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New You are able to Non-Profit Revitalization Act Reforms Governance Rules for Nonprofits

New You are able to Non-Profit Revitalization Act Reforms Governance Rules for Nonprofits

Signed into law in 2013, the brand new You are able to Non-Profit Revitalization Act is made to reform the statutory needs for governance of nonprofit organizations (both not-for-profit corporations and wholly charitable trusts), expand the lawyer General’s enforcement forces, and modernize and clarify a few of the more mechanical and procedural New You are able to rules relevant not to-for-profit corporations. Most provisions required impact on This summer 1, 2014. Amendments required impact on December 11, 2015 and therefore are reflected within this summary.

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Tomer J. Inbar 212-336-2310 tinbar@pbwt.com
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John Sare 212-336-2760 jsare@pbwt.com

Megan E. Bell 212-336-2077 mbell@pbwt.com
Janine Shissler 212-336-2213 jshissler@pbwt.com

David J. O’Connell 212-336-2726 doconnell@pbwt.com
Lauren Simpson 212-336-2041 lsimpson@pbwt.com
Susan M. Vignola 212-336-2256 svignola@pbwt.com
Justin Zaremby 212-336-2194 jzaremby@pbwt.com

Antonia M. Grumbach 212-336-2840 amgrumbach@pbwt.com
Rochelle Korman 212-336-2680 rkorman@pbwt.com
Robert M. Pennoyer 212-336-2700 rmpennoyer@pbwt.com
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All Not-for-Profit Corporations
and Wholly Charitable Trusts
2
2
Non-Profit Revitalization Act:
Overview of Applicability
? Related Party Transaction Rules (Basic)
? Mandatory Conflict of Interest Policy
? Policy Oversight
? Defined Terms
Charitable Corporations and
Wholly Charitable Trusts
(“Charities”)
? Related Party Transaction Rules (Augmented)
? Mandatory Audit Oversight Function (Basic Duties)
Charities Required to Register to
Conduct Charitable Solicitations in
New York with Annual Revenue in
Excess of $1,000,000 ? Mandatory Audit Oversight Function (Augmented
Duties)
Not-for-Profit Corporations and Wholly
Charitable Trusts with 20 or More
Employees and Annual Revenue in
Excess of $1,000,000
? Mandatory Whistleblower Policy
Applicability is a threshold issue for any organization trying to understand the Non-Profit Revitalization Act. This
chart shows the architecture of the new law, so that you can identify the portions that apply to your organization.
Charities Required to Register to
Conduct Charitable Solicitations in
New York with Annual Revenue in
Excess of $500,000
? Compensation: Deliberations and Voting
? Chair of the Board
All Not-for-Profit Corporations
Non-Profit Revitalization Act:
Summary of the Act’s Governance Requirements
Covered Organizations
All Not-for-Profit Corporations

All Not-for-Profit Corporations
and Wholly Charitable Trusts*
Topic
Compensation:
Deliberations and Voting

Chair of the Board
Related Party
Transaction Rules
(Basic)
(See augmented rules
below applicable only to
Charitable Corporations
and Wholly Charitable
Trusts.)
Summary
No person who may benefit from a compensation
arrangement may be present at or otherwise
participate in any Board or committee deliberation or
vote concerning that person’s compensation, except
that the Board or committee may request that the
person present information as background or answer
questions at a committee or Board meeting prior to
the commencement of deliberations or voting thereon.
Directors, however, may deliberate or vote concerning
compensation for service on the Board if the
compensation is to be made available or provided to all
directors on the same or substantially similar terms.

No employee may serve as chair or hold any other
title with similar responsibilities. This provision is not
applicable until January 1, 2017.
A covered organization may not enter into a related
party transaction unless the Board determines that
the transaction is fair, reasonable and in the
organization’s best interest at the time of determination.
A director, officer or key employee who has an
interest in a related party transaction must disclose
in good faith to the Board or an authorized Board
committee the material facts concerning such
interest.
Additional restrictions and procedures may be set forth
in the organization’s governing documents or a policy
adopted by the Board.
No related party with an interest in a related party
transaction may participate in deliberations or vote
on the related party transaction, except that the
Board or an authorized committee may request that
such related party present information concerning the
transaction at a meeting of the Board or such committee
prior to commencement of deliberations or voting
thereon.

Directors who attend a meeting but are not present
at the time of a vote due to their interest in a related
party transaction will be determined to be present
at the time of the vote for purposes of establishing a
quorum.

