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Corporate Law

New Michigan laws governing non-profit corporations

non profit sectorThere are new laws on the books in Michigan, which may have a significant impact in the governance and operation of non-profit organizations. These laws, known as Public Acts 557, 558 and 559 of 2014 took effect on January 15, 2015.

Act 557 includes changes to the Michigan Nonprofit Corporation Act. Some of the components of Act 557 include:

  • Changes in liability limitation allowed in bylaws regarding a director of a non-profit corporation, whether or not that individual is paid or is a volunteer. In the past, liability limitation was only applicable to non-paid directors and in narrower circumstances.
  • Definitions of both executive and non-executive committees with specific clauses indicating that non-executive committees do not possess the ability to make decisions on behalf of the non-profit entity.
  • Expanded directives for removing a director through court action.
  • New laws regarding non-profit mergers to align more closely with the laws regarding corporate mergers.

Act 558 amends a previous public act (1965 PA 169). Act 558 expands the authority of the Michigan Attorney General in matters involving mergers, conversions and dissolutions of non-profit corporations. Previously the AG only retained oversight of non-profit dissolution. As a result of Act 558, all non-profits must give written notice to the Attorney General of their intent to merge with any other entity (non-profit or for-profit), to transform themselves into a for-profit entity as well as to dissolve. Upon receiving the notification, the Attorney General may take further action, including requesting accounting and audit materials and/or referring the matter to an appropriate court venue.

Act 559 also amends a previous public act (1993 PA 23), known as the Michigan Limited Liability Company Act. Act 559 allows the merger of a domestic limited liability company (LLC) with a non-profit corporation.

Non-profits would be wise to contact their attorneys to determine what, if any, modifications should be made in order to be in compliance with these new regulations. Of particular concern would be standard operating procedures, operations manuals and written bylaws of the organization, with particular attention given to governance practices as well as liability limitation of directors.