AGENDALaw Revision Commission Roundtable Discussion
Albany Law School Campus, UHA Bldg., Room 300
1 Notre Dame Drive
Albany, New York 12208
Friday, February 22, 2013
A light lunch will be served during the meeting.
11:00 AM Welcome Peter Kiernan, Esq., Chairman
11:15 AM Introductions All
11:30 AM Discussion of the Commission’s Proposals regarding the NPCL
Meeting Materials Attached All
2:45 PM Concluding Remarks Peter Kiernan, Esq., Chairman
Proposals regarding the NPCL
Article 1 — Short title; definitions; application; certificates; miscellaneous
Amend section 114 to permit Supreme Court visitation and inspection of the books and records of all not-for-profit corporations (NPCs).
B. Right to Jury Trial
Limit the right to trial by jury in section 112(b)(1) to the right guaranteed by article I, section 2 of the New York State Constitution and provided by section 4101 of the Civil Practice Law and Rules.
C. Applicability of Common Law Doctrines
Provide that parens patriae and other common-law authorities of the Attorney General (and the common-law causes of action available to members, directors, officers, creditors and others) against NPCs and their members, directors and officers are not preempted by the NPCL, if those common law causes of action are independent of the NPCL’s statutory causes of action.
D. Charitable Solicitations
Continue the requirement that in order to solicit charitable contributions, the NPC’s certificate of incorporation must include such authority expressly, and the NPC must register with the Attorney General’s Charities Bureau.
Article 2 — Corporate purposes
A. Corporate Types
Replace the current four not-for-profit corporation types (A, B, C, and D) with two types: not-for-profit corporations with charitable purposes and not-for-profit corporations with other purposes defined as follows:
“Charitable corporation” means corporations whose purposes as contained in the certificate of incorporation or special law are exclusively charitable, educational, religious, scientific, testing for public safety and to foster national or international amateur sports competition or for the prevention of cruelty to children or animals, including without limitation, arts, cultural, environmental, health, human services, literary, public benefit, society benefit corporations and other publicly supported or private foundations recognized by the United States Internal Revenue Service as exempt from federal income taxation under section 501(c)(3) of the Internal Revenue Code of 1986, as amended, or any successor law.
“Other not-for-profit corporation” means any lawful non-business corporations including civic leagues, social welfare organizations, fraternal benefit societies, business leagues, chambers of commerce, labor, agricultural and horticultural organizations, social and recreational clubs, cemetery corporations, certain credit unions, war veterans posts and organizations, patriotic and political organizations, certain insurance organizations, and certain employee benefit organizations recognized by the Internal Revenue Service as federal income tax exempt under other subsections of section 501 or under section 527 of the Internal Revenue Code of 1986, as amended, or any successor law, other than those organizations exempt under section 501(c)(3) thereof.
Article 3 — Corporate Name and Service of Process
Expand section 301 (corporate name) to include the words “association”, “club”, “foundation”, “fund”, “institute”, “union”, and “society” in addition to “corporation”, “incorporated” or “limited”.
B. Service of Process
Clarify that the designation of the Secretary of State as the agent for service of process pursuant to section 304 applies to all domestic NPCs, not just those which were formed, or for which amended certificates of incorporation were filed, after the effect date of chapter 564 of the Laws of 1981.
Article 4 – Formation of Corporations
Clarify that the certificate of incorporation need not state the activities that the NPC intends to undertake.
B. Names and Addresses of Directors
Continue the requirement of section 402(a)(4) that the certificate of incorporation contain the names and addresses of the initial directors.
C. Service of Process on Officer or Director
Allow service on a NPC director or officer to be sufficient per se for service of process jurisdiction.
D. Agency Consents
Eliminate the prior agency consents required by section 404 for any of Department of State (DOS) filings, including incorporation, merger, sale of assets, and dissolution and substitute a 45-day notice to the relevant agency or government body during which time the agency can object.
Eliminate the requirement under section 406 (b-1) that a private foundation formed under the NPCL must publish an annual notice in a newspaper stating that its annual return is available for inspection.
Article 5 – Corporate Finance
A. Capital Contributions
Continue current requirement that capital contributions under section 502 consist of “money or other property, tangible or intangible, or labor or services actually received by or performed for the corporation or for its benefit or in its formation or reorganization, or a combination thereof.”
