Proposed Revisions to the Washington State Nonprofit Statute - PowerPoint PPT Presentation

Proposed Revisions to the Washington State Nonprofit Statute November 2, 2017 Judy Andrews, Apex Law Group, Seattle, Washington Jessica Breitbarth, Seattle Children’s Hospital Foundation

Ov Overview v The Nonprofit Corporations Committee began revisions to Chapter 24.03 RCW in 2009 v The Model Nonprofit Corporations Act, Third Edition (August, 2008), drafted by the ABA Section on Business Law, Committee on Nonprofit Corporations, was the base for the revised act 2

In Intentions f for R r Revised A Act v Draft as one act for all nonprofit corporations v Create uniformity with Washington Business Corporation Act v Keep law accessible for lay people v Protect charitable assets v Provide congruity with UPMIFA 3

Si Significant Ch Changes v Significant changes in the current revision to the Act include: § Financial powers and limitations; charitable assets § Membership § Directors and Officers § Domestication and conversion § Derivative proceedings 4

Financ Financial ial Power ers and and Lim imit itatio tions ns v Clarifies that a nonprofit corporation has power to carry on a business, specifically to make net profits and accumulate reserves 5

Financi cial Powers an and Lim imit itation tions (con ont. t.) v Clarifies restrictions on distributions and compensation to insiders and liability for unlawful distributions v Defines restricted gifts v Provides for modification of gift restrictions 6

Help Helpful ul Definitio initions ns v Charitable corporation — a Washington nonprofit corporation operated primarily or exclusively for one or more charitable purposes. v Charitable purpose —one that would make a corporation a 501(c)(3) organization or considered charitable under other applicable law 7

De Defin init itio ions ( (cont.) v Gift instrument —a record, including a solicitation by a nonprofit, under which property is donated, transferred, granted to, or held by the nonprofit. A solicitation constitutes a gift instrument only if the donation, transfer, or grant of property was made within one year of the solicitation. 8

De Defin init itio ions ( (cont.) v Solicitation— any invitation for a contribution in the form of a record, including invitations made by electronic transmission or an offer or attempt by the solicitor to sell any property, rights, services, or other thing, in connection with which: § any appeal is made for any charitable purpose; § the name of any charitable corporation is used as an inducement; or § any statement is made that implies that the contribution or the sale proceeds will be applied toward any charitable purpose or donated to any charitable entity . 9

Pr Property Held for Ch Chari ritable Purp rpose ses v All property held by a charitable corporation; v Property subject to restrictions contained in a gift instrument that limit its use to one or more charitable purposes; or v Property subject to restrictions contained in the articles, bylaws, or any record adopted by the board that limit its use to one or more charitable purposes. 10

Pr Prohibite ted Distributions v Prohibits distributions to members, directors, officers or other persons who may exercise substantial influence over the affairs of the corporation of § Any property held for charitable purposes § Dividends or any part of the corporation’s assets, income or profits 11

Ex Exceptions ns v Reasonable compensation for services rendered or reimbursement of expenses v Another charitable organization v A noncharitable corporation that confers benefits on members or nonmembers in accordance with its purposes, the repurchase of memberships or the repayment of capital contributions 12

Re Restricted Gifts v A gift given without restrictions transfers complete ownership to a corporation v The corporation is bound by a restriction imposed by donor in a gift instrument accepted by the corporation v Consequences of failure to comply with or to seek modification of restriction leads to proceeding by Attorney General 13

Mo Modi dificati tion o n of G Gift t Restrict ctions v Consistent with UPMIFA, can be modified: § With donor consent § If unlawful, impossible, impracticable or wasteful, and with notice to AG if: 1) Value below amount set in statute 2) Given 20 or more years ago 3) To be used in a manner consistent with charitable purposes in gift instrument 14

Mo Modi dificati tion o n of G Gift t Restrict ctions v Modification by agreement between nonprofit, attorney general and interested parties permitted if: § As to management or investment restriction, if modification would further charitable purpose or enforcement of restriction is impracticable, wasteful or impairs the use of the gift or § As to purpose restriction, the purpose has become unlawful, impracticable, impossible to achieve or wasteful § Note : Interested party does not include donor or member of benefited class 15

Ch Chari ritable Asse Assets v Attorney General powers added to protect charitable assets § Modeled after RCW 11.110 and RCW 19.86 § Right to intervene in certain actions, has specific investigative powers, right to accept an assurance of discontinuance and may request civil penalties, costs and fees on violators 16

Me Memb mbership v To have statutory members, the Articles must so provide v A member must have some right to vote v Members have only those rights, powers or obligations assigned in the Articles or Bylaws or the right to vote for directors in the Revised Act. 17

Me Memb mbership (cont.) v Members can be terminated even if not so provided in the articles or bylaws v Members are not personally liable for debts or liabilities of the corporation v Revised Act provides helpful rules on member voting 18

Dir Direct ctors v New Board Requirements: § A director must be at least 18 years old § The board of a public charity must have at least 3 directors § The term of directors may not exceed 5 years § The sole remaining director of a charitable corporation must notify the attorney general within 10 days after the date of resignation 19

Co Commi mmittees v Delineation between board and advisory committees v Committees with board delegated power: § Must have 2 or more directors as members § Cannot include non-director members (unless one is necessary to comply with law) v Advisory committees do not have authority of the Board 20

Fiduc Fiduciar iary Duties uties of Dir irec ectors v Corporate fiduciary duties of care and loyalty v Includes duty to disclose material information not known by the Board v Provides for fiduciary duties of officers with discretionary authority v Provides a procedure to resolve a conflict of interest v Prohibits officers and directors from taking a business opportunity belonging to the corporation 21

Of Offi ficers v Requires a president, secretary and treasurer v Allows an individual to hold more than one office v Subjects officers with discretionary authority subject to fiduciary duties 22

Do Domestic icatio ion an and C Conversio ion v Offers helpful flexibility for nonprofits § Can move to another state without losing corporate status § Can convert to another entity without dissolving v Permitted if also authorized by statute in Washington or by law of the other state v Charitable assets are protected from diversion v Insider cannot benefit from procedure 23

Fundam Fundamen ental al Trans ansac actio tions ns v All fundamental transactions contain provisions to ensure that charitable assets are protected v A charitable corporation or a nonprofit corporation holding charitable assets must given notice to the attorney general of its intent to consummate such a transaction 24

De Deriv ivativ ive P Proce ceedin ings v Derivative proceedings permitted (current law is unclear) v A derivative proceeding is a civil suit brought on behalf of the nonprofit against one or more directors or officers claiming that they breached a fiduciary duty owed to the corporation 25

De Deriv ivativ ive P Proce ceedin ings ( (cont.) v Gives standing to members, directors and former directors to bring action § Donors and creditors do not have standing v Members’ right can be prohibited or required number of members increased in bylaws v Right of a director or former director cannot be eliminated 26

De Deriv ivativ ive P Proce ceedin ings ( (cont.) v Protections for the nonprofit § Requires a demand with 90 day waiting period § Court can stay a proceeding if nonprofit commences an inquiry § Dismissal permitted if nonprofit determines in good faith after reasonable inquiry that action not in the best interests of the corporation 27

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