When serving as an officer or board member of a nonprofit organization, it is vital to monitor any changes in the governing law. This past January 2015, three new bills were enacted that made significant changes to the way Michigan nonprofit corporations are governed. These bills are Acts 557-559 of the Michigan Public Acts of 2014. While the bills make many changes to Michigan nonprofit law, this post will highlight five changes that have the potential to make a large impact on the average Michigan nonprofit corporation.
1. Director Liability and Indemnification
In Act 557, the ability to indemnify or limit the liability of a director is expanded. Now, a nonprofit corporation’s Articles of Incorporation may limit or eliminate the liability of director, except for liability arising from intentional wrongdoing. Further, a nonprofit corporation is now permitted to offer greater indemnification to directors, employees, or volunteers that are threatened or actually engaged with legal action as a result of their association with the nonprofit corporation.
This change is significant because the previous version of the law only allowed the limitation of volunteer director and officer liability essentially when related to a good-faith breach of duty. This new expanded version of limited liability has the potential to remove some of the risk associated with becoming a director for a nonprofit corporation.
Michigan nonprofit corporations may now provide services in a “learned profession.” Professionals impacted by this change include attorneys, clergy, doctors, surgeons, dentists, and others. The nonprofit employing such a professional may also indemnify him or her from any liabilities resulting from the services. This change is significant in that it broadens the scope of services that may be provided by nonprofit corporations. It also codifies what the Michigan Attorney General has long claimed was the right of nonprofit corporations under existing law.
Under the new law, Michigan nonprofit organizations now have the ability to merge. This change brings the nonprofit law more closely into line with Michigan’s business corporation act. However, a nonprofit corporation organized for a charitable purpose may not merge or dissolve without first obtaining consent from the Michigan Attorney General.
4. Limiting and Granting Power
An interesting point in the newly amended law is the ability of a nonprofit corporation to give virtually any corporate power to any member, shareholder or other person, as long as it is spelled out in the Articles of Incorporation. This grant of power does not appear to come with any legislatively-imposed limit. This could be used as a tool to either grant power to some, or take power away from others. However, whoever receives such a grant of power will also receive the corresponding liability for his or her actions.
Finally, the new law allows a Michigan nonprofit corporation to transfer management of the corporation away from the board of directors to a third party entity. When such authority is transferred, the corresponding liability will also transfer from the board members to the third party. This change may be useful to a corporation wishing to minimize liability or seek out more experienced management.
This post is not exhaustive, and many changes that could be made to a nonprofit corporation based on the above-mentioned amendments should likely be discussed with an attorney. However, the information contained here should be useful as a way to consider how a nonprofit is run, and to spark discussion regarding the future direction of the organization. In light of this information, it may be a good time to review your organization’s governing documents, such as the Articles of Incorporation.
The attorneys at Dalton & Tomich, PLC have extensive experience in representing nonprofits here in Michigan. We provide a full range of services to nonprofits, including analysis of changes in the law, and how those changes impact the vision and operation of an organization. If you have any questions regarding the material in this post or about nonprofits in general, please do not hesitate to contact us. We would be happy to speak with you.