a
corporation of notice of pending dissolution for failure to file annual report for two years.
g) Provide that the State of Michigan shall waive the filing fee for the initial articles of
incorporation for individuals who served in the armed forces and were honorably
discharged.

24. This article is a brief summary of an extensive amendment
to the Act. Nonprofit corporations should contact legal
counsel regarding any provisions of the new law and how it
may affect their organization.

25. Edward J. Castellani J.D., C.P.A. is an attorney who represents trade
associations, educational and charitable organizations, foundations
and other nonprofit organizations. He may be contacted at 517-
377-0845 or ecast@fraserlawfirm.com.