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S05868 Summary:

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                STATE OF NEW YORK
        ________________________________________________________________________
 
                                         5868--A
 
                               2015-2016 Regular Sessions
 
                    IN SENATE
 
                                      June 9, 2015
                                       ___________
 
        Introduced  by  Sen.  RANZENHOFER -- read twice and ordered printed, and
          when printed to be committed to the Committee on  Rules  --  committee
          discharged, bill amended, ordered reprinted as amended and recommitted
          to said committee
 
        AN  ACT to amend the not-for-profit corporation law, the estates, powers
          and trusts law and the religious corporations law, in relation to  the
          reform of charitable corporations
 
          The  People of the State of New York, represented in Senate and Assem-
        bly, do enact as follows:
 
     1    Section 1. Subparagraphs 6-a, 19, 21, 22, 23 and 25 of  paragraph  (a)
     2  of  section 102 of the not-for-profit corporation law, as added by chap-
     3  ter 549 of the laws of 2013, are amended to read as follows:
     4    (6-a) "Entire board" means the total number of directors  entitled  to
     5  vote which the corporation would have if there were no vacancies. If the
     6  by-laws  of  the  corporation  provide that the board shall consist of a
     7  fixed number of directors, then the "entire board" shall consist of that
     8  number of directors. If the by-laws of any corporation provide that  the
     9  board  may  consist  of  a range between a minimum and maximum number of
    10  directors, and the number within  that  range  has  not  been  fixed  in
    11  accordance with paragraph (a) of section seven hundred two of this chap-
    12  ter,  then  the  "entire board" shall consist of the number of directors
    13  within such range that were elected or appointed as of the most recently
    14  held election of directors, as well as any directors  whose  terms  have
    15  not yet expired.
    16    (19)  An  "affiliate" of a corporation means any entity controlled by,
    17  or in control of, [or under common control with] such corporation.
    18    (21) "Independent director" means a director who: (i) is not, and  has
    19  not  been within the last three years, an employee of the corporation or
    20  an affiliate of the corporation, and does not have a relative who is, or
    21  has been within the last three years, a key employee of the  corporation
    22  or  an affiliate of the corporation; (ii) has not received, and does not
 
         EXPLANATION--Matter in italics (underscored) is new; matter in brackets
                              [ ] is old law to be omitted.
                                                                   LBD11470-04-5
        S. 5868--A                          2
 
     1  have a relative who has received, in any of the last three fiscal years,
     2  more than ten thousand dollars in direct compensation  from  the  corpo-
     3  ration  or an affiliate of the corporation (other than reimbursement for
     4  expenses  reasonably  incurred  as a director or reasonable compensation
     5  for service as a director as permitted by paragraph (a) of  section  202
     6  (General  and special powers)); [and] (iii) is not a current employee of
     7  or does not have a substantial financial interest in, and does not  have
     8  a  relative  who  is a current officer of or has a substantial financial
     9  interest in, any entity that has made payments to, or received  payments
    10  from, the corporation or an affiliate of the corporation for property or
    11  services  in  an  amount  which,  in any of the last three fiscal years,
    12  exceeds the lesser of twenty-five thousand dollars  or  two  percent  of
    13  such  entity's  consolidated gross revenues; or (iv) is not and does not
    14  have a relative who is a current owner,  whether  wholly  or  partially,
    15  director,  officer  or  employee of the corporation's outside auditor or
    16  who has worked on the corporation's audit at any time  during  the  past
    17  three  years. For purposes of this [subparagraph] subdivision, "payment"
    18  does not include charitable contributions, dues  or  fees  paid  to  the
    19  corporation  for  services which the corporation performs as part of its
    20  nonprofit purposes, provided that such services are available  to  indi-
    21  vidual members of the public on the same terms.
    22    (22)  "Relative"  of  an  individual means [his or her] (i) his or her
    23  spouse[,] or domestic partner as defined in section twenty-nine  hundred
    24  ninety-four-a  of  the  public  health  law;  (ii) his or her ancestors,
    25  brothers and sisters (whether whole or half  blood),  children  (whether
    26  natural  or adopted), grandchildren, great-grandchildren[, and spouses];
    27  or (iii) the spouse or domestic partner of his or her brothers, sisters,
    28  children, grandchildren,  and  great-grandchildren[;  or  (ii)  domestic
    29  partner  as  defined in section twenty-nine hundred ninety-four-a of the
    30  public health law].
    31    (23) "Related party" means (i) any director, officer or  key  employee
    32  of  the  corporation  or  any affiliate of the corporation, or any other
    33  person who exercises the powers of directors, officers or key  employees
    34  over the affairs of the corporation or any affiliate of the corporation;
    35  (ii)  any  relative  of  any  [director,  officer or key employee of the
    36  corporation or any affiliate of the corporation] individual described in
    37  clause (i) of this subdivision; or (iii) any entity in which  any  indi-
    38  vidual described in clauses (i) and (ii) of this [subparagraph] subdivi-
    39  sion has a thirty-five percent or greater ownership or beneficial inter-
    40  est  or,  in  the  case  of a partnership or professional corporation, a
    41  direct or indirect ownership interest in excess of five percent.
    42    (25) "Key employee" means any person who is in a position to  exercise
    43  substantial influence over the affairs of the corporation, as referenced
    44  in  26  U.S.C.  §  4958(f)(1)(A)  and  further  specified  in  26  CFR §
    45  53.4958-3(c), (d) and (e), or succeeding provisions to the  extent  such
    46  provisions are applicable.
    47    §  2.  Paragraph  (b) of section 515 of the not-for-profit corporation
    48  law, as amended by chapter 549 of the laws of 2013, is amended  to  read
    49  as follows:
    50    (b)  A  corporation  may  pay  compensation  in a reasonable amount to
    51  members, directors, or officers, for services  rendered,  and  may  make
    52  distributions  of  cash or property to members upon dissolution or final
    53  liquidation as permitted by this chapter. No person who may benefit from
    54  such compensation may be present at  or  otherwise  participate  in  any
    55  board or committee deliberation or vote concerning such person's compen-
    56  sation;  provided  that nothing in this section shall prohibit the board
        S. 5868--A                          3
 
