NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A7772
SPONSOR: Brennan TITLE OF BILL: An act to amend the not-for-profit corporation law,
the estates, powers and trusts law, the surrogate's court procedure act,
the racing, pari-mutuel wagering and breeding law, the executive law,
the education law, the religious corporations law, the benevolent orders
law, the public authorities law, the insurance law, the private housing
finance law, the banking law, the general business law, the mental
hygiene law and the public lands law, in relation to reform of charita-
ble organizations; and to repeal certain provisions of the not-for-pro-
fit corporation law and the estates, powers and trusts law relating
thereto
PURPOSE OR GENERAL IDEA OF BILL:
To undertake a comprehensive revision of the Not-for-Profit Corporation
Law (N-PCL).
SUMMARY OF SPECIFIC PROVISIONS:
Section 1: amends subparagraph 6 of paragraph (a) of section 102 of the
N-PCL and adds twelve new subparagraphs:
(3-a) defines charitable corporation"
(6) amends the definition of "board"
(6-a) defines "entire board"
(9-a) defines "beneficient corporation"
(19) defines "affiliate"
(20) defines "independent auditor"
(21) defines "independent director"
(22) defines "relative"
(23) defines "related party"
(24) defines "related party transaction"
(25) defines "key employee"
Section 2 amends paragraphs (a), (b), and (c) of section 103 of N-PCL to
reflect later changes reducing the types of not-for-profit corporations
from four to two.
Section 3 repeals paragraph (a) of section 104-a of N-PCL, and reletters
paragraphs (b through (s) of section 104-a N-PCL.
Section 4 amends section 105 of N-PCL regarding corrections to certif-
icates
Section 5 amends paragraph (a) of section 112 of N-PCL, to reflect the
reduction in the types of not for profit corporations and adds new
subsections (10) and (11) to grant additional powers to the Attorney
General.
Sections 6, 7 and 8 amend paragraphs (b), (c) and (e) of section 112 of
NPCL. Section 9 repeals section 113 of N-PCL.
Section 10 amends section 114 of N-PCL deleting type references and
adding additional parties who can petition the court in cases of
suspected improprieties.
Section 11 amends section 115 of N-PCL with regard to solicitation of
contributions.
Section 12 amends section 201 of N-PCL to reflect only two classifica-
tions of not for profit corporations.
Section 13 amends section 204 of N-PCL to remove references to "type".
Section 14 amends section 301 of N-PCL with regard to names for corpo-
rations. Section 15 amends section 302 of N-PCL to remove references to
"type. Section 16 amends section 304 of N-PCL regarding designation of
agent. Section 17 amends section 305 of N-PCL to,remove references to
"type". Section 18 amends section. 306 regarding service of process.
Section 19 adds a new section 309 regarding jurisdiction and service of
process on non-domiciliary directors.
Section 20 amends section 402 of N-PCL to reflect reduction to two clas-
sification of corporations.
Section 21 and 22 amend section 404 of N-PCL regarding notices to other
state entities of formation.
Section 23 repeals paragraph (b-1 of section 406 of N-PCL.
Section 24 amends section 404 of N-PCL regarding the rights and powers
of the courts and the-attorney general.
Section 25 amends section 502 of N-PCL to apply to beneficient corpo-
rations.
Section 26 amends section 503 of N-PCL to reflect reduction to two clas-
sification of corporations.
Section 27 amends section 505 of N-PCL to reflect reduction to two clas-
sification of corporations.
Section 28 amends section 509 of N-PCL regarding the purchase, sale,
mortgage or lease of real property.
Section 29 amends section 510 of N-PCL regarding the disposition of all
or substantially all of the assets of a corporation.
Section 30 amends section 511 of N-PCL regarding procedure for court
approval. Section 31 adds a new section 511-a of N-PCL regarding peti-
tion to the attorney general.
Section 32 amends section 513 of N-PCL to delete references to "type
13".
Section 33 amends section 515 of N-PCL regarding compensation to
members, directors or officers.
