NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A8072
SPONSOR: Brennan (MS) TITLE OF BILL: An act to amend the executive law, the banking law,
the benevolent orders law, the education law, the general business law,
the insurance law, the mental hygiene law, the public authorities law,
the private housing finance law, the public lands law, the racing, pari-
mutuel wagering and breeding law, the religious corporations law, the
surrogate's court procedure act, the not-for-profit corporation law, and
the estates, powers and trusts law, in relation to reform of charitable
organizations; and to repeal certain provisions of the not-for-profit
corporation law relating thereto; and providing for the repeal of
certain provisions upon expiration thereof
PURPOSE OR GENERAL IDEA OF BILL:
To amend the Not-for-Profit Corporation Law (N-PCL), the Estates, Powers
and Trusts Law (EPTL), and Article 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unnecessary and outdated burdens on nonprofits and to enhance nonprofit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:
Section 1 of the bill establishes the title of the Act as the "Nonprofit
Revitalization Act of 2013".
Section 2 amends section 171-a of the Executive Law to clarify that
individuals who function solely as grant writers are not "fund raising
counsel."
Sections 3, 3-a and 3-b amend 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 gross revenue threshold for
an independent CPA's audit will escalate to $750,000 on July 1, 2017 and
$1 million on July 1, 2021. The Attorney General will have authority to
request an independent CPA's audit from nonprofits with gross revenue
over $250,000 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 4 and 129 amend section 177 of the Executive Law and section
8-1.4 of the Estates, Powers and Trusts Law to make clear in these stat-
utes that the Attorney General may accept nonprofit registrations and
other filings electronically.
Sections 5, 6, 8, 30, 34, 36, 39-41, 44, 50-52, 54, 57, 61, 76, 79, 81,
86, 93, 94, 102, 103 and 105-126 are amended to make conforming changes
to the Not-for-Profit Corporation Law to facilitate the simplification
of corporate "types" pursuant to section 38 of the bill.
Section 6-a amends section 216 of the Education Law to make clear that
only schools, colleges, universities and entities providing post-secon-
dary education may not be incorporated without the consent of the
commissioner of the state education department.
Sections 7 and 9 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 10-23 make conforming changes to various statutes to effect the
simplification of corporate "types" pursuant to sections 29 and 38 of
the bill.
Sections 24-27 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 28 amends the Surrogate's Court Procedure Act to effect the
provisions of section 130 of the bill.
Section 29 adds new definitions to section 102 of the Not-for-Profit
Corporation Law to implement provisions of the bill.
Section 31 repeals paragraph (a) of section 104-A of the Not-for-Profit
Corporation Law.
Section 32 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.
Sections 33 and 74 amend sections 112 and 715 of the Not-for-Profit
Corporation Law to create new requirements to protect against self-deal-
ing. 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 35 repeals section 113 of the Not-for-Profit Corporation Law.
Section 37 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.
Section 38 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). Corporations formed for both charitable and non-
charitable purposes under the Not-for-Profit Corporation Law will be
deemed charitable for purposes of this statute. The amended section will
"grandfather" nonprofits that have already formed as a particular type
so that they will not have to file new paperwork or amend contracts.
Sections 42, 87 and 104 make conforming changes to the Not-for-Profit
Corporation Law to effect the purposes of section 48 of the bill.
Sections 43 and 45 amend sections 304 and 306 of the Not-for-Profit
Corporation Law to correct technical errors.
Section 46 adds a new section 309 of the Not-for-Profit Corporation Law
making clear that officers, directors, key employees, and agents of
corporations are subject to personal jurisdiction of New York Courts and
may be served with process in a suit by the Attorney General.
Section 47 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 48 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.
Section 49 repeals and adds a new paragraph (w) of section 404 that
permits a newly formed corporation to include language in its certif-
icate of incorporation making clear to the Department of State that its
purposes do not require agency notice or preapproval.
Section 53 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. If a committee approves the
transaction, it must promptly notify the board. The two-thirds voting
requirement 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 require-
ments for more significant transactions.
Sections 55 and 56 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 at any time.
Section 58 amends section 515 of the Not-for-Profit Corporation Law to
clarify that individuals who may benefit from compensation paid by the
corporation cannot participate in deliberations or voting on their own
compensation.
Section 59 amends section 520 of the Not-for-Profit Corporation Law to
add a reference to the Executive Law.
Section 60 amends section 555 of the Not-for-Profit Corporation Law to
make clear the continuing availability to the courts of the doctrine of
deviation.
Sections 62-66, 68 & 69 amend sections 605, 606, 609, 614, 621, 708, and
711 of the Not-for-Profit Corporation Law to allow facsimile and elec-
tronic 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 videocon-
ference, 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 67 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 70 and 71 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.
Section 72 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. State and local authorities, which are required
by the Public Authorities Law to perform substantially similar audit
oversight, will be deemed to be in compliance with this section.
Section 73 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 75 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 75 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.
Corporations that adopt conflict of interest and whistleblower policies
pursuant to any other law that are substantially similar to those
required will be deemed in compliance with these new sections.
Section 77 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.
Section 78 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.
Section 80 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 82 amends section 804 of the Not-for-Profit Corporation Law to
require that governmental agencies be notified within 30 business days
of acceptance by the Department of State of any certificate of amendment
that adds, changes or eliminates a purpose, power or provision whose
original inclusion would require the consent from, or notice to, that
governmental agency. The section is also revised to allow charities to
seek approval of changes from the Attorney General, in addition to the
traditional option of approval by the courts.
Sections 83-85 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 at any time.
Sections 88-92 amend sections 1001, 1002, 1002-a, 1003, 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 at any time.
The Attorney General will have the option to refer petitions for dissol-
ution to the courts if judicial review is more appropriate. The intent
of these provisions is to reduce the costs of dissolution so that chari-
table assets can be more quickly redirected for other charitable
purposes.
Sections 95-101, and 127-128 amend sections 1203, 1204, 1206, 1207,
1209, 1211-1215, 1611 and 1613 of the Not-for-Profit Corporation Law to
make technical corrections and allow entities in receivership and land
banks to provide certain notices online in addition to print newspaper.
Section 130 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, related party transactions, conflict of interest
policies and whistleblower policies that are applied to charitable
corporations by sections 72, 74 and 75 of the bill.
Section 131 is the severability clause.
Section 132 is the effective date.
JUSTIFICATION:
For too long, New York law and regulatory practices have placed unneces-
sary and costly burdens on the non-profit sector. Redundancies through-
out the system waste scarce taxpayer and nonprofit dollars. New York
must become a more hospitable environment for nonprofits. This bill will
modernize key provisions of New York law governing formation, dissol-
ution, transactions, and board procedures, reducing unnecessary burdens
and costs without sacrificing oversight or accountability. Implementing
these changes will create a more welcoming environment for new nonpro-
fits 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 July 1, 2014, provided, however, that the
amendments to section 172-b of the executive law made by section three
of this act shall expire and be deemed repealed June 30, 2017; provided
further that the amendments to section 172-b of the executive law made
by section three-a of this act shall take effect July 1, 2017 and shall
expire and be deemed repealed June 30, 2021; provided further that the
amendments to section 172-b ofthe executive law made by section three-b
of this act shall take effect July 1, 2021; provided further that
section seventy-three of this act shall take effect January 1, 2015;
provided further that section seventy-two of this act and paragraph (b)
of section 8-1.9 of the estates, powers and trusts law as added by
section one hundred thirty of this act shall not be applicable until
January 1, 2015 for any corporation or trust that had annual revenues of
less than 10,000,000 dollars in the last fiscal year ending prior to
January 1, 2014.
