Significant revisions to the New York State Not-for-Profit Law: What you need to know as a Board Member of a NYS Organization

By: Mary Anne Cody

The role of a charitable board member is not always as glamorous as it may sound, but if you volunteer your time as a board member for a New York State charity, you should be commended for giving back to our community. Your role not only requires you to attend meetings and volunteer at events running the gamut from bake sales to black-tie galas, you must also be aware of what rules govern your actions as a board member. The NYS Attorney General oversees our State’s charities, and has a very good publication outlining the responsibilities of a board member: Right from the Start: Responsibilities of Directors of Not-for-Profit Corporations.

As a board member, you should also be aware of the New York Non-Profit Revitalization Act of 2013 which will go into effect on July 1, 2014. This substantial reform to the Not-for-Profit Corporation law (“NPCL”) is designed to modernize the current law and is the first major change to the NPCL in over forty years. The following is a summary of the key provisions in the Act for board members of current not-for-profits:

Audit triggers:

The Act raises the gross revenue thresholds that trigger audit requirements from $250,000 in annual revenue to $500,000. The revenue trigger for audits will increase to $750,000 on July 1, 2017 and to $1 million on July 1, 2021. The requirement for a CPA review (a lesser procedure than an audit) is raised from $100,000 in annual revenue to $250,000. The Attorney General will always have the authority to request an independent audit for not-for-profits with gross annual revenue over $250,000. If an audit is required, the Act provides for certain oversight requirements of either the Board or the audit committee.

Board governance:

The Act requires that Boards of not-for-profit corporations undertake an independent review of any transactions between the not-for-profit and related parties and affirmatively determine that the transactions are in the entity’s best interest. In addition, the Act prohibits any employee of a not-for-profit corporation from serving as the Chair of the Board or any other position with similar responsibilities to a Board Chair position. The Act (following IRS suggested guidance) requires those entities which have not done so already to adopt a written conflict of interest policy. In addition, not-for-profits with 20 or more employees and annual revenue exceeding $1 million must adopt whistleblower policies.

The Act contains provisions to simplify governance such as authorizing the transmission of meeting notices, waivers and voting under unanimous written consents via facsimile or email. The Act also allows Board members to participate in meetings via video conferencing, Skype or other forms of video communication.

Simplification of approval process for major transactions:

The Act also streamlines the approval process for mergers, amendments and other major transactions. The current two-step process to merge or dissolve a not-for-profit corporation which requires both Attorney General and judicial approval will now only require Attorney General approval.

Many of these provisions in the Act will also be applicable to charitable trusts. It will be interesting to see how these rules will be put into practice for smaller entities. If you and your Board have questions as to how the new rules will impact you, the local representative of the NYS Charities Bureau can be a good starting point.

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