Section 34 amends section 520 of N-PCL regarding registration and
reporting requirements.
Section 35 adds a new section 522 of N-PCL regarding Cy-pres.
Section 36 amends section 601 of N-PCl to reflect changes in type iden-
tification.
Sections 37 amends section 605 of N-PCL regarding notice of meetings.
Section 38 amends section 606 of N-PCL regarding waiver of notice.
Section 39 amends section 609 of N-PCL regarding proxy authorization.
Section 40 amends section 614 of N-PCI regarding consent of members.
Section 41 amends section 702 of N-PCL to amend the definition of the
entire board for purposes member or board action.
Section 42 amends section 708 of N-PCL regarding board or committee
consent. Section 43 amends section 711 of N-.-PCL regarding waiver of
notice.
Section 44 amends section 712 of N-PCL regarding authority of committees
to bind the corporation.
Section 45 repeals paragraph (c) of section 712 of N-PCL.
Section 46 adds new sections 712-a and 712-b regarding audit oversight
and executive compensation oversight.
Section 47 amends section 713 of N-PCL regarding appointment of a Chair.
Section 48 amends section 715 of N-PCL regarding related party trans-
actions.
Section 49 adds a new section 715-a and 715-b of N-PCL regarding
conflict of interest policy and whistleblower policy.
Section 50 amends section 716 of N-PCL regarding loans to directors and
officers. 5'
Section 51 amends section 717 of N-PCL regarding board oversight of
investment.
Section 52 amends section 718 of N.-PCL regarding lists of officers and
directors.
Section 53 amends section 720 of N-PCL regarding actions against offi-
cers and directors.
Section 54 amends section 722 of N-PCL to reflect changes in type iden-
tification.
Section. 55 amends section 723 of N-PCL, regarding advancement of funds
to defend directors or officers.
Section 56 amends section 724 of N-PCL regarding choice of application
to the courts or the Attorney General.
Section 57 amends section 803 of N-PCL to reflect changes in type iden-
tification.
Section 58 amends section 804 of N-PCI regarding notices and consents.
Section 59 amends section 907 of N-PCL to reflect a choice for applica-
tion to the courts or the Attorney General.
Section 60 adds a new section 907-a of N-PCL regarding application to
the Supreme Court.
Section 61 adds a new section 907-b of N-PCL regarding application to
the Attorney General.
Section 62 amends section 908 of N-PCL to reflect changes in type iden-
tification.
Section 63 amends section 909 of N-PCL regarding filing of notices.
Section 64 amends section 1001 of N-PCL to reflect changes in type iden-
tification.
Section 65 amends section 1002 of N-PCL regarding dissolution of corpo-
rations.
Section 66 amends section 1002-a of N-PCL regarding application to the
Attorney General.
Section 67 amends section 1003 of N-PCL regarding dissolution of corpo-
rations.
Section 68 amends section 1007 regarding application to the Attorney
General. Section 69 amends section 1008 to reflect changes in type iden-
tification.
Section 70 amends section 101 of N-PCL regarding dissolution by the
Department of State. 4
Section 71 amends section 1012 of N-PCL to reflect changes in type iden-
tification.
Section 72 amends section 1207 of N-PCL regarding notice of appointment
of receiver.
Section 73 amends section 1211 of N-PCL regarding notice. Section 74
amends section 1215 of N-PCL regarding notice. Section 75 amends section
1218 of N-PCL regarding notice.
Section 76 amends section 1302 to reflect changes in type identifica-
tion.
Section 77 amends section 1304 of N-PCL to reflect changes in type iden-
tification.
Section 78 amends section 1304 of N-PCL regarding notice to governmental
bodies.
Section BO amends section 1310 of N-PCL to reflect changes in type iden-
tification.
Section 81 amends section 1311 of N-PCL to reflect changes in type iden-
tification.
Section 82 amends section 1215 .of N-PCL to reflect changes in type
identification.
Section 83 amends section 1316 of N-PCL to reflect changes in type iden-
tification.
Section 84 amends section 1321 of N-PCL to reflect changes in type iden-
tification.