New defined terms under the Non-Profit Revitalization Act appear in this summary in bold. A glossary of defined terms
appears at the end of the summary.
References to “directors” include trustees of wholly charitable trusts. References to the “Board” refer to a Board of Directors
or other governing body of a corporation and to the collective trustees of a wholly charitable trust.
*Unless otherwise specified, references to “not-for-profit corporations” include both charitable and non-charitable not-for-
profit corporations (such as those formed for social, fraternal or political purposes). The Act clearly
applies to New York not-for-profit corporations and New York wholly charitable trusts. Non-New York
charities that conduct solicitations in New York and have revenue over certain thresholds may be
subject to some provisions of the Act, depending on how the Act is interpreted.
? Return to
Overview
Covered Organizations
All Not-for-Profit Corporations
and Wholly Charitable Trusts*
(cont’d)
Topic
Mandatory Conflict
of Interest Policy
Note that an organization
that has adopted a
Conflict of Interest Policy
pursuant to federal,
state or local laws
that is substantially
consistent with these
new requirements
will be deemed in
compliance, as will a
corporation that is a
state or local authority
that has complied
substantially with Public
Authorities Law Sections
2824 and 2825(3).
Summary
Each covered organization must adopt a Conflict of
Interest Policy to ensure that its directors, officers
and key employees act in the organization’s best
interest and comply with applicable laws.
Contents of the Conflict of Interest Policy
The Conflict of Interest Policy, at a minimum, must
include:
(a) a definition of the circumstances that constitute
a conflict of interest;
(b) procedures for disclosing a conflict of interest
to the Audit Committee, or if no Audit Committee
exists, to the Board;
(c) a requirement that the conflicted person not be
present at or participate in Board or committee
deliberations or vote on the matter (though
the Board or committee may request that
the conflicted person present information as
background or answer questions at a Board or
committee meeting prior to commencement of
deliberations or voting relating to the matter);
(d) a prohibition of any attempt by the conflicted
person to influence improperly the deliberations or
voting on the matter;
(e) a requirement that the existence and resolution
of the conflict be documented in organization
records, including minutes of any meeting where
the conflict is discussed or voted on; and
(f) procedures for disclosing, addressing and
documenting related party transactions.

Conflicted directors may be counted for purposes
of establishing a quorum at a meeting at which the
conflict of interest is discussed and voted on, even
though they may not be present at or participate
in deliberations or votes on the matter.
The Policy must also require that, prior to initial
election and annually thereafter, each director
submit to the secretary or a designated compliance
officer a signed written statement identifying, to
the best of the director’s knowledge, (1) any entity
of which the director is an officer, director, trustee,
member, owner or employee, with which the
organization has a relationship and
? Return to
Overview
4
Covered Organizations

Not-for-Profit Corporations and
Wholly Charitable Trusts with
20 or More Employees and
Annual Revenue in Excess of
$1,000,000
Topic
Policy Oversight
Mandatory
Whistleblower Policy
Note that an organization
that has adopted a
Whistleblower Policy
pursuant to federal, state
or local laws that is
substantially consistent
with these new
requirements will be
deemed in compliance, as
will a corporation that is a
state or local authority
that has complied
substantially with Public
Authorities Law Section
2824 and is subject to
Public Authorities Law
Section 2857.
5 ? Return to
Overview

Summary

(2) any transaction in which the organization is a
participant and in which the director might have
a conflicting interest. The secretary or designated
compliance officer must provide copies of all such
statements to the chair of the Audit Committee
or, if none, to the chair of the Board.

