Major Changes to the Michigan Nonprofit Corporation Act
Author: W. Dane Carey
On January 15, 2015, Governor Rick Snyder signed a series of bills that implemented a number of changes to the Michigan Nonprofit Corporation Act. Many of the changes could have a major impact on the way a nonprofit organization is governed. This article contains a summary of the significant changes that may warrant amending the organizing documents of existing Michigan nonprofit corporations.
Voting Electronically or at a Polling Place
The first major change provides increased flexibility to conduct voting for annual and special meetings. Prior to the amendments, stockholders or members had to vote either in person at an actual meeting or by written consent. While it was possible to comply fully with the Nonprofit Corporation Act by characterizing the ballots as proxies or as written consent resolutions, many organizations may not have observed all the technicalities necessary to be in full compliance with the statute.
Under the new rules, shareholders and members can participate by voting electronically or at a polling place, so long as a ballot is provided to every person entitled to vote. Permissible voting mechanisms will presumably include email, online webpages, or printed ballots provided at an in-person polling place. While this change is certainly a positive step toward keeping pace with modern forms of electronic communication, this also means that nonprofits will need to address issues concerning identification of members. The benefits of convenience these electronic voting means provide must be weighed against the potential costs to ensure that the votes cast are authentic.
Nonprofit corporations who want to take advantage of this new procedure should consult with an attorney to determine whether the articles of incorporation or bylaws need to be amended to accommodate such options pursuant to the new MCL 450.2208 and MCL 450.2209.
Director and Officer Liability
A nonprofit corporation can now limit a director or officer’s liability for actions less than a breach of fiduciary duty. Previously, a nonprofit was only allowed to limit liability for damages that related to a breach of a fiduciary duty by the director or officer. The new law expressly expands the limits of indemnification to eliminate liability “for any action taken or any failure to take any action.”
Existing nonprofit corporations may desire to increase the protection to existing directors and officers by amending articles of corporation. In most cases, the new limits of indemnification will be automatically available to an organization that currently indemnifies its board of directors and officers. Nevertheless, it is important for every nonprofit to review its existing bylaws and articles of incorporation to determine whether the corporation’s governance documents should be updated to ensure that the intent of the organization is fully implemented.
Limit on Access to Information
The amended Nonprofit Corporation Act clarifies the procedures by which a shareholder or member may request to inspect certain records. The new law now requires that a shareholder or member’s request to inspect an organization’s books and records must describe the purpose of the inspection and the specific records the shareholder or member desires to inspect. The request must also state a proper purpose for the inspection, which is defined as “a purpose that is reasonably related to a person’s interest as a shareholder or member.”
Under select circumstances, a nonprofit corporation may provide that the shareholders and members do not have the right to inspect certain records if the shareholders, members or directors that approved the limitation make a good faith determination that opening its books and records: (1) would impair shareholder or members’ rights of privacy or the lawful purposes of the corporation, or (2) would not be in the best interest of the corporation.
A corporation that limits inspection of lists of its shareholders and members, as provided above, must still provide a reasonable way for shareholders or members to communicate with all other shareholders or members concerning the election of directors and other affairs of the corporation.
Under the new amendments, the board of directors of a nonprofit corporation may create nonexecutive committees-which may be comprised of non-members, shareholders, directors or officers-to assist in conducting the board’s affairs. While nonexecutive committees are able to perform under the board’s direction the functions described in the bylaws or determined by the board, the amendments make it clear that a nonexecutive committee cannot execute the authority of the board of directors in the management of the corporation’s business and affairs.
Mergers and Dissolution
Procedures for implementing the merger or dissolution of a stock or membership corporation have been simplified under the new Act. Previously, a merger or dissolution required that the majority of the shareholders or members entitled to vote actually voted in favor of the merger in person or by proxy at the meeting called for that purpose. The amendments now allow a stock or membership corporation to obtain approval of a plan of merger or dissolution if the plan is approved by a majority of those shareholders or members who are present at the meeting, but only if there are at least 20 shareholders or members present.
Services in Learned Professions
The amendments to the Act provide that nonprofit corporations are now permitted to provide services in “learned professions,” which includes services provided by licensed individuals such as doctors, dentists, attorneys, and even clergy. Any person who renders such services on the corporation’s behalf will retain liability for his or her negligent or wrongful acts. That said, the nonprofit employing such a professional may indemnify him or her from any liabilities resulting from the services. This change opens the door for nonprofit corporations to expand the scope of services they provide.
This article is intended to be a brief summary of some of the more significant changes to the Michigan Nonprofit Corporation Act. There are, however, numerous other minor changes throughout the statute.
These and many other revisions to the Act may require or make it advisable to amend your organization’s articles of incorporation or bylaws. Nonprofit corporations would be wise to review whether their governing documents to determine whether changes are necessary or desirable.
To gain a full understanding of how the amendments may impact your organization, you should consult with your organization’s regular legal counsel or you may contact the experienced business attorneys at Dingeman & Dancer, PLC, 100 Park St., Traverse City, MI 49684; (231) 929-0500