May 2013 Joint Statement of Peter J. Kiernan and William Josephson

New York State Senate

Standing Committee on Corporations, Authorities and Commissions

Joint Statement of Peter J. Kiernan and William Josephson

New York, New York

May 24, 2013

Many excellent suggestions for Not-for-Profit Corporation Law amendment were made at the Albany hearing on May 22, 2013, and we expect more will be made today. Some of them, we believe, can readily be incorporated in S.3755-A. Others are important but require more study than time now permits:

  1. Cemeteries. NPCL Article 15 undoubtedly needs revision, and the excellent testimony of Ms. JoAnne P. Sullivan, President, New York State Association of Cemeteries, provides a basis for that consideration.
  2. Foreign Nonprofit Corporations in New York. NPCL Article 13 also needs to be completely restudied. The issues it raises are complex, involving balancing the interests of the state of incorporation in the internal governance affairs of the nonprofit and New York’s interest in regulating foreign nonprofits that have assets and otherwise do business in New York.
  3. Board Size and Independence. The current minimum and maximum size of NPCs and the extent to which independence should be required of some or all directors or trustees are important issues requiring further study.
  4. Director, Trustee, Officer and Employee Compensation. Hitherto, the Law Revision Commission has deferred to the Attorney General’s approach to this important and controversial issue. We are sympathetic to those who testified in Albany about the difficulties of complying with the different Internal Revenue Code standards for personal benefit and private inurement, applicable to many income tax exempt nonprofits; excess compensation and benefits applicable to publicly supported charities, and the self-dealing compensation and benefits rules applicable to private foundations, both under the Code and under provisions in the NPCL and EPTL. One also has to take into account the recently promulgated State rules on compensation applicable to State-funded nonprofits.
  5. Indemnification. The provisions on indemnification under both the NPCL and the Business Corporation Law defy understanding. Reference should be made to the treatment of this issue by the Model Nonprofit Corporation Law Third Revision and by the laws of Delaware and other states.

The Law Revision Commission’s bill does contain a simple amendment to NPCL indemnification designed to bring it into conformity with the BCL and overturn a decision in one of the Espada cases that left the charity holding the bag for the advance of attorneys fees when three of his employees pled and one was found guilty.

We invite a direction on a request from the Committee to the Law Revision Commission to study these issues and report by a defined date.

We will address other issues in a memorandum to the Senate and Assembly Committees.

We believe the testimony received by the Committee on May 22, 2013 and the commonality of views adduced on the key issues provides an excellent predicate for enacting legislation this session.

Thank you for your attention.