NY Revitalization Act.pdf

8/20/2019 NY Revitalization Act.pdf

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NY Nonprofit Revitalization Act:

Recent Developments and Compliance Strategies

July 30, 2015

Laura Abel, Senior Policy CounselLawyers Alliance for New York

(212) 219-1800 ext. 283, [email protected]

Karin Kunstler Goldman, Deputy Bureau Chief

Charities Bureau, New York Office of the Attorney General


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Overview

• New York State Nonprofit Revitalization Act (NPRA) went into effect July 1, 2014. – first meaningful revision of the New York Not-for-Profit

Corporation Law (NPCL) in over 40 years. – simplifies certain nonprofit transactions

– reduces some regulatory burdens on smallernonprofits

– imposes new governance obligations onorganizations incorporated and operating in New YorkState


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Multiple Sources of Law & Guidance

• NPRA, Ch. 549 of the NY Laws of 2013 – codified in the NPCL, Religious Corporations Law,

Estates, Powers & Trusts Law etc.

• Bills awaiting Governor’s signature – S.5868A: makes various small changes

– A.7641: extends effective date of ban on employeeas board chair

– S.5870: makes technical changes

• Attorney General guidance – http://www.charitiesnys.com/nonprofit_rev_act_guidance.jsp

http://www.charitiesnys.com/nonprofit_rev_act_guidance.jsphttp://www.charitiesnys.com/nonprofit_rev_act_guidance.jsp


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Formation, Merger,

Dissolution


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Types of New York NFPC

Two types1. Charitable (more highly regulated)

– A corporation formed for both charitable and non-charitablepurposes will be deemed charitable. NPCL § 201(b).

2. Non-Charitable (less highly regulated)

Corporations formed before July 1, 2014 are automaticallyreclassified:

– Type A corporations are non-charitable.

– Type B or C are charitable. – Type D are charitable if they were formed for charitablepurposes and non-charitable if they were not.

NPCL § 201.


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Type C and Membership Structure

• Type C’s:

– formed for any lawful business purpose to achieve alawful public or quasi-public objective.

– now deemed “charitable corporations.” – were required to have members.

• Requirement of membership is eliminated.

– Consider whether a former Type C corporation should

continue to have members.

– Organizations may require legal assistance to convertfrom membership to non-membership structure.

NPCL § 601(a).


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Incorporation

• Certificate of Incorporation’s purposes clauseneed only state whether nonprofit is formed forcharitable or non-charitable purposes, but caninclude more detailed purposes and/or activities.

NPCL § 402(a)(2) • Prior consent of the Department of Education is

no longer necessary for many organizations.

• But must send notice within 30 days of filingwith the Department of State.

NPCL § 404(d).


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Other Major Life Actions

Consent of Charities Bureau is now sufficient formany major corporate actions; court approval isnot required but is still an option (and the AG mayrequire it)

• Disposition of all or substantially all assets – NPCL § 511-a.

• Mergers & consolidations – NPCL § 907-b.

• First step of an asset dissolution – NPCL §1002(d).


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Governance Procedures


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Real Property Transactions

• Previously, a 2/3 board vote was required for ALL real property transactions.

• Under the NPRA:

– Majority of directors present (or a majority of anauthorized committee) may now authorize purchase,sale, mortgage, lease, exchange or other dispositionof real property.

– But if the property would constitute all or substantially

all of the corporation’s assets, the transaction stillmust be authorized by 2/3 of the entire board (or amajority if there are 21 or more directors).

NPCL § 509.


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Notice of Meetings

• Notice of a meeting of directors ormembers may now be sent by fax or e-mail.

– If notice of a meeting of members is providedby publication, the corporation must also postnotice of the meeting on its website.

• Waiver of notice of a meeting of directorsor members may now be written orelectronic.

NPCL § § 605, 606, 711.


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Proxy Votes by Members

• A member may now use e-mail toauthorize another person to act as aproxy. NPCL § 609(b)(2).

– Telegram and cablegram are no longerallowed.

• Reminder: Under NPCL, nonprofit

directors cannot vote by proxy.


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Videoconference

• Board members may participate in ameeting via video conference, unlessotherwise restricted in the certificate of

incorporation or bylaws.

• Remote participants count towardsquorum requirement.

NPCL § 708


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Unanimous Written Consent

• Enables boards and members to takeaction without a meeting.