Continue subventions under section 504 and consider whether types of subordinated debt such as promissory notes can be allowed while continuing subventions.
Continue current requirement that bonds can be issued under section 506 only for “money or other property, tangible or intangible, or labor or services actually received by or performed for the corporation or for its benefit or in its formation or reorganization, or a combination thereof.”
D. Vote on Real Property Transfers
Eliminate the two-thirds vote of the entire board required by section 509 and provide that such transaction requires a vote by a majority of the board or a committee authorized by the board.
E. Vote for Distribution of Substantially All Corporate Assets
Continue the two-thirds vote required by section 510 and the requirement that a corporation formed for charitable purposes seek court approval.
F. Compensation of Members, Directors, or Officers
Amend section 515 to require that any compensation paid or benefits conferred upon members, officers and directors is done in accordance with new requirements governing executive compensation practices and related party transactions.
G. Additional Proposed Changes
Provide that the NPCL does not limit the application of cy pres or deviation.
Article 6 — Members
A. Notice of Meetings
Allow electronic transmission of notice of meetings under section 605.
B. Waiver of Notice of Meetings
Allow electronic transmission of waivers of notice under section 606.
Allow electronic transmission of proxies under section 609.
D. Consent to Action without a Meeting
Allow for unanimous consent to be accomplished electronically under section 614(a).
E. Right of Inspection of Books and Records
Allow electronic transmission of response to demand under section 621.
Article 7 — Directors and Officers
A. Number of Directors
Delete the definition of “entire board” in section 702 (“the total number of directors entitled to vote if there were no vacancies on the board”) and add the following definition at new subdivision 102 (6-A):
“entire board” means the total number of directors entitled to vote which the corporation would have if there were no vacancies. If the by-laws of any corporation provide that the board may consist of a range between a minimum and maximum number of directors, then the “entire board” shall consist of the number of directors within such range that were elected at the most recently held election of directors.
B. Audit Oversight
Enhance audit oversight.
C. Executive Compensation
Require an affirmative determination by a majority vote of the independent directors of the board that the total compensation paid to the NPC’s officers and its five highest-compensated key employees for purposes of the IRS Form 990, and affirmatively determine that the total compensation paid is fair, reasonable and commensurate with services provided.
Prohibit the CEO or any other employee of the NPC from serving as Chair of the Board under section 713.
E. Interested Directors and Officers
1. Amend section 715 to make it consistent with executive compensation proposal.
2. Amend section 715 to provide for approval of “compensation” rather than narrower term “salaries” of officers.
3. Require adoption of a whistleblower policy.
4. Require adoption of a conflicts of interest policy.
F. Fiduciary Duty
1. Amend subdivision 717(a) to provide that a governing board shall consider among other relevant considerations the long and short term needs of the corporation in carrying out its purposes, its present and anticipated financial requirements, expected total return on its investments, price level trends, and general economic conditions.
2. Amend subdivision 717 (b) to provide that if the director or officer has knowledge concerning the matter in question reported by a committee that would cause such reliance to be unwarranted, the director or officer shall not be considered to be acting in good faith.
3. Add a new subdivision (c) providing that directors are entitled to consider various factors such as short and long term interests of the corporation as well as the effect on the corporation’s mission and interests of the current and retired employees, the recipients of its services, and creditors in the context of a change or potential control of the corporation.
. G. Production of List of Directors and Officers
Delete the requirement under section 718 that the NPC must on demand produce the home addresses of its directors.
H. Actions on behalf of the Corporation
Amend section 720 to allow that actions for violations of article 7 may be maintained against key employees.
1. Amend sections 721 and 724 (court ordered indemnification) to require advance notice to the Attorney General.
2. Amend section 723 (c) which authorizes advance indemnification to provide that it is “upon receipt of an undertaking by or on behalf of such director or officer sufficient to ensure repayment of such amount” if found not entitled to be indemnified.
Article 9 — Merger and Consolidation
A. Approval by the Supreme Court
Continue the requirement of judicial approval under Article 9.
Article 10 – Dissolution
A. Approval of Plans of Dissolution
Continue the requirement of judicial approval under Article 10.