Source: https://lawrevision.state.ny.us/not-for-profit-corporation-law-2/march-2015-memorandum-proposed-amendments-to-npr-act/
Timestamp: 2017-03-25 15:29:38
Document Index: 106410404

Matched Legal Cases: ['§ 4958', '§ 4958', '§406', '§ 8', '§ 8', '§ 719', '§ 8', '§ 8', '§ 8', '§ 711', '§8', '§ 621', '§ 172', '§ 8', '§ 8', '§ 8', '§ 8', '§ 1']

March 2014 Memorandum — Proposed Amendments to NPR Act | New York State Law Revision Commission
TO: Honorable Michael H. Ranzenhofer and Honorable James F. Brennan
CC: Michael Hettler; Fong Chan
FROM: Peter J. Kiernan, William Josephson, and Rose Mary Bailly
RE: Possible Revisions to New York Laws Chapter 549 – Non-Profit Revitalization Act of 2013 §
This memorandum presents observations regarding provisions of the Non-Profit Revitalization Act of 2013 (Chapter 549 or the Act) warranting additional review and other proposals with respect to the Not-for-Profit Corporation Law (NPCL) offered by the Commission or others.
All amendments and proposals discussed herein relate to the NPCL unless otherwise indicated.
I. Provisions of the Act warranting additional review
A. Definition of “charitable corporation”
The Act adds subparagraphs 3-a, 3-b to paragraph (a) of section 102 as follows:
(3-a) “CHARITABLE CORPORATION” MEANS ANY CORPORATION FORMED, OR FOR THE PURPOSES OF THIS CHAPTER, DEEMED TO BE FORMED, FOR CHARITABLE PURPOSES.
(3-b) “CHARITABLE PURPOSES” OF A CORPORATION MEANS PURPOSES CONTAINED IN THE CERTIFICATE OF INCORPORATION OF THE CORPORATION THAT ARE CHARITABLE, EDUCATIONAL, RELIGIOUS, SCIENTIFIC, LITERARY, CULTURAL OR FOR THE PREVENTION OF CRUELTY TO CHILDREN OR ANIMALS.
The definition in section 102(3-b) is not consistent with the definition in section 501(c)(3) of the Internal Revenue Code (hereinafter “Code”), unlike the definition of charitable corporations in the 2013 Commission bill set forth below. It omits language about testing for public safety and national or international amateur sports competitions. Subparagraph (3-b) should be amended to add the omitted organizations.
Consistency of the provisions of the NPCL with the Code is a recurrent issue as described in testimony offered at the Senate hearings. See also provisions relating to definitions of non-charitable corporation and key employees, provisions relating to compensation for directors and officers who are family members, and provisions relating to excess compensation.
2013 Commission Bill
(3-a) 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 five hundred one (c)(3) of the internal revenue code of 1986, as amended, or any successor law.
B. Definition of “entire board”
The Act added subparagraph (6-a) to section 102 as follows:
“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 THE CORPORATION PROVIDE THAT THE BOARD SHALL CONSIST OF A FIXED NUMBER OF DIRECTORS, THEN THE “ENTIRE BOARD” SHALL CONSIST OF THAT NUMBER OF DIRECTORS. 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 AS OF THE MOST RECENTLY HELD ELECTION OF DIRECTORS.
The City Bar Association proposes that the definition of “entire board” be amended to add the following language “or who retained office as a director” after the language “were elected” as follows:
“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 the corporation provide that the board shall consist of a fixed number of directors, then the “entire board” shall consist of that number of directors. 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 OR WHO RETAINED OFFICE AS A DIRECTOR as of the most recently held election of directors.
C. Definition of “non-charitable corporation”
The Act added subparagraph (9-a) to section 102 as follows:
“NON-CHARITABLE CORPORATION” MEANS ANY CORPORATION FORMED UNDER THIS CHAPTER, OTHER THAN A CHARITABLE CORPORATION, INCLUDING BUT NOT LIMITED TO ONE FORMED FOR ANY ONE OR MORE OF THE FOLLOWING NON-PECUNIARY PURPOSES: CIVIC, PATRIOTIC, POLITICAL, SOCIAL, FRATERNAL, ATHLETIC, AGRICULTURAL, HORTICULTURAL, OR ANIMAL HUSBANDRY, OR FOR THE PURPOSE OF OPERATING A PROFESSIONAL, COMMERCIAL, INDUSTRIAL, TRADE OR SERVICE ASSOCIATION.
The Act’s definition of “non-charitable corporations”, unlike that of the 2013 Commission bill, does not even begin to describe all the 28 or more exempt organizations described in section 501(c) of the Code, e.g., clubs, cemetery corporations, cooperative health insurers, various kinds of fraternal and benefit organizations, veterans organizations, legal services providers. The Commission proposal as set forth below should be reconsidered.
(9-a) “Beneficent corporation” means 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 subchapter f of chapter one of the internal revenue code of 1986, as amended, or any successor law, other than those organizations exempt under section five hundred and one (c)(3) thereof.
D. Definition of “independent auditor”
The Act adds a definition of independent auditor at section 102(20) as follows:
ANY CERTIFIED PUBLIC ACCOUNTANT PERFORMING THE AUDIT OF THE FINANCIAL STATEMENTS OF A CORPORATION REQUIRED BY SUBDIVISION ONE OF SECTION ONE HUNDRED SEVENTY-TWO-B OF THE
The term “independent auditor” relates only to audits required by Executive Law Article 7-A, registration of professional fundraisers. Audits and/or other “financial reports” are referred to in other NPCL and EPTL sections. The definition should, therefore, not be so limited, but should be limited to New York State licensed certified public accountants.
(20) “independent auditor” means any certified public accountant performing an audit of the financial statements of a corporation required by subdivision one of section one hundred seventy-two-b of the executive law or envisioned by section five hundred nine of this chapter.
E. Definition of “relative”
The Act defines “relative,” as it relates the definition of “Independent directors,” in subparagraph 21 of section 102(a) to include brothers and sisters and their spouses.
The definition of relative in section 4946(d) of the Code does not. This inconsistency does not seem objectionable, if only because section 4958(f)(4) of the Code adds them.
F. Key employee
The Act added subparagraph (25) to paragraph (a) of section 102 as follows:
“KEY EMPLOYEE” MEANS ANY PERSON WHO IS IN A POSITION TO EXERCISE SUBSTANTIAL INFLUENCE OVER THE AFFAIRS OF THE CORPORATION, AS REFERENCED IN 26 U.S.C. § 4958(F)(1)(A) AND FURTHER SPECIFIED IN 26 CFR 53.4958-3 (C), (D) AND (E), OR SUCCEEDING PROVISIONS.
