After over fifty years without comprehensive revision, Washington has a new Nonprofit Corporation Act. Last year, the Washington Legislature adopted, and Governor Jay Inslee signed into law, a new Washington Nonprofit Corporation Act (“New Act”) replacing the old chapter of law governing nonprofit corporations. Nearly all of the provisions of the New Act took effect on January 1, 2022.
What do I Need to Know?
You may review the New Act, Chapter 24.03A RCW, in full here. Below are a few of the key changes to Washington nonprofit corporate law:
Electronic Communications and Notices. The New Act permits more efficient processes by allowing electronic transmission of communications and notices (e.g. via email) to directors, members and officers of nonprofit corporations by default. Members, directors and officers who prefer communications and notices in tangible written format must now opt-out of the default electronic transmission. The New Act also permits online meetings (e.g. via video conference).
Membership. The New Act includes comprehensive provisions adding definitions, structure and clarity to the provisions governing membership in nonprofit corporations including: admission; member rights and duties; voting, meeting and notice requirements; and member resignation, termination and suspension. The New Act clarifies that members generally do not have fiduciary duties to the nonprofit corporation.
Directors and Officers. The New Act contains comprehensive rules governing directors and officers. The New Act requires that, at minimum, a president, treasurer and secretary be appointed (removing the requirement that a vice president be appointed). The New Act also requires that the board of directors of public charities classified as 501(c)(3) organizations under federal tax law consist of at least three directors. Private foundations classified as 501(c)(3) organizations may continue to have less than three directors. Individuals under the age of 18 may serve on the board of directors subject to certain conditions and limitations. Additionally, the New Act clarifies that directors and officers have the traditional fiduciary duties of corporate directors.
Clarification of Procedures for Fundamental Transactions. The New Act contains provisions guiding nonprofit corporations through “fundamental transactions,” defined as amendments of the organizational documents, mergers, dispositions of all or substantially all of the assets, domestications, conversions, or dissolutions.
Charitable Asset Protections. The New Act contains certain provisions and requirements designed to further protect the charitable assets of nonprofit corporations and clarifying the Washington Attorney General’s power to investigate and intervene to protect such charitable assets. The New Act establishes specific procedures and restrictions relating to modifying or releasing gift restrictions; preventing charitable assets from being distributed improperly; protecting charitable assets from diversion from charitable purposes in fundamental transactions; and reporting certain major changes in a nonprofit corporation’s purposes, activities or programs.
Conversion. Subject to certain conditions, the New Act allows nonprofit corporations to convert to for-profit corporations, and vice-versa, without reincorporating.
Re-Domestication. The New Act allows nonprofit corporations to change their state of incorporation so long as the target state allows for such re-domestication transaction.
Corporate Maintenance Impacts. The Washington Secretary of State is making significant changes to the online filing process for nonprofit corporations. While these changes are being implemented, the Washington Secretary of State has instructed that nonprofit corporations should use paper filing options, necessitating that nonprofit corporations and those responsible for their corporate filings allow sufficient time to complete the filings. Updated information and the new forms are available on the Washington Secretary of State’s website here.
It is important to keep in mind that, as with other Washington corporate laws, the New Act provides default rules regarding organization and operating of nonprofit corporations which generally may be altered by a nonprofit corporation’s corporate documents.
The New Act is comprehensive, and this blog post is intended only as a general overview. Nonprofit corporations should consult with legal counsel to ensure their procedures, operations and corporate documents comport with the New Act. If you have any questions about the New Act and/or how it impacts your corporation, please contact an attorney in our business and corporate practice group, including Stephanie Gero Dahlstrom or Kristi O’Brien.