NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A7337
SPONSOR: Brennan (MS) TITLE OF BILL: An act to amend the not-for-profit corporation law,
the estates, powers and trusts law, the religious corporations law, the
benevolent orders law, the public authorities law, the insurance law,
the racing, pari-mutuel wagering and breeding law, the private housing
finance law, the education law, the banking law, the general business
law, the mental hygiene law and the public lands law, in relation to
reform of charitable organizations; and to repeal certain provisions of
the not-for-profit corporation law relating thereto (Part A); and to
amend the not-for-profit corporation law, the estates, powers and trusts
law, the surrogate's court procedure act, the executive law, the educa-
tion law, the religious corporations law, in relation to reform of char-
itable organizations; and to repeal certain provisions of the not-for-
profit corporation law and the estates, powers and trusts law relating
thereto (Part B)
PURPOSE OR GENERAL IDEA OF BILL: To amend the Not-for-Profit Corpo-
ration Law (N-PCL), the Estates Powers and Trusts Law (EPTL), and Arti-
cle 7-A of the Executive Law, to reduce unnecessary and outdated burdens
on nonprofits and to enhance nonprofit governance and oversight to
prevent fraud and improve public trust.
SUMMARY OF SPECIFIC PROVISIONS:
PART A
Section 1 adds new definitions to section 102 of the Not-for-Profit
Corporation Law to implement provisions of the bill.
Section 2 amends section 515 of the Not-for-Profit Corporation Law to
clarify that compensation paid to members, directors, officers or key
employees must be fair, reasonable and commensurate with services
provided to the corporation.
Section 3 amends paragraph (a) of section 713 of the Not-for-Profit
Corporation Law and adds a new paragraph (f) to prohibit any employee of
a nonprofit corporation from also serving as chair of its board. The
intent of this provision is to promote clear lines of accountability
between management and the board and ensure independent board leader-
ship.
Section 4 creates a new section 715-a of the Not-for-Profit Corporation
Law to require that nonprofits adopt written conflict of interest poli-
cies. Section 4 also creates a new section 715-b of the Not-for-Profit
Corporation Law to require that nonprofits with twenty or more employees
and annual revenue exceeding $1 million adopt whistleblower policies.
Section 5 creates a new section 8-1.9 of the Estates, Powers and Trusts
Law to make applicable to charitable trusts the new requirements
concerning conflict of interest policies and whistleblower policies that
are made applicable to charitable corporations by section 4 of the bill.
Section 6 amends section 105 of the Not-for-Profit Corporation Law to
allow the Department of State to correct non-material typographical
errors in certificates of incorporation and other instruments upon writ-
ten authorization from the incorporator.
Section 8 amends section 201 of the Not-for-Profit Corporation Law to
simplify corporate "types," creating only two categories of corporations
("charitable corporations" and "non-charitable corporations") instead of
four (A, B, C and D). The amended section will "grandfather" nonprofits
that have already formed as particular types so they will not have to
file new paperwork or amend contracts.
Sections 7, 9 and 10 make conforming changes to the Not-for-Profit
Corporation Law to facilitate the simplification of corporate "types"
pursuant to section 8 of the bill,
Section 11 amends section 115 of the Not-for-Profit Corporation Law to
provide that no corporation required to obtain approval from, or provide
notice to, an administrative agency in the course of incorporating may
solicit funds until it does so.
Sections 12 and 13 amend sections 304 and 306 of the Not-for-Profit
Corporation Law to correct technical errors.
Section 14 amends section 402 of the Not-for-Profit Corporation Law to
make clearer that nonprofits need only state their corporate purposes,
and not specific activities they plan to undertake, when completing
certificates of incorporation for delivery to the Department of State.
Section 15 amends section 404 of the Not-for-Profit Corporation Law to
eliminate the requirement that certain types of nonprofits obtain pre-
approval from the State Education Department prior to incorporation.
Under these amendments, schools, libraries, museums and historical soci-
eties will continue to require the State Education Department's
approval, but other nonprofits may notify the State Education Department
of their formation after incorporation. The intent of this amendment is
to streamline the incorporation process without hampering oversight by
the State Education Department.
Sections 16, 18 and 44 make conforming changes to the Not-for-Profit
Corporation Law to implement section 15 of the bill, the intent of which
is to expedite and simplify the incorporation process.
Section 17 amends section 804 of the Not-for-Profit Corporation Law to
require that governmental agencies be notified within 10 days of accept-
ance by the Department of State of any certificate of amendment that
ads, changes or eliminates a purpose, power or provision whose original
inclusion would require the consent from, or notice to, that govern-
mental agency. The section is also revised to allow charities to seek
approval of changes from the Attorney General, in addition to the tradi-
tional option of approval by the courts.