Consistent with section 4946(b)(1) and (2) of the Code, “key employee” should be defined as “an individual having powers or responsibilities similar to those of officers, directors or trustees” including an “employee having authority or responsibility with respect to the act or acts or failure or failures to act.”
The City Bar Association has observed that the Act’s existing citations to the Code and regulations are incorrect.
Section 102(25) “key employee” means any [person who is in a position to exercise substantial influence over the affairs of the corporation, as referenced in 26 U.S.C. § 4958(f)(1)(a) and further specified in 26 CFR 53.4958-3 (c), (d) and (e), or succeeding provisions] INDIVIDUAL HAVING POWERS OR RESPONSIBILITIES SIMILAR TO THOSE OF OFFICERS, DIRECTORS, OR TRUSTEES, INCLUDING, WITH RESPECT TO AN ANY ACT OR FAILURE TO ACT, ANY EMPLOYEE HAVING AUTHORITY OR RESPONSIBILITY WITH RESPECT TO SUCH ACT OR FAILURE TO ACT, AS DEFINED IN SECTION FOUR-NINE HUNDRED FORTY -SIX (B)(1) AND (2) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND THE REGULATIONS THEREUNDER, AND ANY SUCCESSOR LAW OR REGULATION.
The new concept of key employee should be added to those subject to the prohibition of loans to directors and officers under section 716.
Section 716 of the not-for-profit corporation law, as amended by chapter 549 of the laws of 2013, is amended to read as follows:
No loans, other than through the purchase of bonds, debentures, or similar obligations of the type customarily sold in public offerings, or through ordinary deposit of funds in a bank, shall be made by a corporation to its directors or officers, OR KEY EMPLOYEES or to any other corporation, firm, association or other entity in which one or more of its directors or officers are directors or officers or hold a substantial financial interest, except a loan by one charitable corporation to another charitable corporation. A loan made in violation of this section shall be a violation of the duty to the corporation of the directors or officers authorizing it or participating in it, but the obligation of the borrower with respect to the loan shall not be affected thereby.
G. Supreme Court visitation
The Act amends section 114 (Visitation of Supreme Court) to provide as follows:
[Type B and Type C] CHARITABLE corporations, whether formed under general or special laws, with their books and vouchers, shall be subject to the visitation and inspection of a justice of the supreme court, or of any person appointed by the court for that purpose. If it appears by the verified petition of a member, DIRECTOR, OFFICER or creditor of any such corporation, that it, or its directors, officers, MEMBERS, KEY EMPLOYEES or agents, have misappropriated any of the funds or property of the corporation, or diverted them from the purpose of its incorporation, or that the corporation has acquired property in excess of the amount which it is authorized by law to hold, or has engaged in any business other than that stated in its certificate of incorporation, the court may order that notice of at least eight days, with a copy of the petition, be served on the corporation, THE ATTORNEY GENERAL and the
persons charged with misconduct, requiring them to show cause at a time and place specified, why they should not be required to make and file an inventory and account of the property, effects and liabilities of such corporation with a detailed statement of its transactions during the twelve months next preceding the granting of such order.
Unlike the 2013 Commission bill, the Attorney General’s enforcement rights under the Act would be limited to charitable corporations. However, the AG has many times confronted issues involving non-charitable corporations, social clubs (e.g., National Arts Club), trade associations (e.g., Racing Association, New York Stock Exchange before it converted to for profit), veterans organizations (too many to mention), cemetery corporations, political organizations, and so forth. There does not appear to be any good reason why the AG’s authority should be so limited, and the Commission’s proposal as set forth below should be reconsidered.
The Act’s amendments to section 115 regarding the power to solicit contributions support this recommendation because the regulation of solicitations therein is not limited to charitable corporations.
The Commission would amend section 114 as follows:
Visitation of supreme court. [Type B and Type C c] Corporations, whether formed under general or special laws, with their books and vouchers, shall be subject to the visitation and inspection of a justice of the supreme court, or of any person appointed by the court for that purpose. If it appears by the verified petition of a member, DIRECTOR, OFFICER, or creditor of any such corporation, that it, or its directors, officers, MEMBERS, KEY EMPLOYEES, or agents, have misappropriated any of the funds or property of the corporation, or diverted them from the purpose of its incorporation, or that the corporation has acquired property in excess of the amount which it is authorized by law to hold, or has engaged in any business other than that stated in its certificate of incorporation, the court may order that notice of at least eight days, with a copy of the petition, be served on the corporation, THE ATTORNEY GENERAL, and the persons charged with misconduct, requiring them to show cause at a time and place specified, why they should not be required to make and file an inventory and account of the property, effects and liabilities of such corporation with a detailed statement of its transactions during the twelve months next preceding the granting of such order. On the hearing of such application, the court may make an order requiring such inventory, account and statement to be filed, and proceed to take and state an account of the property and liabilities of the corporation, or may appoint a referee for that purpose. When such account is taken and stated, after hearing all the parties to the application, the court may enter a final order determining the amount of property so held by the corporation, its annual income, whether any of the property or funds of the corporation have been misappropriated or diverted to any other purpose than that for which such corporation was incorporated, and whether such corporation has been engaged in any activity not covered by its certificate of incorporation. An appeal may be taken from the order by any party aggrieved to the appellate division of the supreme court, and to the court of appeals, as in a civil action. No corporation shall be required to make and file more than one inventory and account in any one year, nor to make a second account and inventory, while proceedings are pending for the statement of an account under this section.
H. Receipt of notification by the New York State Education Department
The act amends paragraph (d) of section 404 as follows:
(d) Every CORPORATION WHOSE certificate of incorporation INCLUDES AMONG ITS PURPOSES THE OPERATION OF A SCHOOL; A COLLEGE, UNIVERSITY OR OTHER ENTITY PROVIDING POST SECONDARY EDUCATION; A LIBRARY; OR A MUSEUM OR HISTORICAL SOCIETY SHALL HAVE ENDORSED THEREON OR ANNEXED THERETO THE APPROVAL OF THE COMMISSIONER OF EDUCATION, OR IN THE CASE OF A COLLEGE OR A UNIVERSITY, THE
WRITTEN AUTHORIZATION OF THE REGENTS. ANY OTHER CORPORATION THE CERTIFICATE OF INCORPORATION OF which includes a purpose for which a corporation might be chartered by the regents of the university of the State of New York shall [have endorsed thereon or annexed thereto the consent of the commissioner of education.] PROVIDE A CERTIFIED COPY OF THE CERTIFICATE OF INCORPORATION TO THE COMMISSIONER OF EDUCATION WITHIN THIRTY BUSINESS DAYS AFTER THE CORPORATION RECEIVES CONFIRMATION FROM THE DEPARTMENT OF STATE THAT THE CERTIFICATE HAS BEEN ACCEPTED FOR FILING.