     1  or authorized committee from requesting that a person  who  may  benefit
     2  from such compensation present information as background or answer ques-
     3  tions  at  a  committee  or  board  meeting prior to the commencement of
     4  deliberations  or voting relating thereto. Nothing in this section or in
     5  paragraph (h) of section seven hundred fifteen of this chapter shall  be
     6  construed  to prohibit a director from deliberating or voting concerning
     7  compensation for service on the board that is to be  made  available  or
     8  provided to all directors of the corporation on the same or substantial-
     9  ly similar terms.
    10    §  3.  Paragraph  (b) of section 702 of the not-for-profit corporation
    11  law is amended to read as follows:
    12    (b) The number of directors may be increased or decreased by amendment
    13  of the by-laws or[, in the case of a  corporation  having  members,]  by
    14  action  of the members, or of the board under the specific provisions of
    15  a by-law [adopted by the members], subject to the following limitations:
    16    (1) If the board is authorized by the by-laws to change the number  of
    17  directors, whether by amending the by-laws or by taking action under the
    18  specific provisions of a by-law [adopted by the members], such amendment
    19  or action shall require the vote of a majority of the entire board.
    20    (2) No decrease shall shorten the term of any incumbent director.
    21    §  4.  Paragraph  (d) of section 708 of the not-for-profit corporation
    22  law, as amended by chapter 173 of the laws of 1975 and as relettered  by
    23  chapter 314 of the laws of 1977, is amended to read as follows:
    24    (d) Except as otherwise provided in this chapter, the vote of a major-
    25  ity  of  the  directors  present at the time of the vote, if a quorum is
    26  present at such time, shall be the act of the board. Directors  who  are
    27  present  at  a  meeting  but  not present at the time of a vote due to a
    28  conflict of interest or related party transaction shall be determined to
    29  be present at the time of the vote for purposes of this paragraph.
    30    § 5. Paragraph (e) of section 712 of  the  not-for-profit  corporation
    31  law,  as  amended by chapter 549 of the laws of 2013, is amended to read
    32  as follows:
    33    (e) Committees, other than committees of the board, whether created by
    34  the board or by the members, shall be  committees  of  the  corporation.
    35  [Such  committees  of the corporation may be elected or appointed in the
    36  same manner as officers of the corporation, but no]  No  such  committee
    37  shall  have  the authority to bind the board. Provisions of this chapter
    38  applicable to officers generally shall apply to members of such  commit-
    39  tees.  [Such]  Members of such committees of the corporation, who may be
    40  non-directors, shall be elected or appointed in the manner set forth  in
    41  the  by-laws,  or if not set forth in the by-laws, in the same manner as
    42  officers of the corporation.
    43    § 6. Paragraph (e) of section 712-a of the not-for-profit  corporation
    44  law,  as added by chapter 549 of the laws of 2013, is amended to read as
    45  follows:
    46    (e) Only independent directors may participate in any board or commit-
    47  tee deliberations or voting  relating  to  matters  set  forth  in  this
    48  section,  provided  that  nothing  in  this paragraph shall prohibit the
    49  board or designated audit committee from requesting that a  person  with
    50  an  interest  in  the matter present information as background or answer
    51  questions at a committee or board meeting prior to the  commencement  of
    52  deliberations or voting relating thereto.
    53    §  7.  Paragraphs (e), (f), (f) and (g) of section 715 of the not-for-
    54  profit corporation law, paragraph (e) as amended and paragraphs (f), (f)
    55  and (g) as added by chapter 549 of the laws of 2013, are amended to read
    56  as follows:
        S. 5868--A                          4
 
