NY Nonprofit Revitalization Act:

Recent Developments and Compliance Strategies

July 30, 2015

Laura Abel, Senior Policy Counsel

Lawyers Alliance for New York
(212) 219-1800 ext. 283, label@lawyersalliance.org
Karin Kunstler Goldman, Deputy Bureau Chief
Charities Bureau, New York Office of the Attorney General

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 smaller
nonprofits
imposes new governance obligations on
organizations incorporated and operating in New York
State
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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 Governors signature

S.5868A: makes various small changes
A.7641: extends effective date of ban on employee
as board chair
S.5870: makes technical changes

Attorney General guidance

http://www.charitiesnys.com/nonprofit_rev_act_guidance.jsp
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Formation, Merger,
Dissolution

Types of New York NFPC

Two types
1. Charitable (more highly regulated)
A corporation formed for both charitable and non-charitable
purposes will be deemed charitable. NPCL 201(b).

2. Non-Charitable (less highly regulated)

Corporations formed before July 1, 2014 are automatically
reclassified:
Type A corporations are non-charitable.
Type B or C are charitable.
Type D are charitable if they were formed for charitable
purposes and non-charitable if they were not.

NPCL 201.
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Type C and Membership Structure

Type Cs:
formed for any lawful business purpose to achieve a
lawful 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 convert
from membership to non-membership structure.
NPCL 601(a).
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Incorporation
Certificate of Incorporations purposes clause
need only state whether nonprofit is formed for
charitable or non-charitable purposes, but can
include 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 filing
with the Department of State.
NPCL 404(d).
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Other Major Life Actions

Consent of Charities Bureau is now sufficient for
many major corporate actions; court approval is
not required but is still an option (and the AG may
require 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).

Governance Procedures

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 an
authorized committee) may now authorize purchase,
sale, mortgage, lease, exchange or other disposition
of real property.
But if the property would constitute all or substantially
all of the corporations assets, the transaction still
must be authorized by 2/3 of the entire board (or a
majority if there are 21 or more directors).
NPCL 509.
10

Notice of Meetings
Notice of a meeting of directors or
members may now be sent by fax or email.
If notice of a meeting of members is provided
by publication, the corporation must also post
notice of the meeting on its website.

Waiver of notice of a meeting of directors

or members may now be written or
electronic.
NPCL 605, 606, 711.

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Proxy Votes by Members

A member may now use e-mail to
authorize another person to act as a
proxy. NPCL 609(b)(2).
Telegram and cablegram are no longer
allowed.

Reminder: Under NPCL, nonprofit

directors cannot vote by proxy.

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Videoconference
Board members may participate in a
meeting via video conference, unless
otherwise restricted in the certificate of
incorporation or bylaws.
Remote participants count towards
quorum requirement.

NPCL 708
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Unanimous Written Consent

Enables boards and members to take
action without a meeting.
All sitting directors or members must
provide consent for the board to act.
Change: unanimous written consent can
now be evidenced by email.
NPCL 708(b).
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Committees of the Board

Distinction between special and standing committees is
eliminated.
Committee of the board can bind the corporation.
All members of the committee must be board
members.
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 CPAs
audit report with the NY Attorney General (i.e.
registered to solicit & revenue $500k+):
the board, or a designated audit committee comprised
solely of independent directors, must:
oversee the corporations 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, or
expects 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 auditors performance and
independence
report on the audit committees activities to the board
(if these duties are performed by an audit committee
instead of the full board)
NPCL 712-a(b)
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Independent Director
An independent director is an individual who within the
last three years has not:
(i)

been an employee of the corporation or an affiliate;

(ii)

received more than $10,000 in compensation from the

corporation or an affiliate; and

(iii) been a current employee of, or does not have a substantial

financial interest in, an entity that has made payments to or
received payments from the corporation or an affiliate, which
exceed the lesser of $25,000 or 2% of such entitys
consolidated gross revenues. Charitable donations do not
count 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 the
corporation or an affiliate; and
(iii) been a current officer of, or does not have a substantial
financial interest in, an entity that has made payments to
or received payments from the corporation or an
affiliate, which exceeds the lesser of $25,000 or 2% of
such entitys consolidated gross revenues. Charitable
donations 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, greatgrandchildren and spouses of siblings, grandchildren and
great-grandchildren.
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NPCL 102(a)(21), (22)

