Read a letter signed by 10 nonprofit umbrella organizations, including Nonprofit New York, respectfully urging Governor Hochul to sign S.5806 /A.6940. The bill would authorize non-membership not-for-profit corporations to classify their boards through their bylaws under the Not-for-Profit Corporation Law, aligning the law with current recommended board governance practice.
For questions, please contact Chai Jindasurat-Yasui, VP of Policy at [email protected].
October 16, 2023
Hon. Kathy Hochul
Governor of the State of New York
New York State Capitol Building
Albany, NY 12224
RE: Nonprofit Sector Support for S.5806 /A.6940 Authorizing Certain Nonprofits to Classify Their Boards Through Bylaws
Dear Governor Hochul:
We, the undersigned organizations, write to urge you to sign S.5806 (Comrie)/ A.6940 (Simone), which passed the state legislature in June with broad bipartisan support. The bill authorizes non-membership not-for-profit corporations incorporated in New York to classify their boards through their bylaws. This change aligns the law with best practice for corporate governance and creates greater flexibility for organizations to create different classes of their boards.
The Not-for-Profit Corporation Law (N-PCL) Section 704 regards the classification of directors, or the process of staggering the terms of board members. Organizations stagger their board terms of service so that classes of board members do not all begin and expire at the same time. While this is a critical practice for institutional knowledge and organizational stability, Section 704(a) provides that an organization with a board elected by the directors, i.e., a non-membership organization, may only adopt a classified board structure where the certificate of incorporation so authorizes. Membership organizations, on the other hand, may authorize board classification via a by-law adopted by the members under the current law.
To be in compliance with this requirement under the current law, non-member organizations must either anticipate such growth at the outset as they put their charter documentation in place, or amend their certificate of incorporation later in their life cycle in advance of implementing the practice. A common practice for organizations adopting a classified board later in their life cycle is to record the authority in their bylaws. Under the present law, however, organizations that follow this common practice are operating with invalidly composed boards, threatening the authority of their board and therefore calling into question corporate decisions.
The current classification of directors structure under Section 704 of the N-PCL is likely a carryover from the Business Corporation Law, which requires corporations to have shareholders (akin to members). Unlike for-profit business corporations, not-for-profits do not have shareholders and many organizations are non-member entities that would benefit from the ability to classify their boards through a by-law.
On behalf of New York’s nonprofit sector, we respectfully request you sign S.5806/A. 6940.
The Commission on Independent Colleges and Universities
Equality New York
Girl Scouts of Greater New York
Human Services Council
LiveOn New York
New York City Bar Association, Non-Profit Organizations Committee
New York Council of Nonprofits
Nonprofit New York
Pro Bono Partnership