The Act does not address the practical problem of identifying who in the Department of Education should actually receive the notification.
The Commission proposal would address that practical difficulty by amended section 404 of the not-for-profit corporation law to add a new paragraph to read as follows:
EACH AGENCY, PUBLIC OFFICER, ORGANIZATION OR PERSON TO WHOM A NOTICE OF INCORPORATION IS TO BE SENT OR FROM WHOM A CONSENT TO INCORPORATION MUST BE OBTAINED, AS PROVIDED IN THIS SECTION, SHALL PUBLISH THE NAME AND ADDRESS OF THE REPRESENTATIVE IT HAS DESIGNATED TO RECEIVE SUCH NOTICE OR REQUEST FOR CONSENT. IF ANY AGENCY, PUBLIC OFFICER, ORGANIZATION OR PERSON TO WHOM A REQUEST FOR CONSENT HAS BEEN SENT DOES NOT CONSENT OR OBJECT, SETTING FORTH THE REASONS FOR SUCH OBJECTION, WITHIN FORTY-FIVE DAYS AFTER THE RECEIPT OF SUCH REQUEST, THE CONSENT SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN GIVEN AND THE SECRETARY OF STATE SHALL FILE THE CERTIFICATE OF INCORPORATION.
I. Purchase, sale, mortgage and lease of real property
The Act amends section 509 as follows:
(A) No CORPORATION SHALL purchase [of] real property [shall be made by a corporation and no corporation shall sell, mortgage or lease real property, unless authorized by the vote of] UNLESS SUCH PURCHASE IS AUTHORIZED BY THE VOTE OF A MAJORITY OF DIRECTORS OF THE BOARD OR OF A MAJORITY OF A COMMITTEE AUTHORIZED BY THE BOARD, PROVIDED THAT IF SUCH PROPERTY WOULD, UPON PURCHASE THEREOF, CONSTITUTE ALL, OR SUBSTANTIALLY ALL, OF THE ASSETS OF THE CORPORATION, THEN THE VOTE OF two-thirds of the entire board[, provided that if] SHALL BE REQUIRED, OR, IF there are twenty-one or more directors, the vote of a majority of the entire board shall be sufficient.
(B) NO CORPORATION SHALL SELL, MORTGAGE, LEASE, EXCHANGE OR OTHERWISE DISPOSE OF ITS REAL PROPERTY UNLESS AUTHORIZED BY THE VOTE OF A MAJORITY OF DIRECTORS OF THE BOARD OR OF A MAJORITY OF A COMMITTEE AUTHORIZED BY THE BOARD; PROVIDED THAT IF SUCH PROPERTY CONSTITUTES ALL, OR SUBSTANTIALLY ALL, OF THE ASSETS OF THE CORPORATION, THEN THE VOTE OF TWO-THIRDS OF THE ENTIRE BOARD SHALL BE REQUIRED, OR, IF THERE ARE TWENTY-ONE OR MORE DIRECTORS, THE VOTE OF A MAJORITY OF THE ENTIRE BOARD SHALL BE SUFFICIENT.
(C) IF A CORPORATION AUTHORIZES A COMMITTEE TO ACT PURSUANT TO PARAGRAPHS (A) AND (B) OF THIS SECTION, THE COMMITTEE SHALL PROMPTLY REPORT ANY ACTIONS TAKEN TO THE BOARD, AND IN NO EVENT AFTER THE NEXT REGULARLY SCHEDULED MEETING OF THE BOARD.
This amendment is ill-drafted. It raises two questions. The first is whether purchase money mortgages are subject to Board authorization. The answer would appear to be no, although they were, and should be. The second question is whether “the vote of a majority of the directors of the board” is the same or different from “the vote of a majority of the entire board.”
J. Endowments
The Act amends section 513 as follows:
(a) A corporation which is, or would be if formed under this chapter, [classified as] a [Type B] CHARITABLE corporation shall hold full ownership rights in any assets consisting of funds or other real or personal property of any kind, that may be given, granted, bequeathed or devised to or otherwise vested in such corporation in trust for, or with a direction to apply the same to, any purpose specified in its certificate of incorporation, and shall not be deemed a trustee of an express trust of such assets. Any other corporation subject to this chapter may similarly hold assets so received, unless otherwise provided by law or in the certificate of incorporation.
Section 513(a) is designed to protect endowments. Many non-charitable non-profits receive and hold endowments, e.g., social clubs. Section 513(a) should not be limited to charitable corporations. The 2013 Commission bill would not have done so.
Paragraph (a) of section 513, as amended by chapter 549 of the laws of 2013, is amended to read as follows:
(a) A corporation [which is, or would be if formed under this chapter, a charitable corporation] shall hold full ownership rights in any assets consisting of funds or other real or personal property of any kind, that may be given, granted, bequeathed or devised to or otherwise vested in such corporation in trust for, or with a direction to apply the same to, any purpose specified in its certificate of incorporation, and shall not be deemed a trustee of an express trust of such assets. Any other corporation subject to this chapter may similarly hold assets so received, unless otherwise provided by law or in the certificate of incorporation.
1. Directors and officers who are family members
The Act amends 515(b) as follows:
(b) A corporation may pay compensation in a reasonable amount to members, directors, or officers, for services rendered, and may make distributions of cash or property to members upon dissolution or final liquidation as permitted by this chapter. NO PERSON WHO MAY BENEFIT FROM SUCH COMPENSATION MAY BE PRESENT AT OR OTHERWISE PARTICIPATE IN ANY BOARD OR COMMITTEE DELIBERATION OR VOTE CONCERNING SUCH PERSON’S COMPENSATION; PROVIDED THAT NOTHING IN THIS SECTION SHALL PROHIBIT THE BOARD OR AUTHORIZED COMMITTEE FROM REQUESTING THAT A PERSON WHO MAY BENEFIT FROM SUCH COMPENSATION PRESENT INFORMATION AS BACKGROUND OR ANSWER QUESTIONS AT A COMMITTEE OR BOARD MEETING PRIOR TO THE COMMENCEMENT OF DELIBERATIONS OR VOTING RELATING THERETO.