Sections 19-43 and 4567 make conforming changes to the Not-for-Profit
Corporation. Law to facilitate the simplification of corporate "types"
pursuant to section 8 of the bill.
Sections 68-84 make conforming changes to various statutes to facilitate
the simplification of corporate "types" pursuant to section 8 of the
bill.
Section 85 is the effective date.
PART B
Section 1 adds new definitions to section 102 of the Not-for-Profit
Corporation Law to implement provisions of the bill.
Section 2 and 4 amend sections 112 and 715 of the Not-for-Profit Corpo-
ration Law to create new requirements to protect against self-dealing.
The amendments require that boards, or board committees, undertake an
independent review of transactions between the nonprofit and related
parties, and affirmatively determine that such transactions are in the
nonprofit's best interest. The amendments will also provide clearer
authority for the Attorney General to remedy self-dealing.
Section 3 creates a new section 712-a of the Not-for-Profit Corporation
Law to require that, in cases where nonprofits are required by the Exec-
utive Law to obtain independent CPA audits, boards or board committees
perform certain oversight responsibilities. The intent of this provision
is to ensure that boards are aware of, and respond to, issues and risks
identified by auditors.
Section 5 amends section 720 of the Not-for-Profit Corporation Law to
add key employees to the list of individuals against whom actions may be
brought to remedy violations of the section.
Sections 6 amends section 723 of the Not-for-Profit Corporation Law to
make a clarifying change concerning indemnification of directors and
officers.
Section 7 amends section 724 of the Not-for-Profit Corporation Law to
make clear that the Attorney General is to be provided notice when an
application for indemnification is made to the court.
Section 8 creates a new section 8-1.9 of the Estates, Powers and Trusts
Law to make applicable to charitable trusts the new requirements
concerning audits and related party transactions that are applied to
charitable corporations by sections 3 and 4 of the bill.
Section 9 amends the Surrogates Court Procedure Act to effect the
provisions of section 8 of the bill.
Section 10 amends section 509 of the Not-for-Profit Corporation Law to
permit a majority vote of the nonprofit's board or a committee of the
board, rather than a two-thirds vote of the entire board, to approve
non-substantial real estate transactions. The two-thirds voting require-
ment is maintained for transactions involving property that constitutes
all or substantially all of the nonprofit's assets. The intent of this
amendment is to reduce administrative burdens associated with routine
real estate transactions while preserving stricter requirements for more
significant transactions,
Sections 11-15, 17 & 18 amend sections 605, 606, 609, 614, 621, 708, 711
of the Not-for-Profit Corporation Law to allow electronic transmission
of board and membership meeting notices, waivers of notice and votes
requiring unanimous written consent. These amendments will also allow
board members to participate in meetings via videoconference, Skype, and
other forms of video communication. The intent of these amendments is
to utilize technology to allow for more effective participation by
directors who are unable to attend meetings in person.
Section 16 amends section 702 of the Not-for-Profit Corporation Law to
remove the definition of "entire board." The bill creates a new defi-
nition for this term in section 102 of the statute, the purpose of which
is to correct ambiguities caused by the existing definition.
Sections 19 and 20 amend section 712 of the Not-for-Profit Corporation
Law to simplify the classification of board committees by eliminating
the distinction between standing and special committees.
Sections 21 and 32 repeal sections 406(b-1) of the Not-for-Profit Corpo-
ration Law and 8-1.8(b-1) of the Estates, Powers and Trusts Law to elim-
inate the requirement that private foundations advertise the availabili-
ty of their annual financial reports in print newspapers. The intent of
this amendment is to reduce costs without affecting transparency, as
such reports are free and available to the public online.
Section 22 amends section .520 of the Not-for-Profit Corporation Law to
add a reference to the Executive Law.
Section 23 amends section 555 of the Not-for-Profit Corporation Law to
make clear the continuing availability to the courts of the doctrine of
deviation.
Section 24 amends section 718 of the Not-for-Profit Corporation Law to
protect the privacy of nonprofit directors and officers. Upon demand
from a member of the corporation or a law enforcement agency, the corpo-
ration will have to produce a list of its directors and officers but
will no longer have to disclose their home addresses..
Sections 25 - 29 amend sections 1207, 1211, 1215, 1218 and 1611 of the
Not-for-Profit Corporation Law to allow entities in receivership and
land banks to provide certain notices online, rather than in a print
newspaper. The intent of these provisions is to improve dissemination of
information and reduce costs.
Sections 30, 36, 39, 43, 45 and 47 are intentionally omitted.
