Published October 28, 2021
On January 1, 2022, a newly updated Washington Nonprofit Corporation Act (the “Act”) goes into effect, replacing RCW Chapter 24.03. All Washington nonprofit corporations should review the following requirements and updates outlined in the Act and work with legal counsel to determine whether their corporate documents are updated to conform with the Act. Note that the “Required Changes” discussed below apply to existing nonprofits, which may require changes to their current governing documents.
- Electronic Notice. Electronic notice is now the default provision, unless otherwise specified in the articles or bylaws.
- Articles of Incorporation. All nonprofits must identify their registered agent and the nonprofit’s purpose in their articles. Membership corporations have additional requirements that must be met relating to member information.
- Board of Directors. A private nonprofit must have at least one director. A nonprofit designated as a public charity must have at least three directors. Directors may only serve terms of up to five years, unless the corporation was formed prior to January 1, 2022 and its articles or bylaws previously specified a term longer than five years. However, the Act imposes no restrictions on the number of consecutive terms that a director may serve. Unless otherwise stated in the articles or bylaws, directors will serve a one-year term. Directors appointed by some other person or persons besides the members or directors, or designated in some other manner, may serve a term of any length.
- Members. In order to be considered a membership corporation, the articles must state that the corporation has members. Members must also have the right to vote in at least one fundamental transaction (election of directors, amendments of articles or bylaws, mergers, etc.). If not explicitly stated, it is assumed that there are no members.
- Remote Meetings. Board meetings may now be conducted remotely, including by videoconference along with telephonic communication, unless prohibited in the articles or the bylaws. Simultaneous participation is required for any remote meeting (email would not suffice).
Important Information to Review:
- Director Liability. Directors are not liable to the corporation for actions taken unless done by intentional misconduct.
- Youth Directors. Directors under the age of 18 may serve on the board but may not exceed one-third of the total number of directors.
- Member Liability. Members are not personally liable for the acts or obligations of the corporation.
- Restricted Gifting. Gifts are considered unrestricted if not accompanied by a gifting instrument. Donors may restrict gift usage through a gifting instrument, and nonprofits must comply with such restrictions.
- Public Benefit Corporations. A corporation may now be designated a “public benefit nonprofit corporation” if it complies with the Act and is recognized as a 501(c)(3). This status must be renewed yearly with the Washington Secretary of State.
- Fiduciary Duties. Directors and officers of nonprofits now have the same fiduciary duties as corporate directors.
- Governance Requirements. The Act removes the requirement that a vice president be appointed. Only a president, treasurer, and secretary are required, but the president and the secretary cannot be the same person.
- Recordkeeping. Nonprofits must allow inspections of records, with certain limitations. Copies of certain records must be kept permanently. Membership corporations must maintain a record of all members.
- Conversion. The Act allows for nonprofits to convert to for-profit and vice versa under certain circumstances.
- Charitable Asset Protections. The Act provides specific restrictions on gift restriction modifications, the application of gift restrictions during mergers, and reporting requirements.
- Attorney General. The Act provides new procedures for investigations and reporting by the Attorney General’s office.
- Fundamental Transactions. The Act describes the procedures for mergers, dissolutions, and disposition of assets – all defined as fundamental transactions. The Act guides nonprofits through these transactions.
- State of Incorporation Change. The Act allows corporations to “re-domesticate” or change their state of incorporation.
The Act is comprehensive, and this memorandum only addresses the big picture. We recommend working with legal counsel to ensure that your corporate documents comply with the Act. This is the perfect time to update and modernize your nonprofit.
For questions, please contact any member of Ryan Swanson’s Business group.