This amendment would effectively prohibit corporations whose directors and officers are all family members, for example, most private foundations under the Code, from paying each or any of them reasonable compensation. While such payments are rare, it should be clarified as to whether this prohibition was intended. Section 4942 of the Code permits reasonable compensation to private foundation managers for services actually provided. Section 515(b), as amended by Chapter 549, would effectively prohibit corporations the directors and officers of which are all family members – most private foundations under the Internal Revenue Code – from paying any of them reasonable compensation. While such payments are rare, section 4942 of the Code permits reasonable compensation to private foundation managers for services actually provided.
Paragraph (b) of section 515 of the not-for-profit corporation law, as amended by chapter 549 of the laws of 2013, is amended to read as follows
PROVIDED, HOWEVER, THAT THIS PARAGRAPH SHOULD NOT APPLY TO A CHARITABLE CORPORATION (1) THAT IS A PRIVATE FOUNDATION FOR PURPOSES OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR SIMILAR PROVISION OF ANY SUCCESSOR LAW AND (2) A MAJORITY OR MORE OF WHOSE DIRECTORS ARE NOT INDEPENDENT; PROVIDED FURTHER THAT SUCH COMPENSATION AND BENEFITS ARE REASONABLE AND FOR SERVICES ACTUALLY PROVIDED UNDER THE APPLICABLE STANDARDS OF THE CODE AND THE REGULATIONS THEREUNDER.
2. Excess Compensation
The subject of excess compensation, payment of excessive compensation and benefits by NPCs, not just charities, is certainly an issue both federally and for New York as well as other states. Section 4958 of the Code deals with section 501(c)(3) excess compensation and benefits. The NPCL could be amended at sections 406 and 715(f) to address the subject both for charitable and non-charitable corporations.
The section heading and section 406 of the not-for-profit corporation law, as amended by chapter 490 of the laws of 2010, is amended to read as follows
§406 Private foundations and PUBLICLY SUPPORTED CHARITABLE corporations, as defined in the United States internal revenue code of [1954] 1986; provisions included in the certificate of incorporation
(a) The following provisions are hereby included in the certificate of incorporation of every domestic corporation, heretofore or hereafter formed, to which this chapter applies in whole or in part, and which is “private foundation” as defined in section 509 of the United States internal revenue code of [1954] 1986 (“code”):
(1) The corporation shall distribute such amounts for each taxable year at such time and in such manner as not to subject the corporation to tax on undistributed income under section 4942 of the code.
(2) The corporation shall not engage in any act or self-dealing which is subject to tax under section 4941 of the code.
(3) The corporation shall not retain any excess business holdings which are subject to tax under section 4943 of the code.
(4) The corporation shall not make any investments in such manner as to subject the corporation to tax under section 4944 of the code.
(5) The corporation shall not make any taxable expenditures which are subject to tax under section 4945 of the code.
Except as provided in paragraph (b), this paragraph applies notwithstanding any other provision of the certificate of incorporation or any direction in a gift instrument.
(d) Nothing in this section shall impair the rights and powers of the courts or the attorney-general of this state INCLUDING TO ENFORCE THE PROVISIONS INCLUDED IN CERTIFICATES OF INCORPORATION AS PROVIDED IN THIS SECTION.
(f) The following provision is included in the certificate of incorporation of any domestic not-for-profit charitable corporation: THE CORPORATION SHALL NOT ENGAGE IN ANY ACT WHICH IS SUBJECT TO TAX UNDER SECTION 4958 OF THE CODE.
Paragraph (f) of section 715(f), as amended by chapter 549 of the laws of 2014, is amended to read as follows:
(f) The fixing of [salaries] THE COMPENSATION AND BENEFITS of officers, DIRECTORS, KEY MEN AND EMPLOYEES, if not done in or pursuant to the by-laws, shall require the affirmative vote of a majority of the entire board unless a higher proportion is set by the certificate of incorporation or by-laws AND SHALL BE CONSISTENT WITH THE STANDARD SET FORTH IN SECTION 406.
L. Board committees
The Act amends section 712(e) as follows:
(e) Committees, other than [standing or special] committees of the board, whether created by the board or by the members, shall be committees of the corporation. Such committees OF THE CORPORATION may be elected or appointed in the same manner as officers of the corporation, BUT NO SUCH COMMITTEE SHALL HAVE THE AUTHORITY TO BIND THE BOARD. Provisions of this chapter applicable to officers generally shall apply to members of such committees. SUCH COMMITTEES OF THE CORPORATION SHALL BE ELECTED OR APPOINTED IN THE MANNER SET FORTH IN THE BY-LAWS, OR IF NOT SET FORTH IN THE BY-LAWS, IN THE SAME MANNER AS OFFICERS OF THE CORPORATION.
The new last sentence of section 712(e) is redundant and should be deleted because the existing second sentence of section 712(e) is sufficient.
M. Board Chairman as President
The Act amends section 713(a) to provide that a corporation may have both a chair and a president.
The amendment did not change the last sentence which says that no person may be both president and secretary. Corporate governance best practices provide that no person should be both chair and president. Similarly, no person who is chair should be also secretary, and no person who is chair or president should also be treasurer. Section 713(a) should be so amended.
Paragraph (a) of section 713 of the not-for-profit corporation law, as amended by chapter 549 of the laws of 2013, is amended to read as follows:
(a) The board may elect or appoint a chair or president, or both, one or more vice-presidents, a secretary and a treasurer, and such other officers as it may determine, or as may be provided in the by-laws. These officers may be designated by such alternate titles as may be provided in the certificate of incorporation or the by-laws. Any two or more offices may be held by the same person, except the offices of president OR CHAIR and secretary, PRESIDENT OR CHAIR AND TREASURER or the offices corresponding thereto.
N. Board Member as Employee
The Act adds a new section 713(f) which provides that no employee of the NPC shall serve as the Chair of the Board or hold any other title with similar responsibilities.
This provision was suggested by the Attorney General’s office. (It also appears in the 2013 Commission Bill.) NYPIRG has raised concern about this provision. NYPIRG’s board of directors consists of students, one of whom serves as president, normally for a term of one year. The student receives an annual “stipend” for the term that he or she serves. NYPIRG is concerned that a stipend would be considered wages or salaries, thereby making the appointee an employee of NYPIRG, in violation of this provision.
NYPIRG indicated that there are other similar groups or associations throughout the state, in which a student receives an annual stipend for serving as president of the board of such group.
