New Requirements for New York Non-Profit Organizations10/08/2015 | By: Jay L. Hack, Esq. | Winter 2015 Newsletter
After a ten year struggle, the New York State Legislature finally brought the law of not-for-profit and religious corporations into the 21st Century. The change will have little or no effect on businesses, but if you are a member of the board of a local charity, or a trustee of your church, synagogue or mosque, or you hold another position in a charity or religious corporation, there are things that you need to know.
We will ignore the many technical changes, but here is a brief summary of some key substantive items. These new laws apply to most not-for-profit and religious corporations.
Financial Statement Filings with the Attorney General. Not-for-profit corporations (but not religious corporations) have always been required to file financial information if their revenues and support exceed certain minimums. The new law increases minimums so, for example, an accountant’s review of the financial statement is now required only if revenue and support exceeds $250,000 instead of $100,000. Audited financial statements are required if revenue exceeds $500,000, compared to $250,000 under the old law. These limits are scheduled to increase in the future.
Audit Committee. Not-for-profit corporations with annual revenue of over $500,000 must form an audit committee of independent directors to oversee the corporation’s financial reporting processes and the audit of the corporation’s financial statements. The committee is responsible for retaining an independent auditor and for reviewing with the auditor the results of the annual report. The committee must also oversee the adoption, implementation and compliance with the corporation’s conflict of interest policy and whistleblower policy. Audit committees of not-for-profit organizations with revenues over $1,000,000 must be even more involved in the planning and review stages of the auditing process. However, these rules do not apply to religious corporations formed under the Religious Corporation Law.
Conflict of Interest Policy. Every not-for-profit or religious corporation, regardless of its size, must adopt a conflict of interest policy to ensure that its directors, officers and key employees act in the corporation’s best interest. There are six specific items listed in the statute that must be included in the policy.
Related Party Transactions. All transactions between a company and any of its officers, directors or key employees, any relative of any director, officer or key employee, or any company that is at least 35% owned by any director, officer or key employee require special procedures and approval. For example, if you are an attorney and a member of the board of your church, then your law firm may not be paid by the church for legal services unless the board of trustees first considers alternatives to employing your law firm and then approves the arrangement by a majority vote. The alternatives reviewed and the basis for the approval must be documented.
Compensation Decisions. If a director, officer or member is going to benefit from any decision on compensation, that person may not participate in the deliberation or vote on that decision. The Board or Committee making the decision may ask the person to be present to answer questions and provide information but the person must leave the meeting during any deliberations.
Whistleblower Policy. Every not-for-profit or religious corporation with at least twenty employees and prior year revenue of more than $1,000,000 must have a whistleblower policy protecting persons who report suspected improper conduct from retaliation. The policy must provide that no director, officer, employee or volunteer who in good faith reports any action or suspected action that is illegal, fraudulent or in violation of any corporate policy, shall suffer intimidation, harassment, discrimination or other retaliation or, in the case of employees, adverse employment consequence.
Electronic Meetings. A company may conduct board and committee meetings by video conference. If the company wants director or committee consent without a meeting, it may get that consent by email – written signatures on paper are no longer required. Notices of meetings may also be sent by email, but if so, then they must be posted on the company’s website if it has one.
About the author: Jay L. Hack is a partner at Gallet Dreyer & Berkey LLP and head of the firm’s banking department. Mr. Hack is the immediate past Chair of the Business Law Section of the New York State Bar Association. Mr. Hack’s practice focuses on providing a full range of legal services to banks and other financial institutions. Mr. Hack can be reached at email@example.com.
About the author: Katherine Crispi, an intern at Gallet Dreyer & Berkey LLP, is a graduate of Wellesley College and a third-year law student at Fordham University School of Law, where she is Notes and Articles Editor on the Fordham International Law Journal. She can be reached at firstname.lastname@example.org.