Sections 31 and 35 amend section 8-1.4 of the Estates, Powers and Trusts
Law and section 177 of the Executive Law to make clear in these statutes
that the Attorney General may accept nonprofit registrations and other
filings electronically.
Section 33 amends section 171-a of the Executive Law to clarify that
individuals who function solely as grant writers are not "fundraising
counsel."
Section 34 amends section 172-b of the Executive Law to raise the gross
revenue thresholds triggering the requirement to obtain an independent
CPA's audit from $250,000 to $500,000 and an independent CPA's review
from $100,000 to $250,000. The Attorney General will have authority to
request an independent CPA's audit from nonprofits with gross revenue of
$250,000 to $500,000 after reviewing their annual filings, The intent of
these amendments is to reduce costs and burdens on smaller nonprofits
and bring New York's reporting requirements into line with those of
other states.
Sections 37 and 38 amend section 511 and create a new section 511-a of
the Not-for-Profit Corporation Law to allow nonprofit corporations seek-
ing to sell, lease, exchange or dispose of all or substantially all of
their assets to go through a one-step approval process (Attorney General
approval) instead of a more cumbersome two-step process (court approval
following Attorney General review). The intent of this provision is to
expedite the often-lengthy approval process and reduce legal costs.
Nonprofits will retain the right to seek court approval of the trans-
action following the Attorney General's review.
Sections 40-42 amend section 907 and add new sections 907-a and 907-b to
the Not-for-Profit Corporation Law to allow not-for-profit corporations
seeking to merge to go through a one-step approval process (Attorney
General approval) instead of a more cumbersome two-step process (court
approval following Attorney General review). The intent of this
provision is to expedite the often-lengthy approval process and reduce
legal costs. Nonprofits will retain the right to seek court approval of
the transaction following the Attorney General's review.
Sections 44, 46 and 48 amend sections 1001; 1002-a and 1007 of the Not-
for-Profit Corporation Law to grant the Attorney General authority to
approve charitable corporations' plans of dissolution. Charitable
corporations will retain the right to appeal to the courts if the Attor-
ney General does not approve, The Attorney General will have the option
to refer petitions for dissolution to the courts if judicial review is
more appropriate. The intent of these provisions is to reduce the costs
of dissolution so that charitable assets can be more quickly redirected
for other charitable purposes.
Sections 49 and 50 amend sections 216-a and 223 of the Education Law to
permit education corporations to enter into merger transactions in addi-
tion to consolidation transactions. The intent of these amendments is to
simplify mergers and treat educational nonprofits more equitably.
Sections 51 - 54 amend sections 13, 15-a, 208 and 209 of the Religious
Corporations Law to permit religious corporations to enter into merger
transactions in addition to consolidation transactions. The intent of
these amendments is to simplify mergers and treat religious nonprofits
more equitably.
Section 55 is the effective date.
JUSTIFICATION: For too long, New York law and regulatory practices
have placed unnecessary and costly burdens on the-nonprofit sector.
Redundancies throughout the system waste scarce taxpayer and nonprofit
dollars. New York must become a more hospitable environment for nonpro-
fits. This bill will modernize key provisions of New York law governing
formation, dissolution, transactions, and board procedures, reducing
unnecessary burdens and costs without sacrificing oversight or account-
ability. Implementing these changes will create a more welcoming envi-
ronment for new nonprofits and a more business-friendly environment for
existing ones, helping to ensure our state remains home to the country's
strongest and most vibrant nonprofit sector.
At the same time, the success of the nonprofit sector depends on main-
taining the public's trust. This requires that boards provide effective
oversight over the charitable funds entrusted to them, and that the
Attorney General have the necessary tools to protect charities and
donors from fraud and abuse. This bill strengthens New York law to
enhance governance and accountability by setting forth clearer expecta-
tions of board duties in key areas, such as providing financial over-
sight. It also includes new provisions to limit and, when necessary,
remedy self-dealing.
PRIOR LEGISLATIVE HISTORY: New bill.
FISCAL IMPLICATIONS: There is no fiscal impact on the state.
EFFECTIVE DATE: This act shall take effect January 1, 2014, provided
that section 713(f) of the Not-for-Profit Corporation Law, as added by
section three of Part A of the bill shall take effect January 1, 2015.
Section 712-a of the Not-for-Profit Corporation Law and paragraph (d) of
section 8-1.9 of the Estates, Powers and Trusts Law, as added by
sections 3 and 8 of Part 13 of the bill, shall not be applicable until
January 1, 2015 to any corporation or trust with annual revenues of less
than $10,000,000 in the last fiscal year ending prior to January 3,
2014.