     1    (e) The fixing of [salaries] compensation of officers, if not done  in
     2  or  pursuant  to  the  by-laws,  shall require the affirmative vote of a
     3  majority of the entire board unless a higher proportion is  set  by  the
     4  certificate of incorporation or by-laws.
     5    (f)  The  attorney  general  may  bring  an  action to enjoin, void or
     6  rescind any related party transaction or proposed related  party  trans-
     7  action  that violates any provision of this chapter or was otherwise not
     8  reasonable or in the best interests of the corporation at the  time  the
     9  transaction  was  approved,  or  to seek restitution, and the removal of
    10  directors or officers, or seek to require any person or entity to:
    11    (1) Account for any profits made from such transaction, and  pay  them
    12  to the corporation;
    13    (2) Pay the corporation the value of the use of any of its property or
    14  other assets used in such transaction;
    15    (3)  Return or replace any property or other assets lost to the corpo-
    16  ration as a result of such transaction,  together  with  any  income  or
    17  appreciation  lost  to the corporation by reason of such transaction, or
    18  account for any proceeds of sale of such property, and pay the  proceeds
    19  to the corporation together with interest at the legal rate; and
    20    (4)  Pay, in the case of willful and intentional conduct, an amount up
    21  to double the amount of any benefit improperly obtained.
    22    [(f)] (g) The powers of the attorney general provided in this  section
    23  are  in addition to all other powers the attorney general may have under
    24  this chapter or any other law.
    25    [(g)] (h) No related party may participate in deliberations or  voting
    26  relating  to  [matters set forth in this section] a related party trans-
    27  action in which he or she has an interest; provided that nothing in this
    28  section shall prohibit the board or authorized committee from requesting
    29  that a related party present information as background or  answer  ques-
    30  tions  concerning  a  related  party transaction at a board or committee
    31  meeting prior to the commencement of deliberations  or  voting  relating
    32  thereto.
    33    §  8. Subparagraph 3 of paragraph (b) of section 715-a of the not-for-
    34  profit corporation law, as added by chapter 549 of the laws of 2013,  is
    35  amended to read as follows:
    36    (3) a requirement that the person with the conflict of interest not be
    37  present  at or participate in board or committee deliberation or vote on
    38  the matter giving rise to such conflict, provided that nothing  in  this
    39  section shall prohibit the board or a committee from requesting that the
    40  person  with  the conflict of interest present information as background
    41  or answer questions at  a  committee  or  board  meeting  prior  to  the
    42  commencement of deliberations or voting relating thereto;
    43    §  9. Paragraph (c) of section 715-a of the not-for-profit corporation
    44  law, as added by chapter 549 of the laws of 2013, is amended to read  as
    45  follows:
    46    (c)  The  conflict  of interest policy shall require that prior to the
    47  initial election of any director, and annually thereafter, such director
    48  shall complete, sign and submit to the secretary of the corporation or a
    49  designated compliance officer a written statement  identifying,  to  the
    50  best  of  the director's knowledge, any entity of which such director is
    51  an officer, director, trustee, member, owner (either as a sole  proprie-
    52  tor  or  a  partner),  or  employee and with which the corporation has a
    53  relationship, and any transaction in which the corporation is a  partic-
    54  ipant  and  in which the director might have a conflicting interest. The
    55  policy shall require that each director annually resubmit  such  written
    56  statement.  The  secretary  of the corporation or the designated compli-
        S. 5868--A                          5
 
