Proposed Amendments to New York’s Not-for-Profit Corporation Law Awaiting Governor’s Signature

In June 2016, the New York State Assembly and Senate passed bill A.10365-B/S.7913-B, amending the current Not-for-Profit Corporation Law (the “NPCL”) and the Estates, Powers and Trusts Law (the “EPTL”) to clarify and refine some of the changes to both laws effected as part of the 2013 New York Non-Profit Revitalization Act (the “NPRA”).  Modifications to this bill address related party transactions, key employees, audit committee and independent directors, formation of a committee, employees as board chairs, and conflict-of-interest and whistleblower policies.  Below is a summary of the major changes as quoted from the bill:

Related Party Transaction

• Exclusions to the definition of “related party transactions” would include, (i) transactions or related party interest that has little or no value, (ii) transactions in the ordinary course of business which are similarly available to others, not normally reviewed by the Board and (iii) act as a charitable benefit to a member of the charitable class which benefit is available to those in the same class on the same terms. 

Key Employee

• Replacing the term “key employee” with “key person” whereas this person, (i) exercises powers, or influences over the Organization similar to those of directors and officers, and (ii) manages alone or with others a substantial part of the Organization. 

Audit Committee/Independent Directors

• Establishing thresholds for financially interested individuals, prohibiting them from qualifying as independent directors if the amount received or paid by the corporation in any of the last three fiscal years exceeded the (i) lesser of $10,000 or 2% of the entity’s gross revenues if less than $500,000, (ii) $25,000 or 2% of revenue greater than $500,000 but less than $10,000,000 and (iii) $100,000 or 2% if gross revenues are over $10,000,000.
• Modifications to the term “payment” when dealing with independent director would exclude payments to the entity for services rendered if the services are available to the public on the same term and are not available from another source.
• Modifications to the term “compensation” when dealing with independent director would exclude expense for reimbursement that were reasonably incurred as a director or reasonable compensation for service as a director. 

Formation of a Committee

• Appointment of members of the committee shall be made by the majority of the board, in the case of a board of thirty or more, the appointment shall be made by at least three-quarters of the directors present at the time of a vote, if a quorum is present.
• Ex officio directors will be placed on certain committees of the board. 

Employees as Board Chairs

• Employees can serve as board chairs if the current board approves by a two-thirds vote as well as having this basis of approval in writing. 

Conflict-of-Interest and Whistleblower Policies

• Directors who are employees are unable to participate in any board or committee votes relating to the whistleblower policy. 
• Any subject of the whistleblower complaint must not be present at or participate in the board or committee deliberations on this vote. If approved by the Governor, all changes would be effective within 180 days from the date of approval.

References

http://legislation.nysenate.gov/pdf/bills/2015/A10365B

http://legislation.nysenate.gov/pdf/bills/2015/S7913B