On November 21, 2022, Governor Hochul signed A9969/S9047 (the “Act”) into law, effective immediately.  The Act amends the New York Not-for-Profit Corporation Law to modernize provisions for electronic voting by unanimous consent, to better address the term length of directors elected to fill vacancies, and to state even more explicitly that directors who leave a meeting due to a conflict don’t disturb quorums.  Specifically, the Act:

  1. amended Sections 614(a) and 708(b) to explicitly allow unanimous consent of members and directors, respectively, to act without a meeting by “other electronic means” in addition to email.  The purpose of this change is to account for modern technology and to align with current practices among nonprofits, including the use of various electronic portals to collect votes.
  2. amended Section 705(c) to allow for a director elected to fill a vacancy to hold office until the end of the term the director was elected or appointed to fill, or for a different term to be determined by the board which ends at an annual meeting.  Some practitioners found the existing language of Section 705(c) (“until the next annual meeting at which the election of directors is in the regular order of business”) to be problematic when the board is classified and a directorship of a class that ends after the next annual meeting needs to be filled.
  3. amended Section 708(d) to make crystal clear that directors who are present at a meeting but not present at the time of a vote due to a conflict of interest or related party transaction shall be deemed to be present at the time of the vote for purposes of determining if a quorum is present at such time.

Join Carter Ledyard and management consultants Plan A Advisors on a lively exploration of nonprofit boards and bylaws. This multi-part series will help nonprofit executives and board members consider revisions and amendments to make your bylaws more congruent with the way your nonprofit actually operates, improve governance, and ensure compliance with current law.

This series is designed to offer principles of broad applicability, but laws vary by state, and what is best for your organization will depend on your unique circumstances.  We encourage you to consult with an attorney who practices law in the state of your organization’s incorporation.  This series is not legal advice.

Part II: Mission and Board Role is available HERE.

Carter Ledyard and management consultants Plan A Advisors have launched a series of insights for nonprofit boards and bylaws. The first in this multi-part series aiming to help nonprofit executives and board members is an overview on how to consider revisions and amendments to make bylaws more congruent with the way the nonprofit actually operates, improve governance, and ensure compliance with current law.

NYC Salary Transparency Law (City Council Local Law 32), which took effect on November 1, 2022, requires businesses (including nonprofits) in NYC to include a “good faith” salary range in all job postings. The purpose of the law is to promote pay equity.  Carter Ledyard’s Employment Group summarizes the key provisions of the law here, and the NYC Commission on Human Rights published this Factsheet intended to help employers comply. Read more here NYC Council Local Law 32 Effective Nov 1, 2022 | Carter Ledyard & Milburn LLP (clm.com)

Effective May 7, 2022, private-sector employers in New York State that monitor or otherwise intercept their employees’ electronic and internet usage and communications must provide notice about that monitoring to their employees. These provisions apply to non-profit and tax exempt organizations. Read the full text and details here.

On March 10, 2022, the Office of the New York Attorney General, Charities Bureau, submitted comments in response to IRS Notice 2021-56 (the “Notice”). The Notice, which was published on October 21, 2021, sets forth current standards that a limited liability company (“LLC”) must satisfy to be recognized as tax-exempt under 501(c)(3) of the Internal Revenue Code (the “Code”). Please click here to read our previous blog post on the Notice.

To assist the U.S. Treasury Department and the IRS in determining whether additional guidance is needed, the Notice requested public comments on the standards, as well as on specific issues relating to tax-exempt status for LLCs. The Notice also posed questions to state charity regulators regarding the interpretation of state LLC laws and the applicability of state charity laws to LLCs formed for charitable purposes. In response, the New York Attorney General suggested that the IRS should refuse to authorize section 501(c)(3) eligibility for LLCs in states like New York that bar the formation of charitable LLCs, and asked the IRS to consider anti-abuse rules in states where charitable LLCs are permitted.

The Texas Attorney General, Non-Profit Organizations/Public Charities Division (Charities Division) of the Office of the Massachusetts Attorney General, and the National Association of State Charity Officials have also submitted comments to the IRS in response to the Notice.

On October 21, 2021, the Internal Revenue Service (the “IRS”) published Notice 2021-56. The Notice sets forth current standards that a limited liability company (“LLC”) must satisfy to receive a determination letter recognizing it as tax-exempt pursuant to sections 501(a) and 501(c)(3) of the Internal Revenue Code (the “Code”).  While the IRS has provided informal guidance in the 2000 and 2001 Exempt Organizations Continuing Professional Education articles, the Notice represents the first formal guidance from the IRS for LLCs seeking to qualify for federal tax exemption.

