Res Ipsa Loquitor - The New Non-Profit Revitalization Act of 2013 By: Diana PowellESQ.

“It is not only what we do, but also what we do not do, for which we are accountable.”
—Moliere

The New York Non-Profit Revitalization Act of 2013 was signed into law by New York State Governor Andrew Cuomo last December and will take effect on July 1, 2014. This Act resulted from the culmination of efforts put forth by New York State Attorney General Eric Schneiderman and the Leadership Committee for Nonprofit Revitalization. The Leadership Committee was convened in 2011 by AG Schneiderman and consisted of members made up of experts, who worked together on the legislation to produce the first significant changes since 1969.

Investopedia defines a nonprofit organization as “a business entity that is granted tax-exempt status by the Internal Revenue Service. Donations to a nonprofit organization are often tax deductible to the individuals and businesses making the contributions. Nonprofit organizations must disclose a great deal of financial and operating information to the public, so that donors can ensure their contributions are used effectively.” The individual state’s laws within which they reside govern nonprofit organizations. Therefore, each state passes its own legislation with regard to nonprofit organizations.

The Act contains significant updates to the existing New York State laws, which govern nonprofit organizations within the state, “requiring that nonprofits enhance their oversight efforts and tighten governance measures.” (Root, Cooney, Pelletier)

According to experts, one of the major purposes of the Act is to revitalize the not-for-profit industry within New York State. (Carter, Fortgang) It does this by simplifying, modernizing and more clearly and succinctly defining internal procedures with regard to nonprofit organizations. (Carter, Fortgang) The end goal is to make nonprofit organizations existing within New York State more accountable and their procedures ultimately more transparent.

Some of the highlights of the Act include:
• The Act will require every nonprofit to adopt a conflict of interest policy.
• The Act will require nonprofits with 20 or more employees and more than $1 million in annual revenues to adopt a whistleblower policy.
• The Act will raise the gross revenue thresholds that trigger both an independent CPA audit and an independent CPA’s review of a nonprofit’s financial statements.
• While significant corporate events (such as exchanges, mergers and changes of purpose) currently require court approval followed by attorney general review, under the Act these events will require only attorney general review.
• Depending on the number of directors in the nonprofit, the Act may change the vote required to approve certain real estate transactions from a two-thirds vote to a majority vote.
• The Act will expand the disclosure requirement in related-party transactions to include “key employees” in addition to officers and directors. In addition, the Act will require the board to consider alternatives to any related-party transaction.
• The Act will prohibit employees from serving as chair of the board of directors (or in any officer position with similar authority, regardless of title). This provision will not take effect until July 1, 2015.
• The Act will allow board members to meet board procedures via electronic means such as facsimile or e-mail, and for board members to attend meetings via videoconference or Skype.
• The Act will prohibit an employee from being present during the discussion and decision-making process concerning his or her own compensation. (Pollak)

Another goal of the legislation is to help Board members of nonprofit organizations to act more responsibly and more efficiently while furthering the principles of their organizations. Careful consideration and implementation of the provisions of the Act need to be made by nonprofit organizations, in order to be compliant by the effective date of July 1, 2014

"According to experts, one of the major purposes of the Act is to revitalize the not-for-profit industry within New York State. It does this by simplifying, modernizing and more clearly and succinctly defining internal procedures with regard to nonprofit organizations.”

Diana K. Powell

Diana K. Powell, Esq. joined Westminster Consulting in September 2012 as Senior Legal Advisor. Previously she was a sole practitioner who advised educational organizations, government bodies and private corporations. Diana was responsible for negotiating agreements for high-tech software corporations...

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