Nonprofit Revitalization Act Employed Board Chair Prohibition Delayed to 2017

Oct 29, 2015

On October 26, 2015 Governor Cuomo signed into law Chapter 388 of the Laws of New York of 2015 (Assembly Bill A7641/Senate Bill 5738) delaying from January 1, 2016 to January 1, 2017 the effective date of the provision of the New York Not-for-Profit Corporation Law (“NPCL”) that will prohibit an employee of a corporation organized under the NPCL from serving as the chair of the board of the corporation or holding any other title with similar responsibilities.1  The prohibition was initially added to the NPCL by the Nonprofit Revitalization Act of 2013,2 the subject of our previous Clients & Friends Memorandum published on January 10, 2014.  The sponsors of the bills, Assemblymember James F. Brennan and Senator Michael H. Ranzenhofer, have stated that “the Legislature requires more time to study the impact of th[e] prohibition on not-for-profit corporations.”3  The effective date of the prohibition was previously delayed from January 1, 2015 to January 1, 20164 on the same grounds.5  Earlier this year, Senator Ranzenhofer introduced legislation that would repeal the prohibition completely,6 reasoning that “certain not-for-profit corporations specifically hire a person to serve as the chair or president of their board, which is different from the typical situation of an employee-employer relationship,” and noting that the bill would repeal the prohibition “with the expectation that a new provision will be enacted next year.”7  The bill was introduced in the Senate on February 9, 2015 and referred to the Committee on Corporations, Authorities and Commissions on the same date, but has not yet passed the Senate nor been delivered to the Assembly.

The Governor previously signed legislation that made other technical amendments to the Nonprofit Revitalization Act.8  In addition, earlier this year the Senate and Assembly passed bills that would further clarify the NPCL, but such legislation has not yet been signed by the Governor.9  If and when signed, the legislation will be the subject of a separate Clients & Friends Memorandum.

 


1   N.Y. Not-for-Profit Corp. Law § 713(f).

2   Chapter 549 of the Laws of New York of 2013, § 73.

3   New York State Assembly, Memorandum in Support of Assembly Bill 7641 (2015); New York State Senate, Introducer’s Memorandum in Support of Senate Bill 5738 (2015).

4   Chapter 81 of the Laws of New York of 2014 (Assembly Bill 10027-A/Senate Bill 7799-A).

5   New York State Assembly, Memorandum in Support of Assembly Bill 10027-A (2014); New York State Senate, Introducer’s Memorandum in Support of Senate Bill 7799-A (2014).

6   Senate Bill 3436.

7   New York State Senate, Introducer’s Memorandum in Support of Senate Bill 3436 (2015).

8   Such amendments include Chapter 23 of the Laws of New York of 2014 (Assembly Bill 9117/Senate Bill 6249) (which clarifies, among other things, the definition of “charitable purposes” under Section 103 of the NPCL) and Chapter 358 of the Laws of New York of 2015 (Assembly Bill 8117/Senate Bill 5870) (which makes NPCL provisions added by the Nonprofit Revitalization Act gender neutral, changes wording to correct inconsistencies and clarify the intent of certain provisions added by the Nonprofit Revitalization Act, and clarifies which provisions of the NPCL apply to education corporations).

9   Assembly Bill A8118B/Senate Bill S5868A passed the Senate and Assembly on June 18, 2015.  Among other things, the legislation would expand the definition of “independent director,” clarify the definition of "related party,” clarify that a director or person with a conflict of interest may attend committee meetings for the purpose of presenting information or answering questions, and allow corporations to post their whistleblower policies on their websites.

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