The Board or designated Audit Committee
of the Board shall oversee the adoption and
implementation of, and compliance with, any
Conflict of Interest or Whistleblower Policy
adopted by the organization, unless this function
is performed by a committee of the Board
consisting solely of independent directors.
Each covered organization must adopt a
Whistleblower Policy to protect from retaliation
persons who report suspected improper conduct.
Contents of the Whistleblower Policy
The Whistleblower Policy must provide that no
director, officer, employee or volunteer who
in good faith reports any action or suspected
action taken by or within the organization that
is illegal, fraudulent or in violation of any policy
of the organization shall suffer intimidation,
harassment, discrimination or other retaliation or,
in the case of employees, adverse employment
consequences.
The Whistleblower Policy must include:
(a) procedures (including confidentiality
provisions) for reporting violations or suspected
violations of laws or organization policies;
Covered Organizations
Charitable Corporations and
Wholly Charitable Trusts
(“Charities”)
Charities Required to Register
to Conduct Charitable
Solicitations in New York with
Annual Revenue in Excess of
$500,000
Note that this provision is
not applicable until January
1, 2015 for any organization
that had annual revenue of
less than $10,000,000 in the
last fiscal year ending prior to
January 1, 2014.
Topic
Related Party
Transaction Rules
(Augmented)
Mandatory Audit
Oversight Function
(Basic Duties)
(See augmented
duties below if annual
revenue in excess of
$1,000,000.)
Note that a corporation
that is a state or local
authority and has
complied substantially
with Public Authorities
Law Sections 2802 and
2824 will be deemed
in compliance with the
audit oversight function
requirements.
Summary
(b) a requirement that an employee, officer or
director be designated to administer the Policy and
report to the Audit Committee, another committee of
independent directors or the Board; and
(c) a requirement that a copy of the Policy be
distributed to all directors, officers, employees, and
volunteers who provide substantial services to the
organization. Posting the Policy on the organization’s
website or at its offices in a conspicuous location
accessible to employees and volunteers will satisfy
the distribution requirement.
If a related party of a covered organization has a
substantial financial interest in a related party
transaction, the Board or authorized Board
committee must:
(a) prior to entering into the transaction, consider
alternative transactions to the extent available;
(b) approve the transaction by not less than a
majority vote of the directors or committee members
present at the meeting; and
(c) contemporaneously document in writing the basis
for its approval of the transaction, including
consideration of any alternative transactions.
Either each covered organization must have an Audit
Committee consisting of independent directors,
or the independent directors on its Board must
perform the duties of an Audit Committee.
Duties of the Audit Oversight Function
The Audit Committee or the independent directors
on the Board must:
(a) oversee the accounting and financial reporting
processes of the organization and the audit of its
financial statements;
(b) annually retain or renew the retention of an
independent auditor; and
(c) review with the independent auditor the results
of the audit (including the management letter).
6 ? Return to
Overview
Summary
Augmented Duties of the Audit Oversight Function
In addition to the basic duties listed above, the Audit
Committee or the independent directors on the
Board of a covered organization must:
(a) review with the independent auditor the scope
and planning of the audit prior to its commencement;
(b) review and discuss with the independent auditor
any material risks and weaknesses in internal controls
identified by the auditor, any restrictions on the
scope of the auditor’s activities or access to requested
information, any significant disagreements between
the auditor and management and the adequacy of
the organization’s accounting and financial reporting
processes;
(c) annually consider the performance and
independence of the auditor; and
(d) if the duties are performed by an Audit Committee,
report its activities to the Board.
Covered Organizations
Charities Required to Register
to Conduct Charitable
Solicitations in New York with
Annual Revenue in Excess of
$1,000,000
Note that this provision is
not applicable until January
1, 2015 for any organization
that had annual revenue of
less than $10,000,000 in the
last fiscal year ending prior to
January 1, 2014.
Topic
Mandatory Audit
Oversight Function
(Augmented Duties)
7 ? Return to
Overview
DEFINED TERMS
An entity controlled by an organization or in control of the organization.
A certified public accountant performing the audit of the financial statements of
the organization required by Executive Law Section 172-b(1).
A director who:
(a) is not, and in the last three years has not been, an employee of the
organization or any affiliate and does not have a relative who is, or in the last
three years has been, a key employee of the organization or any affiliate;
(b) in each of the last three fiscal years, has not received (and does not have a
relative who has received during this period) more than $10,000 in direct
compensation from the organization or any affiliate (other than reimbursement
of expenses reasonably incurred as a director or reasonable compensation for
services as a director);
(c) is not a current employee of or does not have a substantial financial interest
in (and does not have a relative who is a current officer of or has a substantial
financial interest in) any entity that made payments to (or received payments
from) the organization or any affiliate for property or services in an amount
which, in any of the last three fiscal years, exceeded the lesser of $25,000 or 2%
of the entity’s consolidated gross revenue; and*
(d) is not (and does not have a relative who is) a current owner, whether wholly
or partially, director, officer or employee of the organization’s outside auditor.
The definition also appears to exclude any director who has (or has a relative
who has) worked on the organization’s audit at any time during the past three
years.
For purposes of this definition, “payment” does not include charitable
contributions, dues or fees paid to the organization for services which the
organization performs as part of its nonprofit purposes, provided that
(in the case of not-for-profit corporations) such services are available to
individual members of the public on the same terms.
Any person who is in a position to exercise substantial influence over the affairs
of the organization, as referenced in the U.S. Internal Revenue Code and regulatory
provisions governing “excess benefit transactions,” to the extent such provisions
are applicable.

Any transaction, agreement or other arrangement in which a related party has
a financial interest and in which the organization or an affiliate, is a participant.
affiliate
independent auditor
independent director
key employee
related party transaction
? Return to
Overview

