The Non-Profit Revitalization Act Of 2013 Overhauls New York Nonprofit Corporation Law

Both houses of New York's legislature this spring unanimously passed The Non-Profit Revitalization Act of 2013, (NY S.5845/A.8072) (the “Act”), a bill undertaking the first major overhaul of New York's nonprofit laws in more than 40 years. If signed into law by New York's governor, the Act will be effective on July 1, 2014. The Act aims to eliminate administrative red tape that is needlessly confusing and burdensome to nonprofits and that often prompts New York-based charities to incorporate in another state having favorable laws, such as Delaware.

The Act is based on recommendations from the Leadership Committee for Nonprofit Revitalization (the “Committee”), which was convened by New York's attorney general in July 2011. The Committee consisted of 32 nonprofit leaders across New York, who were charged with recommending proposals that would reduce regulatory burdens on nonprofits, while strengthening governance and accountability. The Committee's recommendations are reflected in the Act and two initiatives - New York on BOARD (“Building Oversight, Awareness, Resources and Depth”), a directo recruitment initiative to build stronger and more diverse boards for nonprofits, and Directors U, which provides low-cost training to board members on topics related to nonprofits and governance. The Act applies to nonprofits incorporated in New York. Some provisions also apply to nonprofits that are required to be registered to solicit charitable contributions in New York under New York Executive Law Section 172, even if they are not incorporated in New York. Proponents of the Act, including several New York bar associations, welcome the updates and have encouraged New York's governor to sign the bill.

The Act has three general purposes: (1) to eliminate unnecessary administrative and procedural burdens, (2) to modernize the New York nonprofit law, and (3) to strengthen governance through compliance with certain best practices (general practices that many nonprofits already use and most should use). Several of these changes may create practical challenges for some nonprofits, which may need to make significant governance and oversight changes to comply with the new law. Highlights of the changes under the Act are summarized below.

Elimination of Letter Types. One of the most significant changes in the Act is the replacement of New York's unique taxonomy of four types of nonprofit corporations (Types A, B, C and D) with two types of nonprofit corporations - charitable and non-charitable. Under existing New York law, a nonprofit's purpose determines its Type. Type A nonprofits are membership organizations formed for a specific list of purposes including, but not limited to, civic, political, social, fraternal, and athletic, and for professional, trade or service associations. Type B nonprofits are formed for any one or more of the following purposes: charitable, educational, religious, scientific, literary, cultural, or for the prevention of cruelty to children or animals. Type C nonprofits are formed to achieve a public or quasi-public objective. Finally, Type D nonprofits are those formed under New York nonprofit law when their formation is authorized by another New York law, regardless of whether their purposes also fall within Types A, B or C. If a nonprofit is formed for both Types A and B purposes...