     1  ance officer shall provide a copy of all  completed  statements  to  the
     2  chair  of the audit committee or, if there is no audit committee, to the
     3  chair of the board.
     4    § 10. Subparagraph 3 of paragraph (b) of section 715-b of the not-for-
     5  profit  corporation law, as added by chapter 549 of the laws of 2013, is
     6  amended to read as follows:
     7    (3) A requirement that a copy of the  policy  be  distributed  to  all
     8  directors, officers, employees and to volunteers who provide substantial
     9  services  to  the corporation. For purposes of this subdivision, posting
    10  the policy on the corporation's website or at the corporation's  offices
    11  in  a  conspicuous  location  accessible to employees and volunteers are
    12  among the methods a corporation may  use  to  satisfy  the  distribution
    13  requirement.
    14    §  11. Paragraph (b) of section 1407 of the not-for-profit corporation
    15  law, as amended by chapter 549 of the laws of 2013, is amended  to  read
    16  as follows:
    17    (b) Type of corporation.
    18    An alumni corporation is a [non-charitable] charitable corporation.
    19    § 12. Subparagraphs 3, 4, 5, 6 and 7 of paragraph (a) of section 8-1.9
    20  of  the  estates,  powers and trusts law, as added by chapter 549 of the
    21  laws of 2013, are amended to read as follows:
    22    (3) "Key employee" means any person who is in a position  to  exercise
    23  substantial  influence  over  the affairs of the [corporation] trust, as
    24  referenced in 26 U.S.C. section 4958(f)(1)(A) and further  specified  in
    25  26  C.F.R.   section 53.4958-3(c), (d) and (e), or succeeding provisions
    26  to the extent such provisions are applicable.
    27    (4) An "affiliate" of a trust means any entity controlled  by,  or  in
    28  control of, [or under common control with] such trust.
    29    (5)  "Relative"  of  an  individual  means [his or her] (i) his or her
    30  spouse[,] or domestic partner as defined in section twenty-nine  hundred
    31  ninety-four-a  of  the  public  health  law;  (ii) his or her ancestors,
    32  brothers and sisters (whether whole or half  blood),  children  (whether
    33  natural  or adopted), grandchildren, great-grandchildren[, and spouses];
    34  or (iii) the spouse or domestic partner of his or her brothers, sisters,
    35  children, grandchildren, and great-grandchildren[; and (ii) his  or  her
    36  domestic partner as defined in section twenty-nine hundred ninety-four-a
    37  of the public health law].
    38    (6) "Related party" means (i) any trustee or key employee of the trust
    39  or  any  affiliate  of  the  trust or any other person who exercises the
    40  powers of a trustee or key employee over the affairs of the trust or any
    41  affiliate of the trust; (ii) any relative of any [trustee or key employ-
    42  ee of the trust or any affiliate of the trust] individual  described  in
    43  clause (i) of this subdivision; or (iii) an entity in which any individ-
    44  ual described in clauses (i) and (ii) of this [subparagraph] subdivision
    45  has  a  thirty-five  percent or greater ownership or beneficial interest
    46  or, in the case of a partnership or professional corporation,  a  direct
    47  ownership interest in excess of five percent.
    48    (7) "Independent trustee" means a trustee who: (i) is not, and has not
    49  been  within the last three years, an employee of the trust or an affil-
    50  iate of the trust, and does not have a relative  who  is,  or  has  been
    51  within the last three years, a key employee of the trust or an affiliate
    52  of  the  trust;  (ii) has not received, and does not have a relative who
    53  has received, in any of the last three fiscal years, more than ten thou-
    54  sand dollars in direct compensation from the trust or  an  affiliate  of
    55  the trust (other than reimbursement for expenses or the payment of trus-
    56  tee  commissions  or reasonable compensation as permitted by law and the
        S. 5868--A                          6
 
