Bill Passed to Amend the New York Not-for-Profit Corporation Law
On December 11, 2015 Governor Andrew M. Cuomo signed into a law a bill amending New York’s Not-for-Profit Corporation Law (the “NPCL”), Estates Powers and Trusts Law (the “EPTL”) and Religious Corporations Law (the “RCL”). The amendments are intended in large part to clarify certain provisions of the New York Non-Profit Revitalization Act of 2013 (the “Act”), which reformed statutory requirements relating to governance of not-for-profit corporations and wholly charitable trusts in the State and expanded the Attorney General’s enforcement powers; most provisions of the Act went into effect in 2014.
A few key highlights from the legislative amendments:
• The NPCL definition of “independent director” is expanded to include a director who “is not and does not have a relative who is a current owner, whether wholly or partially, director, officer or employee of the corporation’s outside auditor or who has worked on the corporation’s audit at any time during the past three years.” (Corresponding amendments have been made to the EPTL.) This revision impacts which directors can perform the organization’s audit oversight function and implement and oversee the organization’s conflict of interest and whistleblower policies. It is unclear whether having “worked on” the audit is intended to be limited to participating in preparing the audited financials, or if it is intended to capture a broader range of activities.
• The NPCL definition of “related party” is modified to include any person who exercises the powers of directors, officers or key employees over the affairs of the corporation or any affiliate of the corporation (with corresponding amendments to the EPTL). This change expands the scope and applicability of the NPCL’s related party transaction provisions.
• The new legislation clarifies that a not-for-profit corporation director who has a conflict of interest or is a related party with respect to a transaction shall be counted in the quorum at a meeting at which the transaction is considered, even if he or she leaves the meeting during the vote on the transaction—a helpful technical amendment that resolves prior uncertainty around this issue.
• The NPCL’s definition of “affiliate” is amended to remove “under common control” from the relationships that result in affiliation. This change expands the definition of who can be an “independent director” and narrows the definition of who is a “related party” under the NPCL—both changes should be generally helpful to not-for-profit corporations.
• The RCL is amended to provide religious corporations the option of seeking the Attorney General’s approval to sell, mortgage or lease real property (for a term longer than five years) instead of seeking leave of court.
There are additional technical and clarifying amendments to the NPCL and EPTL.
The full text of the amendments is available here: https://www.nysenate.gov/legislation/bills/2015/s5868a