Under the Notice, the IRS will issue a determination letter recognizing an LLC as exempt from tax and described in section 501(c)(3) only if both the LLC’s articles of organization and its operating agreement include:

  • Provisions requiring that each member of the LLC be either:
    • An organization described in section 501(c)(3) and exempt from taxation under section 501(a), or
    • A governmental unit described in section 170(c)(1) (or wholly owned instrumentality of such a governmental unit);
  • Express charitable purposes and charitable dissolution provisions in compliance with existing regulations under section 501(c)(3);
  • The express chapter 42 compliance provisions described in section 508(e)(1), if the LLC is a private foundation; and
  • An acceptable contingency plan in the event that one or more members cease to be section 501(c)(3) organizations or governmental units (or wholly owned instrumentalities thereof).

Any LLC submitting a Form 1023 after October 21, 2021 must meet the foregoing standards in order to obtain a favorable determination letter from the IRS.

To assist the U.S. Treasury Department and the IRS in determining whether additional guidance is needed, the Notice requested public comments on the standards, as well as on specific issues relating to tax-exempt status for LLCs. The laws governing LLCs vary by state and various Attorneys General and bar associations have been digesting the Notice and submitting their comments.

The Notice does not affect the status of organizations currently recognized as exempt under section 501(c)(3).

 

On November 8, 2021, New York Governor Kathy Hochul signed legislation that permanently allows New York nonprofit corporations with members and religious corporations to hold virtual membership meetings, and nonprofit corporations to hold hybrid meetings in which some members participate virtually while others participate in person.

Prior to the passage of this legislation, Section 603 of New York’s Not-for-Profit Corporation Law (“N-PCL”) and Section 28 of the Religious Corporations Law (“RCL”) required nonprofit corporations with members and religious corporations, respectively, to hold membership meetings in person.

In response to COVID-19, however, New York State implemented a series of temporary provisions to modify Sections 603 and 605 of the N-PCL to permit meetings of members to be held remotely or by electronic means. Under these temporary provisions, with Board approval, nonprofit corporations were allowed to hold membership meetings solely or partially through virtual or remote means, and religious corporations were allowed to hold congregant or membership meetings solely, but not partially, through virtual or remote means.

The new legislation permanently codifies into the N-PCL and RCL the option to hold virtual membership meetings, but nonprofit and religious corporations are treated differently.  N-PCL 603(a) now provides that a nonprofit corporation’s Board may elect to hold virtual or hybrid membership meetings “unless otherwise restricted” by its certificate of incorporation or bylaws, so long as certain “reasonable measures” are implemented to verify identity, to provide a reasonable opportunity to participate in real time, and to record actions.  Nonprofit corporations that wish to hold virtual membership meetings should review their certificates and bylaws to ensure they don’t currently restrict this right and, at the next opportunity and to avoid any doubt, may wish to amend their bylaws to explicitly track these new N-PCL provisions.

Section 28 of the RCL now provides that, notwithstanding any provision of their certificates or bylaws to the contrary, a religious corporation may hold virtual meetings if the Board is authorized to determine the place of membership meetings by the organization’s certificate or bylaws. Religious corporations are not allowed to hold hybrid meetings.

The new legislation took effect on November 8, 2021.

On March 20th, 2022, Carter Ledyard Tax-Exempt Organizations Chair Pamela Mann will participate in a panel discussion at the Jewish Theological Seminary following a staged reading of The Spanish Prayer Book, a play inspired by Abrams v. Sotheby’s, a case that Ms. Mann litigated when she was Chief of the Charities Bureau of the New York Attorney General’s office under former AG Robert Abrams. The case challenged the sale at auction of rare Hebrew books and manuscripts that had belonged to a Berlin rabbinical seminary closed by the Nazis in 1942. The case ultimately settled, facilitated by a substantial infusion of cash from two anonymous donors, and all of the books and manuscripts were returned to public institutions.

For more information, or to register to attend this free event, click here.

On Friday, November 12, Governor Hochul signed S4817A, repealing certain recently enacted amendments to N.Y. Exec. Law § 172-b that  (a) imposed duplicative and burdensome filing requirements on charitable organizations and (b) required public disclosure of previously confidential information about their donors.

Charities that were required to register and file an annual statement on Form CHAR 500 with the New York Attorney General’s Office (Charities Bureau) are still required to do so.  However, for most charitable organizations, S4817A eliminates the redundant requirement that they also file their annual statement with the New York Department of State.

501(c)(4) organizations must still file a Financial Disclosure Report with the New York Department of State if they spend more than $10,000 in a calendar year on one or more written lobbying communications, conveyed to 500 or more people. Similarly, 501(c)(3)s that make in-kind donations worth $10,000 or more to certain 501(c)(4)s will also be required to file a Funding Disclosure Report with the New York Department of State, though this scenario seems quite rare.

The bill also repeals the recently enacted requirement that the New York Department of State publish on its website donor information contained on Schedule B of the IRS Form 990, and codifies that Schedule Bs provided to the state as part of the above reporting requirements are not a public record.

S4817A had the strong support of many nonprofit and advocacy organizations throughout New York.

Click here to read our previous blog post on A1141A/S4817A.