Guest Column

Major revisions to Michigan Nonprofit Corporation Act

January 30, 2015
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By signing Michigan Senate Bills 623, 624 and 929 on Jan. 15, Gov. Rick Snyder ratified a significant set of revisions to the Michigan Nonprofit Corporation Act that every nonprofit should consider implementing, or at least be familiar with.

The nonprofit act was amended in 1986 to allow a nonprofit corporation to include provisions in its articles of incorporation to limit the liability of an officer or director for money damages to the corporation, its shareholders or its members, but only for a breach of a fiduciary duty. In other words, for the officer or director to get the benefit of the provisions, the corporation needed to conclude that a specific fiduciary duty was involved.

The new law allows a Michigan nonprofit to eliminate liability for any action taken or failure to take action.

The amendments to the Act now expand the notice requirement to the Michigan Attorney General so a nonprofit corporation organized for charitable purposes must provide notice to the attorney general’s office not only before dissolving, but also before merging with another entity or transforming into an entity that is not a nonprofit, either by amendment or conversion.

The Corporations Division will not file the certificate of dissolution or merger without a copy of the written consent from the attorney general’s office, or an affidavit that the corporation served the notice on the attorney general’s office which failed to respond during the period at least 45 days after filing with the Corporations Division.

Of particular note, a corporation may no longer avoid this notice requirement by simply amending articles of incorporation to terminate its existence as of a specific date. Such an amendment must now be filed with either the written consent from the attorney general’s office or an affidavit confirming that the attorney general’s office failed to act.

If included in its articles or bylaws, a membership- or stock-based corporation now has flexibility to conduct voting for annual and special meetings by electronic transmission or at a polling place. Formerly, stockholders or members had to vote either by holding an actual meeting or by signing a written consent.

Under the new rules, an action can be approved not only at an in-person meeting or by written consent, but also by votes taken electronically or at a polling place. Permissible voting mechanisms presumably will include email, online survey, or printed ballots provided at an in-person polling place.

Procedures for implementing the merger or dissolution of a stock or membership corporation also have changed under the new Act.

A plan of merger or dissolution previously was approved if a 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 by receiving a majority of affirmative votes from shareholders or members who are present at the meeting, but only if more than 20 of the shareholders or members entitled to vote are present. The bylaws or the articles of incorporation may require a greater vote.

The newly revised statute also clarifies the procedures by which a shareholder or member may request to inspect certain records. In addition, the statute now permits a corporation’s articles of incorporation or bylaws to specify that no right to inspect exists in certain instances, such as when doing so would impair the privacy or free association rights of shareholders or members, would impair the lawful purposes of the corporation, or when opening lists of donors would not be in the best interests of the corporation.

Several years back, the Michigan Attorney General expanded the “corporate practice of medicine doctrine” in Michigan when it published an opinion that nonprofit hospitals in Michigan could employ physicians. The recent amendments to the Act take this concept a few steps further. Now, any nonprofit corporation may employ licensed individuals in the “learned professions,” which include dentists, physicians, lawyers and clergy.

These and many other revisions to the Act may require or make it advisable to amend your nonprofit's articles of incorporation or bylaws.

Kenneth Hofman’s legal practice at Miller Johnson is focused on corporate counseling. He works with many nonprofit and tax-exempt groups including health care and faith-based organizations.

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