A new law taking effect on July 1, 2014 modernizes the Not-For-Profit Corporation Law and aims to make New York a more hospitable environment for charitable corporations and charitable trusts. Governor Cuomo signed the law with overwhelming bipartisan support late last year. The law incorporates the recommendations of a 32-member Leadership Committee appointed by Attorney General Eric Schneiderman.
Key provisions of the Nonprofit Revitalization Act of 2013 (NRA) include:
Audit Oversight: NY-registered charitable corporations ("NFPs") having revenues over $500,000.00 must file independent CPA audit reports with the Attorney General. The NFP boards or audit committees appointed by those boards must oversee an enhanced annual financial reporting process by, among other things, selecting and evaluating an independent auditor; determining the scope and planning of the audit; and reviewing the results of the audit. These steps will make NFP boards more aware of the accounting and financial reporting process, and better informed when using funds for charitable purposes. Comparable provisions for charitable trusts are found in the newly adopted §8-1.9 of the Estate Powers & Trust Law.
Conflict of Interest Policy: NFPs must adopt a conflict of interest policy defining what constitutes a conflict of interest; procedures for disclosing and reporting such a conflict, when a conflict can be waived; and what procedure will be followed when a waiver is appropriate. Strict record keeping is required. Board members must annually complete a conflict disclosure form. New board members must complete a conflict disclosure form prior to service.
Related Party Transactions: NFPs must follow enhanced procedures before considering and approving related party transactions. These are transactions of an NFP involving Board members, key employees or their relatives, or businesses or entities that they control or own. The Attorney General can bring an action to prevent or overturn a related party transaction that is not in the best interest of the NFP or to seek restitution from or remove Board members.
Whistleblower Policy: NFPs with five or more employees and annual revenues over $1,000,000.00 must enact whistleblower policies and procedures for investigating and protecting from retaliation those who report improper or fraudulent conduct.
Substantial Transaction and Real Property Transactions: The NRA simplifies and streamlines procedures for making significant corporate changes, including amending certificates of incorporation, entering into mergers, consolidations and acquisitions, selling assets and purchasing or selling real property with approval of the Attorney General. Judicial approval is no longer required.
NFP Boards will be able to by and sell real property by a simple majority. A two-third majority vote will be required only if the transaction will compromise all or substantially all of the NFP's.
The above is a brief overview of some of the changes that the new legislation will bring. It is imperative that NFP Board members and officers familiarize themselves with the NRA and make sure that NFP bylaws and policies are amended or enacted in order to ensure compliance before the law takes effect.