Is My Not-For-Profit Corporation in Compliance with the New Law?

I will analyze the revisions to § 201 of the Not-For-Profit Corporation Law (the “Purpose Statute”) under the Nonprofit Revitalization Act of 2013 (“NPRA’); and how to determine the degree of specificity required for the Not-For-Profit (“NFP”) in its corporate purpose clauses.

A. Under the NPRA, effective July 1, 2014, NFP may amend its corporate purpose to be more general pending approval from the Supreme Court and Notice to Designated Governmental Agencies

Prior to the enactment of the NPRA, New York not-for-profit corporations (“NFP Corporations”) were classified as one of four types– A, B, C and D (the “Former Types”).

The New York State Charities Bureau (“NYSCB”) maintains a registry for the NFP Corporations, which identify each type of classification.

Type A not-for-profit corporation, formed prior to July 1, 2014, shall be deemed a non-charitable corporation. N-PCL §201(b).

Type A corporate purpose includes language in its Certificate of Incorporation (“COI”) such as, “Corp X formed to serve as a homeowner’s association to benefit the owners of homes in the Sunny Estates development in the City of Buffalo and Corp X will achieve its purpose by maintaining private roadways and common areas in development”. This is deemed a Type A corporation.

Type B and C not-for profit corporations, formed prior to July 1, 2014, shall be deemed to be charitable corporations. N-PCL §201(c).

Type B corporate purpose includes language in its COI such as, “Corp Y formed for the purpose of providing aid to individuals in need of food, clothing and shelter (the “Resources”) to benefit individuals from Western New York who are in need of the Resources and Corp Y will achieve its purpose by supplying food, clothes, and referrals about housing.” This language would be deemed a Type B corporation.

Type C corporate purpose will include language in its COI such as, “Corp Z formed for the purpose of providing housing to individuals and families who could otherwise not afford decent housing to benefit low and moderate income individuals and families and Corp Z will achieve its purpose by owning, operating and maintaining housing in Albany, New York.” This language would classify as a Type C corporation.

Type D corporations with charitable purposes are deemed to be charitable. Type D corporations with non-charitable purposes are deemed to be non-charitable. N-PCL §201(d).

The Not-for-Profit Corporation Law § 102(a) (3-a) and (3-b) define a charitable corporation as one incorporated for “…charitable, educational, religious, scientific, literary, cultural, or for the prevention of cruelty to children or animals”. (emphasis added)

Distinguished from a charitable purpose, § 102 (a)(9-a) defines “non-charitable” as “…any corporation formed under this chapter, other than a charitable corporation…”. Specifically, the statute seeks to distinguish charitable corporation to include a corporation formed for one of the following non-pecuniary purpose: (i) social; (ii) political or (iii) for the purpose of operating a professional, commercial, industrial, and trade or service association. Id.

What is a NFP Organization?

The NYSCB classifies NFP as a “NFP”, which states an organization that includes “…both (1) charitable and other nonprofit organizations that solicit contributions from New York State (including residents, foundations, corporations, government agencies and other entities) and (2) charitable organizations that are incorporate, are formed or otherwise conduct activity in New York State (including wholly charitable trusts that file an IRS Form 990, 990-EZ or 990-PF).”

Under the Purpose Statute and the NPRA, NFP is deemed a charitable organization and is not required to amend its purpose clause with specificity. An NFP should proceed with a more general statement if it decides to amend its corporate purpose. NFP should remove any language listing its corporate activities in its purpose provision in its COI.

B. Amendment to NFP’s Purpose Clause will require the Consent and Approval by the Department of Health and the Office of Children and Family Services and the Supreme Court

An amendment to the Certificate of Incorporation as to the corporate purpose is governed by N-PCL §§ 404 (the “Approval Statute”) and 801 (the “Right to Amend Statute”).

Under the Approval Statute, NFP corporations operating institutions for children, care of destitute, delinquent and dependent children…or the solicitation of contributions for any such purposes.” is required to receive consent and approval from the Office of Children and Family Services located in 52 Washington Street Rensselaer, New York 12144. N-PCL § 404(a). NFPs are also required to seek consent and approval from the Department of Health located in Albany, New York for any NFP corporation operating “…aged care accommodation; adult care facility; enriched housing programs; residences for adults or the solicitation of contributions for any such purpose. Id. 

1. NFP corporate applications, including Former Type B corporations, seeking to amend its corporate purpose must seek review and approval from the Supreme Court, on notice to the (i) Attorney General or (ii) NYSCB. N-PCL § 804(a)(ii).

A sample of a general corporate purpose provision referenced from a Social Services Organization, which may be used, if an NFP decides to amend its corporate purpose in the Certificate of Incorporation under the Amendment Clause:

Purpose Clause for NFP

To generally promote the alleviation and betterment of NFP, immigrant and low-income families; to establish and maintain centers providing social services; to collect, accept and receive money for exclusive charitable purposes.

            To do any other act or thing incidental to or connected with the above purposes or in their advancement, but not for the pecuniary profit or financial gain of its members, directors, or officers except as permitted under Article 5 of the Not-For-Profit Corporation Law.^[1]

^[1] N-PCL Article 5 § 509 governs corporate financing by the purchase, sale, mortgage and lease of real property to benefit the corporate entity.

Please note, that an NFP should consider the possible delays for approval and consent by the Department of Health and the Office of Children and Family Services, and that the Supreme Court must approve an amendment to NFP’s corporate purpose subject to time and costs.

Executive Officers should consult with an attorney before acting or refraining on amending their NFP.

Byron Quintanilla Esq.