• All sitting directors or members mustprovide consent for the board to act.

• Change: unanimous written consent cannow be evidenced by email.

NPCL § 708(b).


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Committees of the Board

• Distinction between special and standing committees iseliminated.

• Committee of the board can bind the corporation.

– All members of the committee must be boardmembers.

– Must have at least three members.

– Need majority of entire board to form & appoint

members to such committees.• Any other committee is a committee of the corporation

and lacks the authority to bind the corporation.

NPCL § 712.


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Audit Committee

Corporations required to file an independent CPA’saudit report with the NY Attorney General (i.e.registered to solicit & revenue $500k+):

• the board, or a designated audit committee comprisedsolely of independent directors, must: – oversee the corporation’s accounting and financial reporting

processes and audit,

– retain or renew the relationship with the auditor, & – review the results and any related management letter with the

auditor.

NPCL § 712-a(a).


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Larger Corps: Audit Committees

Any registered organization that had in the prior year, orexpects to have in the current year, annual revenue over$1 million, has additional duties:

– before the audit, review the scope and planning of the

audit with the auditor – after the audit, review and discuss additional items

with the auditor

– annually consider the auditor’s performance and

independence – report on the audit committee’s activities to the board(if these duties are performed by an audit committeeinstead of the full board)

NPCL § 712-a(b)


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Independent Director An “independent director” is an individual who within thelast three years has not:

(i) been an employee of the corporation or an affiliate;

(ii) received more than $10,000 in compensation from thecorporation or an affiliate; and

(iii) been a current employee of, or does not have a substantialfinancial interest in, an entity that has made payments to or

received payments from the corporation or an affiliate, whichexceed the lesser of $25,000 or 2% of such entity’sconsolidated gross revenues. Charitable donations do notcount as “payments.”

NPCL § 102(a)(21)


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Extends to Relatives• “Independent director” is an individual whose relative within

the last three years has not:

(i) been a key employee of the corporation or an affiliate;

(ii) received more than $10,000 in compensation from thecorporation or an affiliate; and

(iii) been a current officer of, or does not have a substantialfinancial interest in, an entity that has made payments toor received payments from the corporation or anaffiliate, which exceeds the lesser of $25,000 or 2% ofsuch entity’s consolidated gross revenues. Charitabledonations do not count as “payments.”

• “Relative” of an individual = spouse, domestic partner,ancestors, siblings (whether whole or half blood), children(whether natural or adopted), grandchildren, great-grandchildren and spouses of siblings, grandchildren andgreat-grandchildren.

NPCL § § 102(a)(21), (22)


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Importance of Independent

Directors

• Oversee audit and relationship withauditors

• Oversee adoption and implementation of,and compliance with:

– Conflicts of Interest Policy

– Whistleblower PolicyNPCL § 712-a


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New Definition of “Entire Board”

• Entire board = total number of directorsentitled to vote if there were no vacancies.

– If the bylaws provide for a fixed number of

directors, that number shall be the entireboard.

– If the bylaws provide for a range of directors,

the entire board shall be the number ofdirectors that were elected as of the mostrecent elections.

NPCL § 102(a)(6-a)


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Entire Board: Implications

• Quorum requirements are based on the entireboard (NPCL § 707)

• Committees of the board must be created andpopulated with members selected by the entireboard (NPCL § 712(a))

• Sales of all or substantially all of corporate

assets must be approved by 2/3 of the entireboard (NPCL § 510(a)(2))


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Related Party Transactions

Conflicts of Interest PolicyWhistleblower Policy


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• A Related Party is:

– Director, Officer, or Key Employee of the corporationor an affiliate;

– Relative of any of the above; or

– Entity in which any of the individuals described above

has at least 35% ownership interest (5% forpartnership or professional corporation)

NPCL § 102(a)(23)


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A Related Party Transaction is a transaction or agreementin which:

– a Related Party has a financial interest &

– the corporation or an affiliate is a party (NPCL §102(a)(24)


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Limitations on RPT

• A corporation may not enter into anyrelated party transaction unless the boardhas determined that the transaction is

– fair, – reasonable &

– in the corporation’s best interests.

• Any director, officer or key employee withan interest in a related party transactionmust disclose the material facts.

NPCL § 715(a)


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Board Review of RPT

If a related party has a substantial financial interest in atransaction, the board or an authorized committee shall:

– consider alternative transactions to the extentavailable before entering into the transaction,

– approve the transaction by at least a majority voteof the directors or committee members present, &

– contemporaneously document in writing the basisfor approval.

