How NY’s Nonprofit Revitalization Act Affects Your Organization

At the end of 2013, New York signed into law the Nonprofit Revitalization Act (NPRA), which is designed to reform the statutory governance requirements for nonprofit organizations. This is one of the most sweeping pieces of nonprofit legislation in recent history. This post will clarify how it affects your nonprofit organization.

Most of the law will take effect beginning July 1, 2014, whose provisions affect not-for-profit corporations and wholly charitable trusts.

Parts of the law apply only to organizations with more than $500,000 in revenue per year. Today’s post will address only the governance requirements affecting all nonprofit corporations and trusts, regardless of size.

If you’re just starting a nonprofit in New York, this law will still affect you. Keep this in mind as you plan your new organization!

The Act:

What follows is a summary of the Act’s governance requirements for all not-for-profit corporations. It should not be interpreted as legal advice, rather as a set of guidelines as you plan and update your internal procedures:

1. Compensation: No person who may benefit from a compensation agreement may be present or participate in those discussions or voting. Any background information must be presented at a board meeting or to a committee prior to commencement of deliberation or voting on the matter.
2. Chair of the Board: No employee may also serve as chair.

The Act goes into great detail about Related Party Transactions and Conflict of Interest Policies, which affect all not-for profit corporations and wholly charitable trusts:

1. Related Party Transactions: A related party transaction (RPT) is defined as an arrangement where one party has a financial interest, and the organization is a participant. The board must determine the RPT to be fair, reasonable, and in the organization’s best interest. The related party (a director, officer, key employee) must fully disclose the material facts of his interest. Similar to the compensation restriction, no related party involved in the RPT may deliberate or vote, but may present background information at a board meeting or to a committee prior to commencement of deliberation or voting on the matter. After alternative transactions to the RPT are considered, it must be approved by a majority vote, and documented in writing.
2. Mandatory Conflict of Interest Policy: Every covered organization must adopt a conflict of interest policy, if one does not already exist. The conflict of interest policy ensures that officers, directors, and key employees act in the best interest of the organization. This policy must be signed by each director prior to its initial election, and annually thereafter.  For a sample conflict of interest policy, download our attorney-drafted template. Carefully review this document and customize it for your organization.
3. Policy Oversight: The board or a designated audit committee must oversee adoption and compliance with the conflict of interest policy.

If your organization has more than 20 employees, or has revenue greater than $500,000 per year, the Act contains additional requirements. I’ve covered them in another post.

Additionally, if your organization is registered to collect charitable donations, you face new annual reporting requirements, outlined here.

Conclusion:

The purpose of the NPRA is to update and to reform the requirements for New York nonprofit organizations. That being said, forming and running a compliant nonprofit under the new law is still both challenging and of utmost importance.

Below are a few useful tools for helping your nonprofit become compliant. If you have questions about forming or running your nonprofit in any state, contact us.

Tools for your nonprofit organization:

Nonprofit Bylaws Template

Conflict of Interest Policy

Sources:

Bill No A08072 (New York Nonprofit Revitalization Act)