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New York’s Non-Profit Revitalization Act Streamlines Non-Profit Law

December 7, 2015

Many nonprofit organizations may not be aware of a landmark law that became effective in 2014 titled the New York Non-Profit Revitalization Act of 2013 (“Act”), which creates major changes in the policies and governance of nonprofit corporations. The Act also changes the requirements of some nonprofits to submit annual financial reports and audits. The New York Attorney General has broad power to enforce the provisions, including penalizing noncompliant employers, or removing board members.  This newsletter highlights some of the crucial changes and requirements provided by the Act.

Corporate Structure

The Act simplifies the categorization of nonprofit corporations into “charitable” or “non-charitable” corporations. Charitable corporations encompass the previous Type B and Type C corporations, including those with charitable, educational, religious, scientific, cultural, public, or quasi-public objectives. Non-charitable corporations, previously called Type A, are for political, social, and professional organizations.

The position of “chair” or “president” of the board of directors may no longer be served by an employee of the corporation as of July 1, 2015. This includes positions with different titles, but similar duties.

When a board or committee is deliberating or voting on the compensation of a member or director, no person benefitting from that compensation may be present. However, that person may give information or answer questions before the deliberation, at the board’s request.

Related Party Transactions

The New York Attorney General has been granted the power to rescind any “related party transaction” by a nonprofit organization if it fails to follow the new guidelines. Directors, officers, and key employees are “related parties,” as well as their relatives and organizations they own. A related party transaction occurs when any of these related parties has a financial interest in a transaction. To be a valid transaction, the nonprofit corporation’s board of directors must determine that the transaction was fair and in the corporation’s best interest.

For failure to comply, the Attorney General may void the transaction, remove directors, or require any profits made by a related party to be given to the corporation. Nonprofit corporations must provide procedures for disclosing and addressing related party transactions in their conflict of interest policies.

Board Voting Requirements

A majority of votes by the board of directors or a board committee is required for small or routine real estate transactions. For larger transactions that involve substantially all the nonprofit corporation’s assets, a majority is required for boards under 21 members, but a 2/3 majority of the entire board must be obtained otherwise. Additionally, charitable corporations must obtain approval from the Attorney General. Approval from the New York Supreme Court is now only required if the corporation is insolvent.

Financial Statement and Audit Requirements

All nonprofit corporations must submit to the Attorney General an annual financial statement, available on the Charity Bureau’s website. Depending on a corporation’s gross revenue, it may be additionally required to submit a review or audit by a Certified Public Accountant (CPA). Before the Act, a CPA review was required for corporations whose gross revenue exceeded $100,000, and the audit applied to corporations above $250,000 in gross revenue. However, under the Act, the thresholds have increased as of 2014, and are scheduled to continue increasing in future years. The increases are as follows:

Date Financial Statement CPA Review CPA Audit
Prior to 7/1/14: All nonprofits $100,000-$250,000 >$250,000
7/1/14: All nonprofits $250,000-$500,000 >$500,000
7/1/17: All nonprofits $250,000-$750,000 >$750,000
7/1/21: All nonprofits $250,000-$1,000,000 >$1,000,000

Audit reports must be overseen by the board or an appointed audit committee composed of independent directors. Independent directors must not be employed by the corporation or receive greater than $10,000 in compensation outside of payment for director services.

Electronic Communication

The Act declares e-mail and websites to be acceptable means of communicating for the purposes of corporate governance. Members may now be notified of meetings via these media, unless they request paper notices in the mail. Board members may now use live video streams to conduct meetings and votes.

Conflict of Interest Policy

Nonprofit corporations must create conflict of interest policies if they have not already. The policy must define a conflict of interest and describe procedures for isolating corporate decisions from the influence such conflicts. Before elections, potential directors must disclose to the corporation’s secretary any possible conflict of interest that they are aware of. If a corporation already has a policy in pursuit of another law that has similar requirements, no new policy need be written.

Whistleblower Policy

A nonprofit corporation is required to create a whistleblower policy if it has twenty or more employees and its revenue in the prior fiscal year exceeded $1 million. This policy must create procedures for reporting suspected violations of law or corporate policy, while protecting the confidentiality of reported information. The policy must be distributed to all officers, employees, and volunteers. The Charities Bureau recommends inserting the policy in the employee handbook and obtaining signed acknowledgment from employees that they have reviewed the policy.

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