     1  governing instrument); [and] (iii) is not a current employee of or  does
     2  not  have a substantial financial interest in, and does not have a rela-
     3  tive who is a current officer of or have a substantial financial  inter-
     4  est in, any entity that has made payments to, or received payments from,
     5  the  trust  or  an affiliate of the trust for property or services in an
     6  amount which, in any of the last three fiscal years, exceeds the  lesser
     7  of  twenty-five thousand dollars or two percent of such entity's consol-
     8  idated gross revenues; or (iv) is not and does not have a  relative  who
     9  is  a  current  owner, whether wholly or partially, director, officer or
    10  employee of the trust's outside auditor or who has worked on the trust's
    11  audit at any time during the past three  years.  For  purposes  of  this
    12  [subparagraph]   subdivision,  "payment"  does  not  include  charitable
    13  contributions, dues or fees paid to the trust  for  services  which  the
    14  trust performs as part of its nonprofit purposes.
    15    § 13. Subparagraph 5 of paragraph (b) of section 8-1.9 of the estates,
    16  powers  and  trusts law, as added by chapter 549 of the laws of 2013, is
    17  amended to read as follows:
    18    (5) Only independent trustees  may  participate  in  deliberations  or
    19  voting  relating  to  matters  set  forth  in  this [paragraph] section,
    20  provided that nothing in this paragraph  shall  prohibit  the  board  or
    21  designated  audit committee from requesting that a person with an inter-
    22  est in the matter present information as background or answer  questions
    23  at  a  committee  or board meeting prior to the commencement of deliber-
    24  ations or voting relating thereto.
    25    § 14. Subparagraph 6 of paragraph (c) of section 8-1.9 of the estates,
    26  powers and trusts law, as added by chapter 549 of the laws of  2013,  is
    27  amended to read as follows:
    28    (6) No related party may participate in deliberations or voting relat-
    29  ing to [matters set forth in this paragraph] a related party transaction
    30  in  which  he  or  she  has  an  interest; provided that nothing in this
    31  section shall prohibit the trustees or designated audit  committee  from
    32  requesting  that a related party present information or answer questions
    33  concerning a related party transaction at a trustees or committee  meet-
    34  ing prior to the commencement of deliberations or voting relating to the
    35  related party transaction.
    36    §  15.  Clause (C) of subparagraph 2 of paragraph (d) of section 8-1.9
    37  of the estates, powers and trusts law, as added by chapter  549  of  the
    38  laws of 2013, is amended to read as follows:
    39    (C) a requirement that the person with the conflict of interest not be
    40  present  at  or  participate  in  any deliberation or vote on the matter
    41  giving rise to such conflict, provided  that  nothing  in  this  section
    42  shall  prohibit  the  trustees  or  a committee from requesting that the
    43  person with the conflict of interest present information  as  background
    44  or  answer  questions  at  a  trustees or committee meeting prior to the
    45  commencement of deliberations or voting relating thereto;
    46    § 16. Clause (C) of subparagraph 2 of paragraph (e) of  section  8-1.9
    47  of  the  estates,  powers and trusts law, as added by chapter 549 of the
    48  laws of 2013, is amended to read as follows:
    49    (C) A requirement that a copy of the  policy  be  distributed  to  all
    50  trustees,  officers,  employees and volunteers, with instructions on how
    51  to comply with the procedures set forth in the policy. For  purposes  of
    52  this  subdivision, posting the policy on the corporation's website or at
    53  the corporation's  offices  in  a  conspicuous  location  accessible  to
    54  employees  and volunteers are among the methods a corporation may use to
    55  satisfy the distribution requirement.
        S. 5868--A                          7
 
     1    § 17. Subdivision 1 of section 12 of the religious  corporations  law,
     2  as  amended  by  chapter  244 of the laws of 1981, is amended to read as
     3  follows:
     4    1.  A  religious  corporation  shall not sell, mortgage or lease for a
     5  term exceeding five years any of its real property without applying  for
     6  and obtaining leave of the court or the attorney general therefor pursu-
     7  ant to section five hundred eleven of the not-for-profit corporation law
     8  as  that section is modified by paragraph (d-1) of [subsection] subdivi-
     9  sion one of section two-b  of  this  chapter  or  section  five  hundred
    10  eleven-a  of the not-for-profit corporation law, except that a religious
    11  corporation may execute a purchase money mortgage or  a  purchase  money
    12  security  agreement  creating  a  security interest in personal property
    13  purchased by it without obtaining leave of the court therefor.
    14    § 18. Severability. If any clause,  sentence,  paragraph,  section  or
    15  part  of  this act shall be adjudged by any court of competent jurisdic-
    16  tion to be invalid, the judgment shall not affect, impair, or invalidate
    17  the remainder thereof, but shall be confined in  its  operation  to  the
    18  clause,  sentence,  paragraph, section or part thereof directly involved
    19  in the controversy in which the judgment shall have been rendered.
    20    § 19. This act shall take effect immediately.