O. Interested Directors
The Act amends section 715(b) to provide that with respect to related party transactions:
(B) WITH RESPECT TO ANY RELATED PARTY TRANSACTION INVOLVING A CHARITABLE CORPORATION AND IN WHICH A RELATED PARTY HAS A SUBSTANTIAL FINANCIAL INTEREST, THE BOARD OF SUCH CORPORATION, OR AN AUTHORIZED COMMITTEE THEREOF, SHALL:
(1) PRIOR TO ENTERING INTO THE TRANSACTION, CONSIDER ALTERNATIVE TRANSACTIONS TO THE EXTENT AVAILABLE;
(2) APPROVE THE TRANSACTION BY NOT LESS THAN A MAJORITY VOTE OF THE DIRECTORS OR COMMITTEE MEMBERS PRESENT AT THE MEETING; AND
(3) CONTEMPORANEOUSLY DOCUMENT IN WRITING THE BASIS FOR THE BOARD OR AUTHORIZED COMMITTEE’S APPROVAL, INCLUDING ITS CONSIDERATION OF ANY ALTERNATIVE TRANSACTIONS.
The question is why limit the interested directors and officers provisions of section 715(b) to charitable corporations.
Paragraph (b) of section 715(b) of the not-for-profit corporation law, as amended by chapter 549 of the laws of 2013, is amended to read as follows:
(b) with respect to any related party transaction [involving a charitable corporation and] in which a related party has a substantial financial interest, the board of such corporation, or an authorized committee thereof, shall:
P. Non-charitable insurance companies
The Act amends the opening paragraph of subsection (b) of section 6704 of the insurance law as follows:
The superintendent may pursuant to this article issue a license to a nonprofit property/casualty insurance company that is organized as a [type B] CHARITABLE corporation [pursuant to paragraph (b) of section two hundred one] AS DEFINED IN PARAGRAPH (A) OF SECTION ONE HUNDRED TWO (DEFINITIONS) of the not-for-profit corporation law if such company: . . .
The Act also amends subsection (a) of section 6706 of the insurance law as follows:
(a) Except as otherwise provided in this article, where inconsistent with this article, or where the context otherwise requires, all of the provisions of this chapter and the rules and regulations of the superintendent, relating to all insurers and those relating to property/casualty insurance companies transacting the same kind or kinds of insurance shall be applicable to a nonprofit property/casualty insurance company organized as a [type B] CHARITABLE corporation AS DEFINED IN PARAGRAPH (A) OF SECTION ONE HUNDRED TWO (DEFINITIONS) OF THE NOT-FOR-PROFIT CORPORATION LAW AND FORMED pursuant to paragraph [(b)] (A) of section two hundred one of the not-for-profit corporation law and licensed pursuant to subsection (b) of section six thousand seven hundred four of this article. Where any of such provisions of law refer to a corporation, company or insurer, such references, when read in connection with and applicable to this article, shall mean such a nonprofit property/casualty insurance company.
The Act would amend the Insurance Law with respect to “charitable” insurance companies. Consideration should be given to whether “non-charitable” but nonprofit insurance companies, e.g., mutual insurance companies, can be organized under the NPCL or only under the Insurance Law.
Q. Fiduciary’s failure to comply with EPTL § 8-1.9
The Act adds section 8-1.9 to the Estate Powers and Trusts Law (EPTL) which provides that the governance provisions of the NPCL also apply to trusts. The Act also amends section 711 of the Surrogate’s Court Procedure Act (SCPA) relating to the revocation or suspension of letters issued to a fiduciary, to make failure to comply with EPTL § 8-1.9 grounds for fiduciary removal.
SCPA § 719 also relates to fiduciary removal and should, therefore, be similarly amended.
Like EPTL § 8-1.9, EPTL § 8-1.4 also imposes registration and filing duties on trustees (very broadly defined to include charitable corporations). No removal or suspension remedy is provided. Consistency suggests that either EPTL § 8-1.4 or, preferably, SCPA §§ 711 and 719 be amended so to provide.
Section 711 of the surrogate’s court procedure act, as amended by chapter 457 of the laws of 2002, is amended to read as follows:
13. IN THE CASE WHERE THE TRUSTEE HAS FAILED TO COMPLY WITH PARAGRAPH (C) OF SECTION 8-1.9 OF THE ESTATES, POWERS AND TRUSTS LAW.
Section 719 of the surrogate’s court procedure act, as amended by chapter 457 of the laws of 2002, is amended to read as follows:
11. WHERE THE TRUSTEE HAS FAILED TO COMPLY WITH PARAGRAPH © OF SECTION 8-1.9 OF THE ESTATES, POWERS AND TRUSTS LAW.
R. Formation of charitable and non-charitable corporations on or after July 1, 2014
The Act amends section 201 to provide that, consistent with its July 1, 2014 effective date and the repeal of the Types A-D corporations, corporations formed under the Act on or after July 1, 2014 will either be a charitable corporation or a non-charitable corporation.
If the general effective date of Chapter 549 should be extended beyond July 1, 2014, all those July firsts in the amended section 201, and elsewhere will have to change.
S. Audit Requirements
Several audit requirements under the Act appear to require reconsideration because it is not clear whether the Legislature (a) intended that the audit requirements be limited to filers under Article 7-A of the Executive Law and (b) understood how few charities would be affected. The testimony offered on behalf of the Office of the Attorney General at the May 2013 public hearings demonstrates that the audit requirements were intended by him to apply only to Article 7-A filers, which is a small fraction of registered New York State NPCs.
Approximately 65,000 charities are registered with the New York State Law Department’s Charities Bureau. Of these only approximately 589 charities (more than half of which are out-of-state) registered their professional fundraising contracts with the Bureau in 2012 as required by Executive Law Article 7-A, because they were raising money from New Yorkers. The Act’s audit requirement is further limited to Article 7-A filers with certain levels of gross annual revenue and support. Under the Act, these levels increase in stages from $500,000, to $750,000 to $1,000,000 over the seven year period following the Act’s effective date.
Adding to the confusion, section 132 of the Act, which governs the Act’s effective date, provides that the audit oversight requirements of new section 712-a for Article 7-A filers and for charitable trusts under EPTL §8-1.9(b) do not take effect until January 1, 2015, and apply only to NPCs and trusts with revenues, not assets, of $10,000,000 or more. Of them, few if any, are Article 7-A filers.
What follows are a number of proposed changes with respect to annual reports and the applicability of the oversight requirements of new section 712-a to all NPCs.
Section 519 requires a verified annual report of all NPCs, but a report certified by an independent public or certified public accountant may be substituted. The requirements of Section 519, NPCL § 621(e), and Executive Law § 172, as it would be amended, and the financial reports required by EPTL § 8.1-4 and EPTL § 8.1-9, as it would be added, should be made consistent. One way to address these concerns is to amend sections 519, 621, and 712-a(b), and EPTL § 8.1-9, as it would be added as follows:
Section 519 of the not-for-profit corporation law, as last amended by chapter 213 of the laws of 1974, is hereby amended to add a new subsection (6) to subdivision (a) as follows:
(6) a corporation that has gross assets in excess of ten million dollars or gross revenues in excess of one million dollars, in place of the verified report its president and treasurer may present, have an audit report prepared by an independent certified public accountant in accordance with the compliance requirements of section 172-b of the Executive Law and present such audit report to the annual meeting of its members, or if it has no members, to the annual meeting of its board.