Section 85 amends section 1401 of N-PCL to reflect changes in type iden-
tification.
Section 86 amends section 1402 of N-PCL to reflect changes in type iden-
tification.
Section 87 amends section 1403 of N-PCL to reflect changes in type iden-
tification.
Section 88 amends section 1404 of N-PCL to reflect changes in type iden-
tification.
Section 89 amends section 1405 of N-PCL to reflect Changes in type iden-
tification.
Section 90 amends section 1406 of N-PCL to reflect changes in type iden-
tification.
Section 91 amends section 1407 of N-PCL to reflect changes in type iden-
tification.
Section 92 amends section 1408 of N-PCL to reflect changes in type iden-
tification.
Section 93 amends section 1409 of N-PCL to reflect changes in type iden-
tification.
Section 94 amends section 1410 of N-PCL to reflect changes in type iden-
tification.
Section 95 amends section 1411 of N-PCL to reflect changes in type iden-
tification.
Section 96 amends section 1412 of N-PCL to reflect changes in type iden-
tification.
Section 97 amends section 1505 of N-PCL to reflect changes in type iden-
tification.
Section 98 amends section 1602 of N-PCL to reflect changes in type iden-
tification.
Section 99 amends section 1603 of N-PCL to reflect changes in type iden-
tification.
Section 100 amends section 1607 of N-PCL to reflect changes in type
identification.
Section 101 amends section 1611 of N-PCL regarding posting of notice.
Section 102 amends section 1613 of N-PCL regarding posting of notice.
Section 103 amends section 8-L4 of the Estates Powers and Trusts Law
(EPTL) to permit submission of documents to the Attorney General by
electronic means.
Section 104 repeals section 8-1.8 of EPTL.
Section 105 adds a new EPTL section 8-1.9 regarding trust governance.
Section 106 amends section 711 of the Surrogate Court Procedure Act
(SCPA) to add references to new EPTL section 8-1.9.
Section 107 amends section 202 of the Racing, Pari-mutual Wagering and
Breeding Law regarding commencement of business.
Section 108 amends Executive Law section 171-a regarding fund raising
counsel for a charitable organization.
Section 109 amends section 172 of the Executive law regarding conflict
of interest policies.
Section 110 amends section 172-b of the Executive Law regarding increase
of revenue limits for filing requirements.
Section 111 amends section 137 of the Executive law regarding filing
with the Attorney by electronic means.
Section 112 amends section 223 of the Education Law regarding merger of
corporations.
Section 113 amends section 216-a of the Education Law regarding applica-
bility of the N-PCL.
Section 114 amends section 13 of the Religious Corporations Law regard-
ing merger.
Section 115 amends section 15-a of the Religious Corporations Law
regarding merger.
Section 116 amends section 208 of the Religious Corporations Law regard-
ing merger.
Section 117 amends section 209 of the Religious Corporations Law regard-
ing merger.
Section 118 amends section 2-b of the Religious Corporations Law regard-
ing applicability of the N-PCL.
Section 119 amends section 1-a of the Benevolent Orders Law regarding
applicability of the NPCL.
Section 120 amends section 1825 of the Public Authorities Law regarding
applicability of the NPCL.
Section 121 amends subdivision 1840-q of the Public Authorities Law
regarding applicability of the N-PCL.
Section 122 amends section 3435 of the insurance Law regarding applica-
bility of the N-PCL.
Section 123 amends section 6703 of the Insurance Law to reflect changes
in type identification.
Section 124 amends section 6704 of the Insurance Law to reflect changes
in type identification.
Section 125 amends section 6706 of the Insurance Law to reflect changes
in type identification.
Section 126 amends section 202 of the Racing, Peri-mutual wagering and
Breeding Law to reflect changes in type identification.
Section 127 amends section 2-b of the Religious Corporations Law to
reflect changes in type identification.
Section 128 amends section 13-a of the Private Housing Finance Law to
reflect changes in type identification..
Section 129 amends section 216-a of the Education Law to reflect changes
in type identification.
