Exempt Organizations Advisory - New York Enacts Additional Amendments to the Revitalization Act

December 14, 2016

New York Governor Andrew Cuomo has signed into law Assembly Bill 10365B, which provides additional amendments to the New York Non-Profit Revitalization Act of 2013 (the Revitalization Act).  Previous amendments to the Revitalization Act were enacted in October 2015 and December 2015.

Among other things, the amendments:

  • Include a provision permitting an employee of a corporation to serve as chair of the board, but only if two-thirds of the entire board approves the appointment and certain contemporaneous documentation requirements are satisfied.
  • Include new exceptions to the related party transaction rules of the Revitalization Act, excluding certain de minimis transactions, ordinary course transactions, and mission-related transactions.
  • Include new defenses to claims of a violation of the related party transaction rules.  In the case of claims brought by the attorney general, the amendment provides a narrow defense for transactions that are fair, reasonable, and in the corporation’s best interest and with respect to which the board has taken specified remedial actions—including ratifying the transaction as fair, reasonable, and in the corporation’s best interest and putting into place procedures to ensure that similar violations will not occur again—prior to receipt of any request for information by the attorney general regarding the transaction.  In the case of claims brought by other persons, the amendment provides a broader defense for transactions that are fair, reasonable, and in the corporation’s best interest.
  • Replace the term “key employees” with “key persons” for purposes of the related party transaction rules and whistleblower requirements.  Under the Revitalization Act, “key employees” was defined by reference to persons having “substantial influence” under the excess benefit provisions of the Internal Revenue Code, which had created confusion.  The new definition of “key persons” provides greater clarity and expressly provides that persons other than employees may be key persons if they have specified management or budgetary responsibilities.
  • Modify the whistleblower requirements of the Revitalization Act to prohibit directors who are employees from participating in any board or committee deliberations or voting relating to administration of the whistleblower policy.  The amendments also add a requirement that the person who is the subject of a whistleblower complaint not be present or participate in board or committee deliberations or voting on the matter relating to the complaint (although the subject of the complaint may provide background information or answer questions prior to deliberations or voting).
  • Expand the list of board powers that may not be delegated to a committee.

The amendment relating to an employee serving as the chair of the board will go into effect on January 1, 2017, while the remainder of the amendments will go into effect on May 27, 2017.