What the New York Non-Profit Revitalization Act Means for Your Organization

Sasha Herzig on April 9, 2014

Have a non-profit?

Then you’ve got some big changes coming up in just a few short months. (And you can’t afford to ignore these changes.)

Effective July 1, 2014, the New York Non-Profit Revitalization Act will apply to New York non-profits, organizations that solicit charitable contributions in New York State (regardless of state of incorporation), and New York State charitable trusts.

Governor Cuomo signed the Act in an effort to reduce outdated burdens on non-profits and to strengthen governance and accountability by streamlining the formation process, easing the burden of regulatory obligations, and simplifying corporate transaction standards.

(To read the New York Attorney General’s press release on the Act and a summary of the Non-Profit Revitalization Act of 2013, click here.)

Below, we outline some of the Act’s new requirements (and try to explain them in a way that makes sense!)

Whether you are an existing non-profit or a non-profit just starting the incorporation process, we encourage you to consult with an attorney before July 1, 2014 to review and amend any existing corporate documents, including by-laws, policies and procedures, to ensure they are in compliance with the Act’s requirements.

Conflict of Interest Policy:

The Act requires all non-profits to now have a conflict of interest policy in place.

This policy must define “conflict of interest,” provide guidelines for disclosing any conflict of interest, prohibit any person with a conflict of interest from being present at, or participating in, deliberations on the matter, and require any conflict of interest to be documented in the corporate records.

Each director will now also be required to submit an annual disclosure statement to the board, detailing any conflict of interest relationships or transactions.

Related Party Transaction:

According to the Attorney General’s summary, transactions between a non-profit and insiders who stand to benefit, must be fully disclosed and non-profit boards must determine the transaction is fair, reasonable, and in the best interest of the organization.

When the related party has a substantial financial interest, the board must consider alternatives, to the extent available. Majority vote by the board must approve the substantial financial interest transaction and the board must document its basis for choosing the transaction, including what alternatives were available.

The Attorney General is now able to enjoin, void, or rescind unsuitable related party transactions. The Attorney General may also remove the directors or officers who approved the improper transaction.

Whistleblower Policy:

All New York non-profits and charitable trusts with 20 or more employees, and annual revenues over $1 million, must adopt a whistleblower policy.

This policy protects any director, officer, employee or volunteer of the organization, who comes forward with information regarding any alleged fraudulent action within the organization. The policy prevents anyone who comes forward from any intimidation, harassment, discrimination or other retaliation.

Included in the policy should be procedures for reporting violations and preserving confidentiality.

The policy must be distributed to directors, officers, employees and volunteers of the organization.

Financial Management:

The annual gross revenue guideline for filing a mandatory independent audit with the Attorney General’s office will now be raised to $500,000 (from $250,000) as of July 1, 2014, and will be raised again, to $750,000 as of July 1, 2017, and to $1 million as of July 1, 2021. This applies to all non-profits soliciting charitable contributions in New York, regardless of their incorporation state.

The annual gross revenue for filing a review report by an independent CPA with the Attorney General’s office will be raised to $250,000 (from $100,000) as of July 1, 2014.

The audit committee will be responsible for overseeing the accounting and financial reporting processes of the organization and the audit of its financial statements. The audit committee shall retain an independent auditor and review the results of the audit.

Additionally, for organizations with revenues over $1 million, the audit committee must conduct pre- and post-audit conferences with the auditor, as well as discuss material risks and weaknesses in internal controls identified by the auditor, along with other requirements as set forth in the Act.

This applies to both New York non-profits and charitable trusts, as well as any non-profit that solicits charitable contributions in the State of New York.

Board and Member Meeting Activities:

Notice of board and member meetings, waiver of notice, and action by unanimous written consent may now be made electronically. Board members may participate in meetings by video conference.

Additionally, no employee of the non-profit may serve as Board Chair, which will become effective January 1, 2015.

“Fundraising Counsel” Definition:

The Act clarifies that any individual engaged solely to draft grant applications for funding from a governmental agency or a tax-exempt organization is not considered a “fundraising counsel” for purposes of complying with New York’s registration and reporting requirements.

(For more information on the requirements for fundraising professionals, click here for our article, “How to Get the Most Out of Your Fundraising Professional”.)

Corporate Transactions:

Non-profits interested in merging with one or more organizations will now only be required to obtain approval from the Attorney General.

Non-profit boards, or committees of the board, may now approve non-substantial real estate transactions, such as purchases, sales, mortgages, and leases, by a majority vote. Property transactions involving all or substantially all of a non-profit’s assets must still be approved by two-thirds vote of the entire board.

Non-profits seeking to sell, lease, exchange, or dispose of all or substantially all of their assets need only obtain approval from the Attorney General.

Similarly, non-profits need only seek approval from the Attorney General to dissolve the organization. Organizations may appeal to the courts for approval (not required) and the Attorney General may refer petitions for dissolution to the courts (when appropriate).

Incorporation Requirements:

Previously, New York non-profits were categorized as Type A, B, C or D based on the organization’s purpose. Now, categorization will simply be “charitable” or “non-charitable.”

All existing organizations will automatically be classified as one or the other – Type B and C non-profits will be reclassified as “charitable,” Type A as “non-charitable,” and Type D as “charitable” or “non-charitable” depending on purpose.

Additionally, non-profits will no longer need to describe their anticipated, planned activities in their certificate of incorporation. The certificate of incorporation need now address only their corporate purpose.

The Act will eliminate the pre-approval of the Commissioner of Education for many non-profits whose purposes include educational activities, with the exception of schools, museums and libraries.

How to Ensure a Smooth Transition:

The above list may seem exhausting already, but it’s not exhaustive. The Act includes many more changes and new requirements that we haven’t even touched on yet.

The good news, though, is that you still have a few months to prepare (if you start now).

And the even better news is that you don’t have to do it alone!

Given the large scale of the Act, we urge you to contact us at elena@volkovalaw.com so that we may review your existing corporate documents and ensure that you are in compliance with the Act, effective July 1, 2014.

We look forward to having the opportunity to work with your non-profit and are excited to see the positive impact the New York Non-Profit Revitalization Act will have on your organization.

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