New York Nonprofit Revitalization Act signed into law
On Dec. 18, 2013, Governor Andrew Cuomo signed into law the New York Nonprofit Revitalization Act of 2013 (the Act). This legislation passed overwhelmingly in the Senate and Assembly in June 2013, and the majority of the provisions take effect on July 1, 2014.
This is the first major overhaul in more than 40 years of the laws that govern New York's nonprofit sector. The Act includes substantial reforms that cut red tape while enhancing governance and oversight of nonprofits.
The attorney general's office noted that "nonprofit organizations operating in New York generate hundreds of billions of dollars in annual revenue–more than any other state in the nation–and are responsible for one in seven jobs in New York state. The bill will make New York competitive with other states in continuing to attract and nurture the most vibrant nonprofits in the world, and it will make New York a model for nonprofit governance and oversight."
The Act will impact financial statement filing requirements and numerous governance requirements for nonprofit corporations and charities registered to conduct charitable solicitations in New York.
Impact on finance statement requirement for charities registered to conduct charitable solicitations in New York
Total support and revenue:
- Less than $100,001–no accountant's report required
- $100,001 to $250,000–review report required
- More than $250,000–audit report required
July 1, 2014 to June 30, 2017
- Less than $250,000–annual unaudited financial report required
- $250,000 to less than $500,000–GAAP-compliant financial report and independent CPA review report required
- More than $500,000–GAAP-compliant financial report and audited financial statements required
July 1, 2017 to June 30, 2021
- No change for less than $250,000
- $250,000 to less than $750,000–GAAP-compliant financial report and independent CPA review report required
- More than $750,000–GAAP-compliant financial report and audited financial statements required
July 1, 2021 and forward
- No change for less than $250,000
- $250,000 to less than $1 million–GAAP-compliant financial report and independent CPA review report required
- More than $1 million–GAAP-compliant financial report and audited financial statements required
Impact on governance requirements
The Act has a significant impact on governance requirements for all nonprofit corporations. Following are some highlights:
- Individuals who may benefit from compensation paid by the corporation cannot participate in deliberations or voting on their own compensation.
- No employee of a nonprofit corporation may also serve as chair of its board.
- The intent of this provision, as provided in the bill history, is to provide clear lines of accountability between management and the board and ensure independent board leadership.
- Nonprofits are required to adopt written conflict of interest policies.
- Nonprofits with 20 or more employees and annual revenues exceeding $1 million must adopt a whistle-blower policy.
- The prior law has been amended to protect the home addresses of nonprofit directors and officers.
- With respect to related-party transactions, a director, an officer or key employee who has an interest in the transaction must disclose in good faith to the board or an authorized board committee the material facts concerning such interest. The attorney general shall have the same status as the members, directors or officers and shall have the right to enjoin, void or rescind any related-party transaction or seek additional damages or remedies.
- The Act makes it clear that officers, directors, key employees and agents of corporations are subject to the personal jurisdiction of New York courts and may be served with process in a suit by the attorney general.
- The Act will allow nonprofit corporations seeking to sell, lease, exchange or dispose of substantially all of their assets to go through a one-step approval process (attorney general approval) instead of a more lengthy and expensive two-step process (court approval following attorney general review). Nonprofits will retain the right to seek court approval of the transaction at any time.
- The Act also allows fax and electronic transmission of board membership meeting notices, waivers of notice and votes requiring unanimous written consent. The amendments will also allow board members to participate in meetings via videoconference, Skype and other forms of video communication.
- The Act allows a one-step process for mergers of nonprofit corporations (attorney general approval) instead of the more lengthy and expensive two-step process (court approval following attorney general review). Nonprofits will retain the right to seek court approval of the transaction at any time.
- The Act grants the attorney general authority to approve charitable corporations' plans of dissolution. These corporations may appeal to the courts at any time. The attorney general may refer the petition for dissolution to the courts if judicial review is more appropriate.
- The Act also ends the requirement that private foundations publish notice of availability for public inspection of the Form 990-PF.
In light of these new laws, New York nonprofit organizations should review their operations and formal procedures and make internal operations changes as warranted.