This is the second post in our series looking at the bill, passed by the New York State Assembly and Senate on June 16, 2016, to amend the Not-For-Profit Corporation Law (“NFPCL”). [updated: the bill was signed into law by Governor Cuomo on November 29, 2016, and has an effective date of May 27, 2017]. This post continues to look at new definitions in the NFPCL, specifically “independent directors.”
“Independent directors” are members of the Board of Directors (“Board”) entitled to participate in making certain decisions due to their unbiased position. The old definition required a director, or any relative of a director, to not have been an employee of the corporation or an affiliate of the corporation for the last 3 years. The new bill expands this to include not having been a “key person” in the past three years. The bill also changes the “substantial financial interest” requirement by creating a sliding scale for when an interest in the corporation is “substantial.” In addition, the form a qualifying “interest” can take has been expanded from making payments to, or receiving payments from, the corporation to include the provision or receipt of property or services to or from the corporation
The bill also amends how the terms “compensation” and “payment” are defined in the context of independent directors. Regarding compensation, the term now excludes the payment of any reimbursements to directors for expenses that they have reasonably incurred in their capacity as directors. The term also excludes paying directors reasonable compensation for their service on the Board or on a committee thereof.
Finally, the term “payment” is interpreted to exclude payments made by the corporation at fixed, non-negotiable rates for services received, where such services by and to the corporation are available to the public on the same terms, and where the receipt of these services is not available to the corporation from another source.
Our next post will focus on committees created by the Board of Directors. The full text of the bill is publicly available here: http://legislation.nysenate.gov/pdf/bills/2015/S7913