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The History And Scope Of The Nonprofit Revitalization Act

The History and Scope of the Nonprofit Revitalization Act

The Nonprofit Revitalization Act is a New York State law that cleans up and tweaks some of the requirements of the New York Not-for-Profit Corporation Law. Stakeholders expressed concerns that prior processes were either unnecessary or too cumbersome for small nonprofits and the state. A stakeholder group formed a comprehensive set of new criteria with the aim of reducing unnecessary expense and procedures with the added benefits of enhancing governance and accountability.

Nuances of the Nonprofit Revitalization Act

The Nonprofit Revitalization Act was the first overhaul of laws that govern nonprofits in New York within the last 50 years. The purpose of the law was to reduce unnecessary regulatory burdens, reduce costs, and strengthen governance and accountability related to nonprofits.

The Nonprofit Revitalization Act amends several sections of the New York Not-for-Profit Corporation Law and other state laws such as the Executive Law, the Education Law, the Religious Corporations Law, and the Estates, Powers and Trusts Law.

Governor Andrew Cuomo signed the Act into law on December 18, 2013, and it took effect on July 1, 2014.

History of the Nonprofit Revitalization Act

In 2011, a diverse array of leaders and attorneys from the New York nonprofit sector convened under the name of the Leadership Committee on Nonprofit Revitalization. The goal of the committee was to foster a unique partnership between government and the nonprofit sector in order to bring about meaningful reform.

The committee made carefully vetted recommendations to the Attorney General that subsequently became law.

The Scope of the Nonprofit Revitalization Act

The Nonprofit Revitalization Act applies to New York nonprofits, education corporations, religious corporations, charitable trusts and other organizations that solicit charitable contributions in New York. Such organizations should be aware of how the changes may affect their organizations.

Changes That Affect Regulatory Burdens

The Act lessens reporting requirements for nonprofit organizations that have less than $250,000 in gross revenue and support. In addition, it raises the thresholds for organizations that need to file CPA Review Reports and CPA Audit Reports according to a designated schedule.

The new law also changes the categories of nonprofit organizations from A, B, C and D to two simple categories. The new categories are:

  1. Charitable corporations including charitable, educational, religious, scientific and literary corporations with cultural purposes, and charities dedicated to the prevention of cruelty to children or animals.
  2. Noncharitable corporations include all corporations that don’t fall into one of the categories listed above.

Another change that nonprofits welcome with the new Act is that they’re no longer required to list the activities they intend to carry out to further their nonprofit’s mission and stated purpose.

The Act makes several new changes for educational institutions. Schools, libraries, museums and historical societies will still be required to get approval from the Commission of Education. Colleges and universities will still need to get prior written authorization from the Board of Regents. What’s changed is that nonprofits for other educational purposes won’t have to get approval from the Commission of Education.

Along the lines of education, the new laws authorize mergers of educational and religious institutions, in addition to school and religious organization consolidations.

The new laws also give more authority to the Attorney General and the Department of State. The Department of State may now correct minor spelling and typographical errors in applications. The Attorney General may now approve modifications to an organization’s statement of purpose. The new law also permits the Attorney General to approve mergers, dissolutions and substantial asset sales.

Boards of directors also get some additional authority and benefits from the new law. Boards of directors and committees are now allowed to approve routine real estate transactions without approval from other state authorities.

The law also simplifies the categories for board committees. There is no longer any distinction between standing and special committees. Committee categories now fall into two types:

  1. Committees with only board directors
  2. Committees with board directors and non-board directors

Under the new Act, boards without members can now fix the number of directors by an action of the board rather than needing to amend the bylaws to do so.

In keeping with the advances of technology, the new law allows nonprofit boards to transmit notices electronically.

Changes That Enhance Governance and Accountability

The new Act coincides with best practices for good corporate governance in several ways.

The law mandates that board directors who get compensation from the nonprofit may not partake in discussions or voting related to their compensation. However, board directors who receive compensation may answer questions by the board and offer information that may help them in their decision-making.

The new law restricts employees of nonprofit organizations from serving as board chair or in any other title or position that has similar responsibilities as the board chair.

Under the new law, boards of directors are required to have oversight in certain areas. Larger nonprofits that fall under the requirement to file CPA audit reports will need to have oversight for the process. They will also need to have oversight for related party transactions and to follow the applicable rules.

While some other laws require or recommend certain policies, the Nonprofit Revitalization Act formally requires all nonprofits to develop and approve conflict of interest and whistleblower policies.

The new law also shifts the authority for bringing judicial proceedings against nonprofit-related party transactions to the Attorney General.

Issues for Nonprofit Boards to Review

Nonprofit boards are responsible for reviewing their bylaws, committees, policies and procedures to ensure that they comply with all parts of the Nonprofit Revitalization Act. The higher thresholds for gross revenue and support may reduce their regulatory requirements and streamline their reporting procedures. Nonprofit boards must carefully review their bylaws related to provisions in the Nonprofit Revitalization Act as it pertains to committee designations, notice, waivers of notice, rules on voting and fixing the number of board directors. It’s also important to review the organization’s audit charter and amend it, if necessary. Compliance with the Nonprofit Revitalization Act also requires nonprofits to have policies for conflict of interest, whistleblower and related party transactions. Boards should also be familiar with the 2016 updates to the Nonprofit Revitalization Act that include the topics of mergers, fiduciary oversight and operational transparency.

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