NPCL § 715(b)


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Conduct of Meeting

• A related party may not participate indeliberations or voting regarding a relatedparty transaction.

• The board or a committee may requestthat a related party be present to provideinformation before the deliberations or

voting begin.NPCL § 715(g).


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Conflict of Interest Policy Required

Every corporation shall adopt a conflict of interestpolicy.

• A related party transaction is a type of conflict, but theremay be others, too.

• Organizations with existing conflict policies must reviewthem for compliance with NPRA.

• Organizations are deemed in compliance if they haveadopted a conflict of interest policy that is

– required by federal, state or local laws &

– substantially consistent with the conflict of interestpolicy required by the NPCL.

NPCL § 715-a.


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Policy Must Contain...

• Definition of conflict of interest: related party transactions& what else?

• Procedure to disclose conflict to audit committee orboard.

• Requirement that person with a conflict not be present ator participate in deliberations/vote on the matter.

• Prohibition against an attempt by the person with aconflict to improperly influence the deliberations/vote on

the matter.• Requirement that the existence and resolution of the

conflict be documented, including in the minutes of anymeeting at which the conflict was discussed/voted on.

NPCL § 715-a(b).


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Policy Must Contain... (cont’d)

• Procedures for identifying, disclosing, addressing, anddocumenting related party transactions.

• A requirement that before a director is initially elected,and annually thereafter, the director must complete, sign

and submit to the board secretary a written statementidentifying:

– any entity of which the director is an officer, director, trustee,member, owner, or employee, and

– any transaction in which the corporation is a participant and in

which the director might have a conflicting interest. – The secretary must provide all statements to the audit committee

chair or board chair.

NPCL § 715-a(b), (c)


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Compensation of Member, Director

or Officer

• A member, director or officer who may benefit fromcompensation from the corporation may not be presentat or participate in any board or committee deliberationor vote concerning the compensation.

• The board or an authorized committee may request thata person benefiting from such compensation provideinformation or answer questions at a meeting prior to thestart of the deliberations or voting.

NPCL § 515(b) Attorney General Guidance: Setting compensation for

employees is not a Related Party Transaction reviewable

under section 715


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Board Chair

• No employee of the corporation may serveas board chair. (NPCL § 713(f))

• This provision does not take effect until1/1/2016 (Ch. 81 of the laws of 2014).

– A.7641 would extend this to 1/1/2017


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Whistleblower Policy

• Every corporation with 20+ employees and annual revenue inthe prior fiscal year over $1 million must adopt a whistleblowerpolicy.

• The policy must provide that no director, officer, employee orvolunteer who in good faith reports any action or suspected

action by or within the corporation that is illegal, fraudulent orin violation of adopted corporate policy shall sufferintimidation, harassment, discrimination other retaliation oradverse employment consequences.

• A corporation is deemed to comply if

– it has already adopted a whistleblower policy required by federal,state or local laws

– that is substantially consistent with the whistleblower policyrequired by the NPCL.

NPCL § 715-b.


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Whistleblower Policy Must Contain...

• Procedures for reporting violations of laws orcorporate policies and preserving the confidentialityof reported information;

• Requirement that an employee, officer or director bedesignated to administer the policy and to report tothe audit committee, other committee ofindependent directors, or the board; and

• Requirement that a copy of the policy be distributedto all directors, officers, employees, and to allvolunteers who provide substantial services.

NPCL § 715-b


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Fiscal Policies


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Updated Audit

Thresholds

• The annual gross revenue that triggers the obligation toobtain and file with the NYAG an audit by anindependent CPA is increased from $250,000 to: – $500,000 as of July 1, 2014,

– $750,000 as of July 1, 2017, and – $1 million as of July 1, 2021.

• The annual gross revenue that triggers the obligation toobtain and file with the NYAG an accountant’s reviewreport by an independent CPA is increased from:

– $100,000 to $250,000 as of July 1, 2014. However, if uponreview of that report the AG determines that the organizationshould obtain an audit report, the organization must do so within120 days.

Exec. Law § 172-b


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Updated Audit Thresholds

Effective

Date

Unaudited

Financial

Report

Independent

CPA

Review

Independent

CPA

Audit

Through6/30/13


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NY Revitalization Act.pdf

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