Washington Nonprofit Corporation Act Update

Washington Nonprofit Corporation Act Update

During session, a bill was passed that replaces the Washington Nonprofit Corporation Act. The changes to the new act have been in the works for many years. Most of the changes will go into effect on January 1, 2022. The three main changes in the new act are: 

  • Modernizing out of date practices to nonprofit governance. 
  • Adds provisions to protect charitable assets held by nonprofit corporations 
  • Adds a set of rules governing the relationship between membership nonprofits and their members 

Most nonprofits that do not have members will not need to amend their governing documents to be in compliance with the New Act when it takes effect. However, nonprofits may choose to streamline and improve their governance. 

Some of the other changes include: 

  • Donor-Restricted Assets: includes new rules on governing the use and management of charitable assets. 
  • Out-of-State Corporations: minor changes for nonprofit corporations formed outside of Washington but operate in the state. 
  • Electronic Notices and Meetings: permits email notices by default, with an opt-out option if a particular member, director, or officer does not want to receive them. It also clarifies that meetings of members, directors, or officers may be held either fully or partly online unless the corporation’s articles or bylaws expressly prohibit electronic participation in meetings. 
  • Board of Directors: 
    • 501(c)(3) organizations are required under the New Act to have at least three directors on their boards. 
    • Clarifies that directors of charitable nonprofits have the traditional fiduciary duties of corporate directors. This should reduce potential liability exposure for directors of charitable corporations. 
    • Allows organizations to have youth representation on their boards, subject to several specific conditions. 
  • Supervision of Charitable Assets: revises the rules governing how organizations must handle charitable assets. The New Act establishes specific procedures for modifying gift restrictions, preventing charitable assets from being distributed improperly, handling charitable assets in transactions such as mergers and dissolutions, and reporting certain major changes in a charitable organization’s activities or purposes. 
  • Fundamental Transactions: new provisions governing mergers, dissolutions, dispositions of assets, and other similar transactions. It also allows corporations to convert from for-profit to nonprofit status or vice versa. 

On the effective date of January 1, 2022, all nonprofit corporations currently governed by Chapter 24.03 RCW will automatically be subject to the New Act. Other types of nonprofit corporations governed by other chapters of Title 24 RCW, including Chapter 24.06 miscellaneous corporations, will continue to be subject to existing law. 

Corporations that have assets subject to donor restrictions on use or management may elect to use and manage their gift-restricted assets under current law (including current procedures for modification under charitable trust law) during a one-year grace period, ending on January 1, 2023, but will still be subject to the New Act in all other respects on January 1, 2022. 

You can find a detailed article on the changes here. We will be working with our business partners to develop a webinar for members to provide you with more information on these changes. 

 

Questions?

Contact: 

Alyssa Odegaard- Vice President, Public Policy 

c: 206.948.2279

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May 24, 2021