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Are You Ready For The New York Non-Profit Revitalization Act?

Corporate and Securities Alert | June 2, 2014
By: Carl Seldin Koerner and Lori S. Smith

The New York Non-Profit Revitalization Act, a major overhaul of the New York State Not-For-Profit Corporation law, becomes effective July 1, 2014. Whether you lead a not-for-profit entity (NFP) or serve on the board of an NFP you have probably already been alerted to the changes required for compliance with the new law. But if your NFP has not yet fully implemented the required changes, there is still time to complete a short list of action items to become compliant. 

The Act streamlines many aspects of NFP corporate governance by allowing electronic communications for boards and members, increasing the use of proxies, simplifying governmental approvals for certain transactions, and modernizing committee structures.  Many of these beneficial changes require action by the NFP to become effective, but there is little adverse consequence if the action is not taken immediately. However, certain changes effected by the Act are mandatory and must be in effect by July 1, 2014. 

One of the key requirements of the Act is that the NFP must have a conflicts of interest policy. The NFP must adopt and maintain a conflicts of interest policy which regulates transactions between the NFP and any interested directors, officers and key employees.

In furtherance of such policy, the NFP must have a system in place which requires directors to initially (and annually thereafter) submit to the NFP a written statement signed by each director disclosing any interests that might create a conflict.  Interests which must be reported include (i) entities in which the director is a shareholder, officer, director, member, owner or employee and with which the NFP has a relationship and (ii) any transaction in which the NFP is a participant and in which the director might have a conflicting interest.

The NFP must also identify a board committee comprised solely of “independent directors” to oversee the adoption of and compliance with the conflict of interest policy.  “Independent directors” are those who have not, within the last three years (i) been an employee of the NFP or any affiliate nor have any relative who is an employee of the NFP or any affiliate, (ii) received, or have a relative who has received more than $10,000 in direct compensation from the NFP or any affiliate nor (iii) been an employee or have a substantial financial interest (or have a relative who is an officer of or has a [substantial] financial interest in) any entity that has made payments to or received payments from the NFP or any affiliate thereof for property or services exceeding $25,000 or 2% of the NFP’s consolidated gross revenues.

If the NFP is required to file a certified financial statement with the Attorney General, the NFP board must have an “audit committee” comprised of independent directors. The audit committee is charged with overseeing all aspects of the NFP financial reporting processes including the engagement of an auditor.

If the NFP has more than 20 employees and annual revenue in excess of $1,000,000 the board must adopt a whistle blower policy which provides procedures for reporting violations or suspected violations of applicable laws or policies. 

In order to comply with the Act, a board should take the following actions prior to July 1, 2014:

  1. Adopt a conflicts of interest policy.      
  2. Establish a conflicts of interest disclosure process including: a conflicts of interest disclosure form and requirement for initial and then annual completion of forms by directors, officers and key employees.
  3. Designate a committee (such as the audit committee), comprised entirely of independent directors to oversee the conflicts of interest policy.
  4. For NFP’s required to file annual audited financial statements, establish an audit committee of independent directors to oversee all of the accounting and financial reporting processes of the NFP.  The audit committee can also be give responsibility for overseeing the conflicts of interest process and the whistle blower process.
  5. If the NFP has more than 20 employees and revenues above $1,000,000 per year, adopt a whistle blower policy.

These few simple steps can achieve compliance with the Act. There is still time to make the necessary changes and celebrate the July 4th holiday weekend knowing that your NFP has moved in the direction of  better practices for corporate transparency and good governance. We are happy to address any questions about the Act or other aspects of not-for-profit governance and operations.

For additional information on these matters, please contact Carl Koerner (212.631.4403 | koenerc@whiteandwilliams.com) or Lori Smith (212.714.3075 | smithl@whiteandwilliams.com).

This correspondence should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult a lawyer concerning your own situation and legal questions.
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