19 January 2015

Major Revisions to the Michigan Nonprofit Corporation Act

By signing Michigan Senate Bills 623, 624 and 929 on Thursday, January 15, 2015, Governor Snyder ratified a significant set of revisions to the Michigan Nonprofit Corporation Act. This Client Alert will focus on changes that every nonprofit corporation should consider implementing, or at least be familiar with.

Additional Limitations on Director and Officer Liability Available

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.

Procedures for Dissolving a Nonprofit Corporation

The amendments to the Act now expand the notice requirement to the Michigan Attorney General so that 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 which is 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.

Electronic Voting for Membership or Stock-based Corporations

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.

Voting to Approve Membership or Stock Corporation Mergers and Dissolutions

Procedures for implementing the merger or dissolution of a stock or membership corporation have also 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.

Potentially More Limited Access to Information for Shareholders and Members

The newly revised statute 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.

Nonprofits Can Offer Medical, Legal and Other Services

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 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. Please contact a member of Miller Johnson’s Nonprofit and Tax-Exempt Organizations team with questions concerning the Act or your nonprofit in general.