Changes to Not-for-Profit Law Impact Health Care Sector

, New York Law Journal

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Francis J. Serbaroli
Francis J. Serbaroli

Health care represents one of the largest sectors of New York State's economy. However, unlike other major sectors such as financial services, technology, real estate and media, a large percentage of health care entities are not-for-profit corporations (NFP). These include most hospitals, about half of the nursing homes, many home health agencies, a number of large health insurers and managed care plans, most medical, nursing and other professional schools, health provider trade associations, health advocacy organizations—the list goes on and on.

These and all other NFPs are governed by New York's comprehensive and age-old Not-for-Profit Corporation Law (NPCL). After years of work by legislators and their staffs, the Attorney General's office, the Law Revision Commission and the State Bar Association, the Legislature recently enacted the "Nonprofit Revitalization Act of 2013,"1 and it was signed into law by Governor Andrew Cuomo in December. It has been described as the most sweeping revision to the NPCL in more than 40 years, and has important implications and requirements for every NFP involved in the health care industry.

This article summarizes the Revitalization Act's changes to the NPCL that are most relevant to NFPs in health care. Most of the act's changes take effect on July 1, 2014.

Types

NPCL §201 currently provides four often-confusing classifications for NFPs:

• Type A: civic, patriotic, political, social, fraternal, athletic, agricultural, horticultural, animal husbandry, and professional, commercial, industrial, trade or service association.

• Type B: charitable, educational, religious, scientific, literary, cultural or for the prevention of cruelty to children or animals.

• Type C: to achieve a lawful public or quasi-public objective.

• Type D: when authorized by any other New York corporate law for any business or non-business, or pecuniary or non-pecuniary purpose or purposes specified by such corporate law, whether such purpose or purposes are also within Types A, B, C or otherwise.

The Revitalization Act replaces these four categories with two new categories for NFPs formed on or after July 1, 2014:

• Charitable: its purposes are charitable, education, religious, scientific, literary, cultural or for the prevention of cruelty to children or animals (former Type B).

• Non-Charitable: any other corporation incorporated under the NPCL that does not fall under the "Charitable" corporation category.

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