*The 2015 amendments changed “and” to “or.” This summary assumes a director is intended to be
“independent” only if the director meets all four of these tests and therefore uses the word “and.”
8
DEFINED TERMS
Any director, officer or key employee of an organization or an affiliate, or any
person who exercises the powers of directors, officers or key employees over the
affairs of the organization or any affiliate; any relative of any such individual;
and any entity in which any such individual or relative has a 35% or greater
ownership or beneficial interest or, in the case of a partnership or professional
corporation, a direct or indirect ownership interest in excess of 5%.
An individual’s spouse or domestic partner, child (whether natural or adopted),
grandchild, great-grandchild, sibling, half-sibling, ancestor, or the spouse or
domestic partner of the individual’s child, grandchild, great-grandchild, sibling or
half-sibling.
related party

relative
9 ? Return to
Overview
Non-Profit Revitalization Act:
Summary of the Act’s Financial Reporting Rules for Organizations
Required to Register to Conduct Charitable Solicitations
Every charitable organization required to register to conduct charitable solicitations in New York State must file with the
Attorney General an annual report and statement. The requirements for these reports and statements are based on gross
revenue and support thresholds. In each case where a report is required, the Non-Profit Revitalization Act requires the
organization to:
• Include a statement of any changes in the information required to be contained in the organization’s registration
form.
• Have the report signed by the president or other authorized officer and the chief fiscal officer.
• Pay a filing fee of $25.
The table below describes the revenue and support thresholds and the additional requirements applicable in each case.
Effective Dates
July 1, 2014
through
June 30, 2017
July 1, 2017
through
June 30, 2021
July 1, 2021
and
continuing
If the organization’s
fiscal year gross
revenue and
support is…
Less than $250,000
At least $250,000
but not more than
$500,000
More than $500,000
The $500,000 threshold
increases to $750,000;
the $250,000 threshold
remains constant.
The $750,000 threshold
increases to $1,000,000;
the $250,000 threshold
remains constant.
Then the organization must…
Prepare and file an annual unaudited financial report on forms
prescribed by the Attorney General.
Prepare and file an annual GAAP-compliant financial report,
accompanied by an annual financial statement that includes an
independent CPA’s review report.
Prepare and file an annual GAAP-compliant financial report on forms
prescribed by the Attorney general, accompanied by an annual
financial statement that includes an independent CPA’s review
report containing a signed opinion that the financial statements are
presented fairly in all material respects and in conformity with GAAP.
See above for applicable requirements.

See above for applicable requirements.
10 ? Return to
Overview
11
Non-Profit Revitalization Act:
Highlights of the Act’s Update of the Not-for-Profit Corporation Law
and Expansion of the Attorney General’s Enforcement Powers
The Non-Profit Revitalization Act brings about a number of provisions designed to update certain features of the
current New York Not-for-Profit Corporation Law and expand the enforcement tools available to the New York
Attorney General. These provisions:
• Establish rules for conducting certain corporate activities electronically, including:
° Email and fax notice and email waiver of notice of member meetings;
° Email waiver of notice of board meetings;
° Notice of member meetings by website posting, in addition to publication in a newspaper, if
a corporation has more than 500 members;
° Email proxy voting for members and unanimous written consent via email for member, board
and committee actions; and
° Videoconferencing for board and committee meetings.
• Redefine the phrase “entire board” so that, if the bylaws provide for a range between a
minimum and maximum number of directors, and the number within that range has not been fixed,
the “entire board” consists of the number of directors elected or appointed as of the most recently
held election of directors, as well as any directors whose terms have not yet expired.
? This amendment eliminates the cumbersome process requiring that
members or boards “fix” the number of directors constituting the entire board
and the inadvertent existence of “vacancies” or unauthorized seats simply
because the number of directors was not “re-fixed” to reflect the election of
a lesser or greater number of directors than the number “fixed” under or
pursuant to the bylaws.
• End the requirement for board approval for leasing real property from a third party.
• Permit committee authorization of the purchase or disposition of real property,
unless the transaction involves all or substantially all of the corporation’s assets, in which case the
board’s approval would be necessary.
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12
? This amendment also imposes an affirmative duty on the committee to report
promptly to the board concerning any approved purchase or disposition of real
property, and in no event after the next regularly scheduled board meeting.
• State that “committees of the corporation” (i.e., committees that may include non-
directors) may not “have the authority to bind the board.”
• Confer discretion on the Attorney General to grant certain approvals that now require a
court proceeding, namely, approvals of “assets” dissolutions; the change, elimination or addition
of a purpose or power of a charitable corporation; and the sale, lease, exchange or other disposition
of all or substantially all of a corporation’s assets.
• Simplify the categories of not-for-profit corporation into “charitable corporations” and
“non-charitable corporations.”
? Existing types of corporations – known as Types A, B, C and D – will be
assigned to one category or the other. Although there will be some
nuances for Type D corporations, all existing Type B and C corporations
will become charitable corporations under the legislation and all Type A
corporations would become non-charitable corporations.
• Empower the Attorney General to commence proceedings to enjoin, void or rescind a related
party transaction or proposed related party transaction, including a compensation arrangement
with an officer, director, trustee or key employee, if the transaction violates the NPCL or is otherwise
not reasonable or in the best interests of the corporation.
• Grant the Attorney General specific authority to seek other relief with regard to related party
transactions, such as damages, restitution, removal and/or an accounting, including
double damages in cases of “willful and intentional conduct.”
? Return to
Overview

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