While membership corporations sometimes rely on proxies to mitigate the challenge of membership action, there is another way! This is also true for boards of directors, but as the membership of a not-for-profit corporation can number in the hundreds or thousands, this provision can essentially eliminate all member actions outside of a meeting. In other words, members can't vote outside of a meeting. The general rule for members acting outside of a meeting is that any written consent must be unanimous. Something Old:Ī little-known provision of the N-PCL may help some membership corporations adapt to an increase in their membership following the enactment of the amendment to Section 601, and help others make both their routine and their extraordinary actions a little easier to administer. We note that this amendment applies only to not-for-profit corporations formed under New York law, and does not apply to all corporations with authority to do business or solicit for contributions in New York. Charitable corporations may choose to eliminate their membership entirely, or to expand it to encompass three or more members, but oddly, even though they are not required to have members at all, if they choose to have members, they must have at least three. For corporations that have a sole member that does not qualify for the exception for entities controlled by three or more persons, it may be necessary to amend the certificate of incorporation and/or bylaws of the corporation in order to bring them into compliance with the N-PCL. Not-for-profit corporations with members should review their governing documents to ensure compliance with the amendment.
Section 601, as amended, does allow a not-for-profit corporation to have a corporation, joint-stock association, unincorporated association, or partnership as a sole member, as long as that entity is owned or controlled by no fewer than three persons. The amendment to Section 601 of the N-PCL applies to both new and existing membership corporations and will require immediate governance changes for not-for-profit corporations that have a sole member that is an individual or a very closely held entity. (In New York, noncharitable corporations are required to have members, and charitable corporations may, but are not required to, have members.) Until this amendment, it was permissible and typical for New York not-for-profit corporations to be formed with a single individual member, who retained certain governance rights by virtue of their membership. Beginning on July 1, 2019, New York not-for-profit corporations with members will be required to have a minimum of three members, directly or indirectly. The New York Not-for-Profit Corporation Law (N-PCL) has been amended again.