Subdivision (e) of section 621 of the not-for-profit corporation law, as amended by chapter 847 of the laws of 1970, as it would be amended by section 66 of Chapter 549 of the laws of 2013, is hereby amended to read as follows:
(e) Upon the written request of any person who shall have been a member of record for at least six months immediately preceding HER OR his request, or of any person holding, or thereunto authorized in writing by the holders of, at least five percent of any class of the outstanding capital certificates, the corporation shall provide to such member an annual balance sheet and profit and loss statement or a financial statement performing a similar function for the preceding fiscal year THAT COMPLIES WITH THE APPLICABLE REQUIREMENTS OF SECTION 519 OF THIS CHAPTER and, if any interim balance sheet or profit and loss or similar financial statement has been distributed to its members or otherwise made available to the public, the most recent such interim balance sheet or profit and loss or similar financial statement. The corporation shall be allowed a reasonable time to prepare such annual balance sheet and profit and loss or similar financial statement.
The introductory paragraph of section 712-a(b) of the non-for-profit corporation law, as it would be added by section 72 of chapter 549 of the laws of 2013, is hereby amended to read as follows:
(b) The board, or a designated audit committee of the board comprised solely of independent directors, of any corporation required to file an independent certified public accountant’s audit report with the attorney general pursuant to subdivision one of section one hundred seventy-two-b of the executive law OR TO PRESENT TO ITS MEMBERS OR DIRECTORS OR BOTH AN AUDIT REPORT PURSUANT TO SECTION 519 OF THIS CHAPTER and that in the prior fiscal year had or in the current fiscal year reasonably expects to have annual gross revenue in excess of one million dollars OR GROSS ASSETS IN EXCESS OF TEN MILLION DOLLARS shall, in addition to those duties set forth in paragraph (a) of this section:
A similar amendment would or should be made to EPTL § 8-1.9 as it would be added by section 130 of the Act.
Subdivision (f) of section 8.1-4 of the Estates, Powers and Trusts law should be amended to add a new subsection (3) as follows:
(3) Trustees required by section 8.9-1 of this chapter to file an audit report with the attorney general may satisfy the financial reporting requirements of this section by filing such report.
II. Additional Commission Proposals
A. Agency notification
The Commission had previously suggested an amendment to section 404 of the NPCL to eliminate the prior approval requirement for certain NPCs including:
• a trade or business association;
• a corporation that provides for the care of destitute, delinquent, abandoned, neglected or dependent children;
adult victims of domestic violence, single mothers, child day care centers;
• a hospital service or a health service or a medical expense indemnity plan or a dental expense indemnity plan;
• a cemetery corporation;
• corporation for prevention of cruelty to animals;
• a corporation which has as its purpose the establishment of a Young Men’s Christian Association; and
•a corporation which solicits funds for or otherwise benefit the armed forces of the United States or of any foreign country, or their auxiliaries, or of this or any other state or any territory.
The Commission proposes to retain the preapproval requirement for the following NPCs:
• fire corporations;
• unions;
• banking corporations;
• insurance corporations;
• organizations of the American Legion;
• health maintenance organizations;
• medical organizations as defined in article 44 of the Public Health Law;
• organizations requiring the approval of the commissioner of mental health;
• and organizations providing services relating to substance abuse or alcohol abuse.
Subdivisions (a), (b), (c), (e), (g), (h), (I), (s), (t), (u), (v), and of section 404 of the not-forprofit corporation law are hereby amended to read as follows:
Section 404. Approvals, Notices and consents
(a) Every [certificate of incorporation] CORPORATION which includes among its purposes the formation of a trade or business association shall [have endorsed thereon or annexed thereto the consent of] PROVIDE A CERTIFIED COPY OF THE CERTIFICATE OF INCORPORATION TO THE ATTORNEY GENERAL WITHIN THIRTY BUSINESS DAYS AFTER THE CORPORATION RECEIVES CONFIRMATION FROM THE DEPARTMENT OF STATE THAT THE CERTIFICATE HAS BEEN ACCEPTED FOR FILING.
b)(1) Every [certificate of incorporation] CORPORATION which includes among its purposes the care of destitute, delinquent, abandoned, neglected or dependent children; the establishment or operation of any adult care facility, or the establishment or operation of a residential program for victims of domestic violence as defined in subdivision four of section four hundred fifty-nine-a of the social services law, or the placing-out or boarding-out of children or a home or shelter for unmarried mothers, excepting the establishment or maintenance of a hospital or facility providing health-related services as those terms are defined in article twenty-eight of the public health law and a facility for which an operating certificate is required by articles sixteen, nineteen, twenty-two and thirty-one of the mental hygiene law; or the solicitation of contributions for any such purpose or purposes, shall [have endorsed thereon or annexed thereto the approval of ] PROVIDE A CERTIFIED COPY OF THE CERTIFICATE OF INCORPORATION TO THE commissioner of the office of children and family services WITHIN THIRTY BUSINESS DAYS AFTER THE CORPORATION RECEIVES CONFIRMATION FROM THE DEPARTMENT OF STATE THAT THE CERTIFICATE HAS BEEN ACCEPTED FOR FILING or with respect to any adult care facility, PROVIDE A CERTIFIED COPY OF THE CERTIFICATE OF INCORPORATION TO the commissioner of health WITHIN THIRTY BUSINESS DAYS AFTER THE CORPORATION RECEIVES CONFIRMATION FROM THE DEPARTMENT OF STATE THAT THE CERTIFICATE HAS BEEN ACCEPTED FOR FILING.
(2) A corporation whose statement of purposes specifically includes the establishment or operation of a child day care center, as that term is defined in section three hundred ninety of the social services law, shall provide a certified copy of the certificate of incorporation, each amendment thereto, and any certificate of merger, consolidation or dissolution involving such corporation to the office of children and family services within thirty days after the filing of such certificate, amendment, merger, consolidation or dissolution with the department of state. This requirement shall also apply to any foreign corporation filing an application for authority under section thirteen hundred four of this chapter, any amendments thereto, and any surrender of authority or termination of authority in this state of such corporation.
