Extensive amendments to the New York Not-for-Profit Corporation Law take effect on July 1, 2014. Some of the amendments do away with the current classification of nonprofit committees, which provides for “standing” committees and “special” committees. Instead there will be “board” committees and “corporation” committees. See Not-for-Profit Corporation Law §712.
A “board” committee is one that is created by the board of directors, and is to be composed only of board members, and no less than three. A board committee “shall have all the authority of the board,” meaning it can be authorized to act on behalf of the nonprofit, just like the full board, to incur a debt, buy, sell, lease or mortgage property, hire and fire employees, and more. However, there are several things a board committee is prohibited from doing:
- Submit to nonprofit members any action requiring their approval;
- Fill vacancies in the board or in any committee;
- Fix the compensation of directors for serving on the board or on any committee;
- Adopt, amend or repeal by-laws;
- Amend or repeal any resolution of the board which by its terms shall not be so amendable or repealable.
It is important to note that a board committee can be authorized to have the power of the board, but it need not be so authorized. That authorization is always optional.
Further, if a board committee is authorized to act, and does act, there is a requirement that it notify the full board of the action no later than the next full board meeting.
Corporation committees are committees of the nonprofit which are not board committees. They can be created by the board of directors or by the members. Corporation committees can have as members people who are not board members. They can never have the power of the board.
All committee members, whether board or corporation, are subject to rules concerning conflict of interest and related party transactions, which will be discussed in another blog.
In determining whether its various committees should be board committees or corporation committees, each nonprofit must consider its own circumstances.
Here are a few considerations:
Confidentiality. If confidential information will be disclosed and considered, then a board committee might be preferred. Outsiders can be asked to sign confidentiality agreements, but board members are always subject to a duty of loyalty that would require confidentiality.
Power to Contract. The purpose of board committees is to allow a board to completely delegate certain issues to smaller committees that will have the power to bind the corporation without prior board approval (but with prompt notice afterward). If the board wants to delegate power in that way, then a board committee is the vehicle. This is more likely for very large boards (30 members or more). Here in the Hudson Valley we generally don’t have boards of that size. Delegating power in that way might also be appropriate for a topic that requires unusual expertise.
Manpower. Do you a small number of overworked board members, and need outsiders to be on the committee? If so it can’t be a board committee.
Audit. There are many new rules applicable to Audit Committees which will be discussed in another blog. The Audit Committee, if there is one, must be a board committee.
Each committee should be formed by a formal, written board resolution. That resolution should define the committee’s character, composition, duties, procedures and powers. It is better to form committees by resolution, rather than in bylaws, because resolutions can be changed more readily.
Gary Schuster is Senior Counsel on the Business & Estates Team. He can be reached by phone at 845-778-2121 toll free or 845-778-2121 and by email.