Attorneys Applaud Overhaul of Nonprofit Law for Cutting Red Tape

, New York Law Journal

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The first overhaul of laws governing New York nonprofits in more than 40 years, signed by Gov. Andrew Cuomo Wednesday, was welcomed by many attorneys who said reducing bureaucratic red tape is long overdue.

The new law, effective July 2014, affects 103,000 nonprofits that employ about 1.25 million people in organizations such as hospitals, churches, trade organizations, charities, museums, historical societies, nursing homes and others.

The measure gained widespread support from nonprofits and was passed overwhelmingly in both the Senate and Assembly in June.

State officials said the law gives New York the "strongest nonprofit governance regime" in the country.

It will make boards of charities responsible for retaining independent auditors and reviewing results of the audits. At charities with more than $1 million in revenue, the board or audit committee will be required to follow stricter oversight procedures.

The law also seeks to prevent conflicts of interest by requiring that transactions between the nonprofit and insiders—such as officers, directors and key employees—be fully disclosed and that nonprofit boards determine the transactions are fair, reasonable and in the organization's best interest.

Under the law, if the New York Attorney General believes a transaction is not reasonable or in the best interests of the organization, the office can go to court to unwind it and in some cases, seek double damages.

Currently, nonprofits must go to Supreme Court for approval of mergers, significant asset sales and nearly all dissolutions. Under the new law, nonprofits can seek approval from the Attorney General's Office without going to court.

The law also eliminates costly requirements to form in New York and simplifies nonprofits into two categories: charitable and non-charitable. Currently there are four categories of nonprofits in the state.

Employees of nonprofits will be prohibited from serving as chair of the board as a measure to ensure board independence. The law requires all nonprofits to adopt conflict of interest policies and those with more than $1 million in annual revenue and at least 20 employees to adopt whistleblower procedure.

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