(c) Every [certificate of incorporation] CORPORATION which includes among [the] its purposes [of the corporation,] the establishment, maintenance and operation of a hospital service or a health service or a medical expense indemnity plan or a dental expense indemnity plan as permitted in article forty-three of the insurance law, shall PROVIDE A CERTIFIED COPY OF THE CERTIFICATE OF INCORPORATION TO the superintendent of financial services and the commissioner of health WITHIN THIRTY BUSINESS DAYS AFTER THE CORPORATION RECEIVES CONFIRMATION FROM THE DEPARTMENT OF STATE THAT THE CERTIFICATE HAS BEEN ACCEPTED FOR FILING.
(e) Every [certificate of incorporation of a] cemetery corporation, except those within the exclusionary provisions of section 1503 (Cemetery corporations) shall [have endorsed thereon or annexed thereto the approval of ] PROVIDE A CERTIFIED COPY OF THE CERTIFICATE OF INCORPORATION TO the cemetery board WITHIN THIRTY BUSINESS DAYS AFTER THE CORPORATION RECEIVES CONFIRMATION FROM THE DEPARTMENT OF STATE THAT THE CERTIFICATE HAS BEEN ACCEPTED FOR FILING.
(g) Every [certificate of incorporation of a] corporation for prevention of cruelty to animals shall [have endorsed thereon or annexed thereto the approval of] PROVIDE A CERTIFIED COPY OF THE CERTIFICATE OF INCORPORATION TO the American Society for the Prevention of Cruelty to Animals WITHIN THIRTY BUSINESS DAYS AFTER THE CORPORATION RECEIVES CONFIRMATION FROM THE DEPARTMENT OF STATE THAT THE CERTIFICATE HAS BEEN ACCEPTED FOR FILING[, or, if such approval be withheld thirty days after application therefor, a certified copy of an order of a justice of the supreme court of the judicial district in which the office of the corporation is to be located, dispensing with such approval, granted upon eight days’ notice to such society].
(h) Every [certificate of incorporation of ] CORPORATION WHICH HAS AS ITS PURPOSE THE ESTABLISHMENT OF a Young Men’s Christian Association shall [have endorsed thereon or annexed thereto the approval of] PROVIDE A CERTIFIED COPY OF THE CERTIFICATE OF INCORPORATION TO the chairman of the national board of Young Men’s Christian Associations WITHIN THIRTY BUSINESS DAYS AFTER THE CORPORATION RECEIVES CONFIRMATION FROM THE DEPARTMENT OF STATE THAT THE CERTIFICATE HAS BEEN ACCEPTED FOR FILING.
(I) Every [certificate of incorporation] CORPORATION which [indicates that the proposed corporation is] has as its purpose to solicit funds for or otherwise benefit the armed forces of the United States or of any foreign country, or their auxiliaries, or of this or any other state or any territory, shall [have endorsed thereon or annexed thereto the approval of] PROVIDE A CERTIFIED COPY OF THE CERTIFICATE OF INCORPORATION TO the chief of staff WITHIN THIRTY BUSINESS DAYS AFTER THE CORPORATION RECEIVES CONFIRMATION FROM THE DEPARTMENT OF STATE THAT THE CERTIFICATE HAS BEEN ACCEPTED FOR FILING.
[(s) Repealed by L.1997, c. 468, § 1, eff. Sept. 25, 1997.]
[(t)] (s) Every certificate of incorporation which includes among its purposes and powers the establishment or maintenance of a hospital or facility providing health related services, as those terms are defined in article twenty-eight of the public health law, or the solicitation of contributions for any such purpose or two or more of such purposes, shall have endorsed thereon the approval of the public health and health planning council.
[(u)] (t) Every certificate of incorporation which includes among the purposes of the corporation, the establishment or operation of a substance abuse, substance dependence, alcohol abuse, alcoholism, or chemical abuse or dependence program, or the solicitation of contributions for any such purpose, shall have endorsed thereon or annexed thereto the consent of the commissioner of the office of alcoholism and substance abuse services to its filing by the department of state.
[(v)] (u) Every certificate of incorporation which includes among the purposes of the corporation, the establishment, maintenance and operation of a nonprofit property/casualty insurance company, pursuant to article sixty-seven of the insurance law, shall have endorsed thereon or annexed thereto the approval of the superintendent of financial services.
[(w)] (v) Every certificate of incorporation in which the name of the proposed corporation includes the terms: “school,” “education,” “elementary,” “secondary,” “kindergarten,” “prekindergarten,” “preschool,” “nursery school,” “museum,” “history,” “historical,” “historical society,” “arboretum,” “library,” “college,” “university,” “PUBLIC TELEVISION,” “PUBLIC RADIO STATION,” or other term restricted by section two hundred twenty-four of the education law; “conservatory,” “academy,” or “institute,” or any abbreviation or derivative of such terms, shall have endorsed thereon or annexed thereto the consent of the commissioner of education.
The 2013 Commission bill amends subparagraph (1) of paragraph (b) of section 112 as follows:
(1) If an action, it is triable by jury as a matter of right AS GUARANTEED BY ARTICLE I, SECTION 2 OF THE CONSTITUTION AND PROVIDED BY SECTION FORTY-ONE HUNDRED ONE OF THE CIVIL PRACTICE LAW AND RULES.
The conferring of the right to trial by jury by section 112(b)(1) should not confer rights to trial by jury in addition to those guaranteed by article I, section 2 of the New York State Constitution and provided by section 4101 of the Civil Practice Law and Rules. From time to time Attorney General adversaries have asserted that section 112(b)(1) confers a right to a jury in all such actions, even if equitable relief is sought.
C. Clarification of Attorney General’s Power
The 2013 Commission bill amends paragraph (a) of section 112 as follows:
(11) TO ENFORCE THE PARENS PATRIAE POWER AND ANY OTHER COMMON LAW AUTHORITY OF THE ATTORNEY GENERAL AND ANY COMMON-LAW CAUSES OF ACTION AVAILABLE TO MEMBERS, DIRECTORS, OFFICERS, CREDITORS AND OTHERS AGAINST A DOMESTIC OR FOREIGN CORPORATION AND ITS MEMBERS, DIRECTORS AND OFFICERS WHICH ARE NOT PREEMPTED BY THIS CHAPTER.
This subdivision would make clear, in view of the decision of the Court of Appeals in People v. Richard A. Grasso, 111 N.Y.3d 64, 893 N.E.2d 105, 862 N.Y.S.2d 828 (2008), that the parens patriae and other common-law authorities of the Attorney General (and by the same logic the common-law causes of action available to members, directors, officers, creditors and others) against not-for-profit corporations 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. See Assured Guaranty (UK) Ltd. v. J.P. Morgan Investment Management, Inc., 18 N.Y.3d 341, 962 N.E.2d 765, 939 N.Y.S.2d 274 (2011)(private parties may bring common law, not-Martin-Act causes of actions for fraud) and the Attorney General’s excellent brief amicus in that case. Justice Catterson’s dissent and concurrence in People v. Greenberg, 95 A.D.3d 474, 485–498, 946 N.Y.S.2d 1, 11-18 (1st Dep’t 2012) makes clear how troublesome the hostile and loose language in Grasso may become.