Section 130 amends section 579 of the Banking Law to reflect changes in
type identification.
Section 131 amends section 455 of the General Business Law to in type
identification. reflect changes
Section 132 amends section 45B-b of the General Business Law to reflect
changes in type identification.
Section 133 amends section 16.32 of the Mental Hygiene Law to in type
identification.
Section 134 amends section 31.31 of the Mental Hygiene Law to reflect
changes in type identification.reflect changes lect changes in
Section 135 amends section 75 of the Public Lands Law to ref 1, 2014,
except type identification.
Section 136 provides that this act shall take effect January that
section 45 shall take effect January 1, 2015.
JUSTIFICATION:
The Corporation Law Committee (the "Committee") of the New York State
Bar Association ("NYSEA") initiated a process of review and proposed
revision of the N-PCL. Initially undertaken to conform the N-PCL to the
current Business Corporation Law in New York, this process presented an
opportunity to revisit and improve selected provisions of the N-PCL,
especially in light of the dramatic changes in corporate governance
throughout the sector in response to the Sarbanes-Oxley Act. The Commit-
tee's analysis, in consultation with other experts, resulted in a
comprehensive draft revision of the N-PCL, a statute that has not seen
extensive revision since its adoption over four decades ago. The nonpro-
fit sector in New York State is enormous and wide-ranging, including
foundations and charities, health care organizations, service agencies,
clubs and neighborhood groups, cultural institutions, religious organ-
izations, research and educational centers, chambers of commerce,
economic development corporations, and more, The impact of the sector,
is vital to the people and economy of the State. of New York. The
proposal of the Corporation Law Committee has been reviewed and after
consultations with many not-for-profit corporations and other interested
parties, a revised draft revision has been completed by the Law
Revision Commission. These N-PCL draft revisions continue to conform
where appropriate to the BCL, including parallel articles and section
numbers as well as similar language in parallel provisions. Beyond
conforming the N-PCL to the BCL, the draft revisions reflect an effort
to reduce excessive barriers to formation and Operation of not-for-pro-
fit corporations in New York, while maintaining sufficient government
oversight and emphasizing the fiduciary responsibilities of directors
and officers. These changes are the product of a generation's worth of
experience since the enactment of the original statute. For example,
unlike non-profit corporation statutes in most other states, New York's
N-PCL requires incorporators to obtain advance approvals from various
state agencies as a condition of incorporation. This denies organiza-
tions the opportunity to conduct planning and seek crucial federal
recognition of tax-exempt status while simultaneously securing state
regulatory approval to operate. This bill includes a more streamline
approach, commonly used throughout the U.S., by which incorporation can
occur but regulated activities cannot be conducted until appropriate
licensure is obtained. Other changes with respect to dissolutions of
not-for-profit corporations have largely already been incorporated by
recent changes to the N-PCL, an indication of the recognized need to
modernize the statute without compromising the public interest. The
draft revisions eliminate many of the idiosyncratic provisions unique to
New York law, created at a time when the law in the field was not as
well developed and the-Legislature was grappling with amalgamating vari-
ous model acts and the recently-adopted BCL into a single statute. In
particular, the draft revisions eliminate the designation of statutory
"Types" Of not-for-profit corporations. The current N-PCL definitions of
four types -- A, B, C or D -- create undue complexity in formation and
ambiguity at the borders between Types, disguise the impact of the
common and statutory law on charitable funds managed by corporations,
and provide potential dissonance with federal Internal Revenue Code
("RC") categories for tax exemption. Reduction of types to two, namely
"Charitable" and all others, which have been identified as "Beneficient
Corporations" would result in consistent statutory rules for all non-
profit corporations incorporated in New York, with targeted protections
for continued use of donor-restricted and charitable funds for their
intended purposes.
PRIOR LEGISLATIVE HISTORY:
New Bill
FISCAL IMPLICATIONS:
None to state or local government..
EFFECTIVE DATE:
This act shall take effect January 1, 2014, except that section 45 shall
take effect January 1, 2015.
