New York Nonprofit Revitalization Act Of 2013 To Have Significant Impact On State’s Nonprofit Corporations

by Hodgson Russ LLP

When New York State Governor Andrew Cuomo signed the Nonprofit Revitalization Act of 2013 into law on December 18, 2013, New York nonprofit corporations became subject to the most substantial revision of the New York Not-for-Profit Corporation Law in over 40 years. While most of the new law’s provisions do not become effective until July 1, 2014, New York nonprofits will need to prepare for these significant changes well in advance.

The new law streamlines and modernizes many provisions of existing law. For example, once the law takes effect, nonprofit board members acting by unanimous consent will be able to vote electronically in lieu of providing written consent. Certain real property transactions that formerly required the approval of two-thirds of board members serving on boards of 20 or fewer members can be approved by majority vote under the new law. In addition, the process for obtaining approval for major corporate changes, such as mergers or the transfer of all or substantially all corporate assets, has been simplified.

Most significantly, the new law imposes on nonprofits a number of substantial governance-related requirements, many of which are also applicable to charitable trusts. These requirements include the following:

Adoption of a conflict of interest policy. While many nonprofits have conflict of interest policies already in place, those policies will likely require revision to conform to the specific provisions mandated by the new law, including disclosure and documentation requirements.

Adoption of a whistleblower policy. All nonprofits with 20 or more employees and revenue in excess of $1 million must adopt a whistleblower policy containing specific provisions mandated by the new law.

New requirements for “related-party transactions.” The new law imposes requirements for reviewing and documenting transactions with “related parties,” such as officers, directors, and key employees and any relative of theirs.

New audit requirements for New York and out-of-state nonprofits required to file an independent certified public accountant’s audit report with the New York State attorney general. These nonprofit boards or their designated audit committees will have oversight responsibilities for accounting, financial reporting, and audit matters with additional responsibilities imposed on boards of nonprofits with revenues in excess of $1 million. In addition, the new law requires that all audit committee members be independent directors.

Board chair restriction. Effective January 1, 2015, no employee of a nonprofit may serve as the board chair or hold any other title with similar responsibilities.

Financial reporting requirements. From July 1, 2014, to June 30, 2021, the new law outlines a sliding scale that incrementally increases the thresholds for heightened financial reporting and audit requirements for every nonprofit required to register under Article 7-A of the Executive Law.

Although Governor Cuomo and Legislature have indicated that they plan to make changes to the new law prior to the July 1, 2014, effective date, the changes are expected to be technical corrections rather than major substantive changes.

It will be important for existing New York nonprofit corporations (and certain trusts) to adopt new policies and procedures in order to come into compliance with the new law. Our team of nonprofit attorneys is ready to assist existing nonprofits with the upcoming requirements as well as to offer guidance for those forming new nonprofit entities.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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