The 2013 Commission bill amends section 112 as follows:
(E) NO PROVISIONS OF THIS CHAPTER SHALL PREEMPT WELL-PLEADED COMMON LAW OR EQUITABLE CAUSES OF ACTION OR PROCEEDINGS BROUGHT BY THE ATTORNEY GENERAL AGAINST CORPORATIONS, DIRECTORS, OFFICERS, KEY EMPLOYEES OR AGENTS, IF SUCH CAUSES OF ACTION ARE INDEPENDENT OF CAUSES OF ACTION, IF ANY, BASED ON VIOLATIONS OF THIS CHAPTER
. Amendments Proposed by the Law Revision Commission.
Testimony at the Senate hearings supported consolidation and simplification of the NPCL’s unduly long and complex indemnification provisions. The NPCL contains six provisions governing indemnification: sections 721 (nonexclusivity of statutory provisions for indemnification), 722 (authorization for indemnification), 723 (payment of indemnification other than by court award), 724 (indemnification of officers and directors by a court), 725 (other provisions affecting indemnification of directors and court officers, and 726 (indemnification insurance).
These various indemnification provisions are prolix. In addition, indemnification insurance which is governed by section 726 is now commonplace, making detailed regulation no longer necessary. such detail.
The Commission’s proposed consolidation incorporates the indemnification requirements of sections 721, 722, 723, and 726 into a new section 722, slightly modifies court ordered indemnification of section724, and retains section 725.
Sections 721, 723 and 726 of the not-for-profit corporation law, as last amended by chapter 368 of the laws of 1987, are hereby REPEALED.
Section 722 of the not-for-profit corporation law, as amended by chapter 368 of the laws of 1987, is REPEALED and a new section 722 is added to read as follows:
SECTION 722. AUTHORIZATION FOR INDEMNIFICATION OF DIRECTORS AND OFFICERS, EMPLOYEES, AND AGENTS; INSURANCE
(a) A corporation may indemnify against expenses, including judgments, fines, excise taxes, amounts paid in settlement, attorneys’ fees, court costs and disbursements actually and necessarily incurred as a result of such action or proceeding, or any appeal thereof, any person,
(I) who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, or any appeal thereof, whether civil, criminal, administrative or investigative (including an action by or in the right of the corporation); and
(ii) who has acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, that person had no reasonable cause to believe that its conduct was unlawful.
A person who may be indemnified under this section shall include a person (I) whose testator or intestate is or was a director, officer, employee or agent of the corporation, or, (ii)who is or was serving in any capacity at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, estate, employee benefit plan or other enterprise;
(b)The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had reasonable cause to believe that the person’s conduct was unlawful.
© No indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable, including liability to the corporation, unless and only to the extent that the court, in which such action or suit was brought, shall determine, upon application, that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnification for such expenses (including attorney’s fees, court costs and disbursements), judgments, fines, excise taxes, and amounts paid in settlement that the court shall deem necessary and proper.
(d) Expenses (including attorneys’ fees, court costs and disbursements) incurred by an officer, director, employee or agent of the corporation in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the board of directors of the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking in accordance with civil practice law and rules article 25 by or on behalf of such director, officer, employee or agent to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified as authorized in this section. Such expenses (including attorneys’ fees, court costs and disbursements) incurred by former directors, officers employees or agents of the corporation or by persons, serving at the request of the corporation as directors, officers, employees or agents of another corporation, partnership, joint venture, trust or other enterprise, may be so paid upon such further terms and conditions, if any, as the board of directors of the corporation deems appropriate.
(e) Any indemnification or advancement under this section (unless ordered by a court) shall be made by the board of directors of the corporation only as authorized in the specific case upon a determination that indemnification of the present or former director, officer, employee or agent is proper in the circumstances because the person has met or in the case of an advance can be reasonably expected to meet the applicable standard of conduct set forth in subdivision (a) of this section:
(I) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum; or
(ii) by a committee of such directors designated by majority vote of such directors, even though less than a quorum; or
(iii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion; or
(iv) by the members, if any.
(f) The indemnification and advancement provided by, or granted pursuant to, the other subsections of this section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any certificate of incorporation, bylaw, agreement, vote of members or of disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office. A right to indemnification or to advancement of expenses arising under a provision of the certificate of incorporation or a bylaw shall not be eliminated or impaired by an amendment to the certificate of incorporation or the bylaws after the occurrence of the act or omission that is the subject of the civil, criminal, administrative or investigative action, suit or proceeding for which indemnification or advancement of expenses is sought, unless the provision in effect at the time of such act or omission explicitly authorizes such elimination or impairment after such action or omission has occurred.
(g) A corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, estate, employee benefit or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the corporation would have the power to indemnify such person against such liability under this section.
(h) For purposes of this section, references to “the corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, estate, employee benefit plan or other enterprise, shall stand in the same position under this section with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued.
Subdivision (a) of section 724 of the not-for-profit corporation law, as last amended by chapter 368 of the laws of 1987, is hereby amended to read as follows:
(a) Notwithstanding the failure of a corporation to provide indemnification, and despite any contrary resolution of the board or of the members in the specific case under section [723] 722 [(Payment of indemnification other than by court award)] (AUTHORIZATION FOR INDEMNIFICATION OF DIRECTORS AND OFFICERS, EMPLOYEES, AND AGENTS; INSURANCE), indemnification [shall] MAY be awarded by a court to the extent authorized under section 722 [, and paragraph (a) of section 723]. Application therefor may be made, in every case, either:
III. A. 4463/S. 2156
This bill amends the Executive Law to add a new section 178 which requires any professional fundraiser, professional solicitor, or fundraising counsel (PFPSFC) shall complete an acceptable course of instruction in the law and ethics of fundraising and philanthropy. Completion of the course will result in the issuance of a certificate the AG.
The justification offered for the bill is as follows;
Professional fundraisers, professional solicitors, fundraising counsels or charitable organizations that are engaged in fundraising must be held to ethical standards to ensure their events are done in an appropriate manner. This measure will prevent corruption, and minimize additional illegal activities that can occur from holding such events.
The bill has been introduced repeatedly over the past several years and does not appear to raise any objections.
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