Importance of Independent
Directors
Oversee audit and relationship with
auditors
Oversee adoption and implementation of,
and compliance with:
Conflicts of Interest Policy
Whistleblower Policy
NPCL 712-a
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New Definition of Entire Board

Entire board = total number of directors
entitled to vote if there were no vacancies.
If the bylaws provide for a fixed number of
directors, that number shall be the entire
board.
If the bylaws provide for a range of directors,
the entire board shall be the number of
directors that were elected as of the most
recent elections.
NPCL 102(a)(6-a)
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Entire Board: Implications

Quorum requirements are based on the entire
board (NPCL 707)
Committees of the board must be created and
populated with members selected by the entire
board (NPCL 712(a))
Sales of all or substantially all of corporate
assets must be approved by 2/3 of the entire
board (NPCL 510(a)(2))
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Related Party Transactions

Conflicts of Interest Policy
Whistleblower Policy

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Related Party Transactions

A Related Party is:
Director, Officer, or Key Employee of the corporation
or 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% for
partnership or professional corporation)

NPCL 102(a)(23)

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Related Party Transactions

A Related Party Transaction is a transaction or agreement
in 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 any
related party transaction unless the board
has determined that the transaction is
fair,
reasonable &
in the corporations best interests.

Any director, officer or key employee with

an interest in a related party transaction
must 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 a
transaction, the board or an authorized committee shall:
consider alternative transactions to the extent
available before entering into the transaction,
approve the transaction by at least a majority vote
of the directors or committee members present, &
contemporaneously document in writing the basis
for approval.
NPCL 715(b)

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Conduct of Meeting
A related party may not participate in
deliberations or voting regarding a related
party transaction.
The board or a committee may request
that a related party be present to provide
information 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 interest
policy.
A related party transaction is a type of conflict, but there
may be others, too.
Organizations with existing conflict policies must review
them for compliance with NPRA.
Organizations are deemed in compliance if they have
adopted a conflict of interest policy that is
required by federal, state or local laws &
substantially consistent with the conflict of interest
policy 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 or
board.
Requirement that person with a conflict not be present at
or participate in deliberations/vote on the matter.
Prohibition against an attempt by the person with a
conflict 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 any
meeting at which the conflict was discussed/voted on.
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NPCL 715-a(b).

Policy Must Contain... (contd)

Procedures for identifying, disclosing, addressing, and
documenting 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 statement
identifying:
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 from
compensation from the corporation may not be present
at or participate in any board or committee deliberation
or vote concerning the compensation.
The board or an authorized committee may request that
a person benefiting from such compensation provide
information or answer questions at a meeting prior to the
start 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 serve
as board chair. (NPCL 713(f))
This provision does not take effect until
1/1/2016 (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 in
the prior fiscal year over $1 million must adopt a whistleblower
policy.
The policy must provide that no director, officer, employee or
volunteer who in good faith reports any action or suspected
action by or within the corporation that is illegal, fraudulent or
in violation of adopted corporate policy shall suffer
intimidation, harassment, discrimination other retaliation or
adverse 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 policy
required by the NPCL.

NPCL 715-b.
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Whistleblower Policy Must Contain...

Procedures for reporting violations of laws or
corporate policies and preserving the confidentiality
of reported information;
Requirement that an employee, officer or director be
designated to administer the policy and to report to
the audit committee, other committee of
independent directors, or the board; and
Requirement that a copy of the policy be distributed
to all directors, officers, employees, and to all
volunteers 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 to
obtain and file with the NYAG an audit by an
independent 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 to

obtain and file with the NYAG an accountants review
report by an independent CPA is increased from:
$100,000 to $250,000 as of July 1, 2014. However, if upon
review of that report the AG determines that the organization
should obtain an audit report, the organization must do so within
120 days.

Exec. Law 172-b

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Updated Audit Thresholds

Effective
Date

Unaudited
Financial
Report

Independent
CPA
Review

Independent
CPA
Audit

Through
6/30/13

<$100,000

$100,000

$250,000

7/1/14

<$250,000

$250,000

$500,000

7/1/17

<$250,000

$250,000

$750,000

7/1/21

<$250,000

$250,000

$1 million

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