Nonprofit Corporate Law: Recent Updates

For your reference, here’s a reading list of recent commentary and analysis by lawyers and law firms on JD Supra covering the various aspects of running a non-profit organization:

The Dodd-Frank Act and Implications for Nonprofit Organizations (by Venable LLP):

“While many of the provisions of the Dodd-Frank Act apply
specifically to financial services firms and their related activities,
the Act does include a handful of key provisions that may impact
generally the nonprofit community. In addition, the Dodd-Frank Act
makes sweeping changes in how financial products and services are
regulated that will impact a number of nonprofit organizations directly
due to new regulations and compliance requirements.

Nonprofit leaders should look carefully at the provisions of the
Dodd-Frank Act and determine whether their organization’s fall under
any of its provisions and, to the extent that they do not, how they may
address practices required under the Act, even if not mandated by law.
In addition, there are a number of opportunities for nonprofits in the
areas of financial literacy and consumer education. Of course, there
also will be no shortage of opportunities for financial services
industry trade associations to weigh-in on issues of importance to
their memberships.

This article will provide some general background and review the
main provisions most likely relevant to nonprofit organizations…” Read on>>

Key Nonprofit Corporate Law Developments in 2010 (by McDermott Will & Emery):

“The year 2010 witnessed an extraordinary series of developments in
nonprofit corporate and charitable trust law as they affected the
governance and operation of hospitals and health care systems. This is
consistent with a decade-long trend that has made corporate law and
governance key legal feasibility considerations for nonprofit

These developments reflect the following general trends: (a)
increased oversight from state and federal charity regulators; (b)
greater focus on corporate governance practices; (c) closer scrutiny of
the exercise of business judgment by boards; (d) the evolution of
system structures and business combinations; (e) the governance
implications of an economy in transition; and, notably, (f) the
challenges and opportunities arising from the March, 2010, enactment of
the Patient Protection and Affordable Care Act (PPACA).

Based on these trends, our ”top ten” list of major nonprofit
corporate law developments for health care providers in 2010 is as
follows…” Read on>>

New Limits on Online Marketing: The Implications for Nonprofit Organizations (by Venable LLP):

“Many nonprofit organizations that market online may rely upon recurring
charges for enrollment in membership offers, and other subscription
programs, as well as online processing of payment transactions. But
now, online advertisers, marketers and merchants will have to comply
with a new set of requirements under the “Restore Online Shoppers’
Confidence Act,” S. 3386 (the “Act”). The Act was signed into law by
President Obama on December 29, 2010. As a result, nonprofit
organizations with online sales – especially ones with third party
marketing relationships or that sell “continuity” programs (e.g.,
recurring periodic billing) – will need to review their online
activities carefully under the new law to ensure compliance…” Read on>>

Board Members Beware – SEC Regulatory Authority May Cast Wide Net (by Thompson Coburn LLP):

“Governmental board members and board members of nonprofit organizations
may be “in the sights” of the Securities and Exchange Commission (SEC)
if their organizations are involved in the issuance of municipal bonds,
including tax-exempt bonds. Federal statutes known as the Dodd-Frank
Wall Street Reform and Consumer Protection Act recently adopted by
Congress (the Act) amended the Securities Exchange Act of 1934 (the 34
Act) to add a new requirement that “municipal advisors” register with
the SEC. The definition of municipal advisor, as interpreted by the
SEC, is potentially quite broad and could include appointed members of
the governing body of an issuer of municipal bonds or the entity
borrowing the proceeds thereof. For example, the Act could apply to the
board members of a local industrial development authority or a private
college…” Read on>>

The Director’s Dozen: Prudent Activities for Governing Boards of Nonprofit Corporations (by Foley Hoag):

“Directors of nonprofit corporations owe fiduciary obligations to the
corporation. They are bound by Massachusetts law to perform their
duties as directors in good faith, in a manner reasonably believed to
be in the best interests of the corporation, and with such care as an
ordinarily prudent person in a similar position would exercise under
similar circumstances. As stewards of the nonprofit corporation,
directors are required (1) to act with care in their oversight and, (2)
to keep the interests of the corporation paramount above their own
personal interests when acting for, or on behalf of the corporation.
These legal duties are known as the duty of care and the duty of

The following guidelines describe some actions directors should take to fulfill their legal duties…” Read on>>

New Limits on Nonprofit Securities Exemption (by Warner Norcross & Judd):

“Effective Jan. 1, 2011, debt securities of nonprofit organizations
will qualify for the nonprofit exemption from registration in Michigan
only if the maximum offering amount is $500,000 or less and the
securities are sold exclusively to bona fide members of the
organization without payment of a commission or consulting fee.

The process for completing a registration by qualification of
nonprofit organization debt securities has been simplified, however,
and may be accomplished by filing the offering documents with the
Michigan Office of Financial and Insurance Regulation (OFIR) and paying
a $250 flat fee. For nonprofit organizations, the registration fee will
not be calculated based on the offering amount in Michigan. The
registration filing must be made at least 20 business days before
making offers or sales in the state…” Read on>>

Yellow Flags, Red Flags: What’s a Board to Do? (by McDermott Will & Emery):

“In two recent instances, a nasty and salacious controversy between a
reputable nonprofit health care organization and its CEO has served to
shine a bright (and unfavorable) light on the subject of board
responsiveness to suspicious conduct or events.

Both instances fueled intense media scrutiny and prompted an
internal legal investigation of the underlying facts. One spawned
competing litigation complaints filed by the board and the CEO,
respectively, and allegedly sparked an IRS examination. The other
involved a state attorney general review of the board’s responsive
conduct, the results of which review were made publicly available. Both
instances resulted in extraordinary financial and reputational damage
to the involved institutions and individuals. Most notably, in both
instances warning signs were presented to individual board members (if
not the full board) long before events prompted the full board to
commence an investigation…” Read on>>