Exempt Organizations: Nonprofit Revitalization Act of 2013 Signed by Governor Cuomo

December 19, 2013

On December 18, 2013, Governor Cuomo signed the Nonprofit Revitalization Act of 2013 (the "Act") passed by the New York State Legislature this past July (the text of the Act can be found here: http://open.nysenate.gov/legislation/bill/A8072-2013). The Act will become effective July 1, 2014, and makes a number of significant changes to the law regarding nonprofit corporations. These changes will affect virtually every nonprofit corporation in the State of New York, and, now that the Act has become law, nonprofits must make sure that they are in compliance with the Act’s changes before it takes effect in July.

Some of the most significant changes included in the Act are as follows:

All nonprofits must adopt written conflict of interest policies, and nonprofits with 20 or more employees and annual revenue of more than $1 million must also adopt whistleblower policies.
Boards and board committees must protect against self-dealing by independently reviewing transactions between the nonprofit and any related parties and must make a determination of whether any such transactions are in the nonprofit’s best interest.
Individuals that may benefit from compensation paid by the nonprofit will not be allowed to participate in deliberations regarding, or vote with respect to, their own compensation.
An employee of a nonprofit is prohibited from also serving as its board chair.
The gross revenue threshold of the requirement for an independent CPA’s audit is raised from $250,000 to $500,000, and for an independent CPA’s review from $100,000 to $250,000. The gross revenue threshold for CPA audits will escalate between 2017 and 2021. The Attorney General will have the authority to request an independent CPA’s audit for nonprofits with gross revenue over $250,000 after reviewing their annual filings.
Nonprofits meeting the income threshold requiring an independent CPA audit must have their boards or board committees perform certain oversight functions to ensure that the board is aware of, and responds to, any issues identified by the auditors.
Facsimile and e-mail notices may be used for board and membership meeting notices and waivers and also for votes that require unanimous written consent.
Board members can participate in meetings by video conference, Skype and other forms of video communication.
Makes clear that nonprofit officers, directors, key employees and agents are subject to the personal jurisdiction of New York State courts and those individuals shall be subject to service of process in any suit undertaken by the Attorney General.
Non-substantial real estate transactions no longer require a two-thirds vote of the board and may now be approved by either a majority vote of the board or a board committee (with notice to the board).
Allows nonprofits to make filings and registrations with the Attorney General electronically.
Simplifies the process for nonprofit corporations seeking to sell, lease, exchange or transfer all or substantially all of their assets by allowing a one-step approval process with the Attorney General, rather than the previous two-step process which required court approval.

In addition to the changes outlined above, practitioners anticipate that once the Act takes effect in July the process of incorporating a not-for-profit corporation in New York will be greatly simplified for several reasons. First, the Act does away with the current "Type" system found in the Not-for-Profit Corporation Law (the "NPCL"). Second, the Act streamlines the process of incorporating an entity that includes a purpose that requires the consent of certain state agencies. For example, under current law a new charitable entity that may support educational purposes (even though it is not an educational institution) requires Department of Education consent before a certificate of incorporation can be filed. In this case, the Act will allow the certificate of incorporation to be filed first with notice given to the Department of Education after the filing.

Conclusion

The Nonprofit Revitalization Act of 2013 creates both opportunities and responsibilities for nonprofit organizations to review, update and improve their operational policies and procedures based on the new statutory requirements. This will require, among other things, the adoption of new policies and possible changes to organizational documents. As noted above, these new requirements become effective July 1, 2014, and nonprofit organizations should begin determining what steps need to be taken to comply with the Act now to ensure compliance by that date.

For more information contact the persons listed below:

Frank J. Patyi
Chair, Exempt Organizations Practice Group
(315) 218-8164
fpatyi@bsk.com

Hermes Fernandez
(518) 533-3209
hfernandez@bsk.com

Frank C. Mayer
(518) 533-3219
fmayer@bsk.com

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