Flexibility for Oklahoma Nonprofit Corporations
NOTE: This is a summary of a more comprehensive article posted to our website on December 1, 2020. You can read the longer version here.
In 2019 the Oklahoma Legislature passed, and the Governor signed into law on April 16, Senate Bill 642, which made numerous and substantial changes to the Oklahoma General Corporation Act (the “Act”) primarily relating to nonprofit and nonstock corporations. The amendments provide favorable, corporate governance improvements for Oklahoma nonprofit corporations. They became effective November 1, 2019. Although some nonprofit corporations have taken advantage of the amendments, many have not. Oklahoma nonprofit corporations should consider amending their certificates of incorporation or bylaws to incorporate the changes.
Nonprofit corporations frequently manage governance processes in a manner than differs from the management of governance processes by other types of corporations. For example, nonprofit corporations typically are not structured with shareholders or equity owners. Instead, their corporate organizational documents may provide for members who in many cases elect directors, although many nonprofit corporations provide for self-perpetuating boards of directors in which existing directors elect, designate, or appoint their successors. Additionally, directors of nonprofit corporations are responsible for assuring that the corporation fulfills its purposes. The earnings, assets, and other resources of nonprofit corporations are dedicated to the furtherance of the corporate mission and purposes, and generally they may not be paid or distributed to members or utilized for private gain. Considering that nonprofit corporations do not have shareholders or equity owners, they are accountable to the public.
The amendments create several practical and favorable improvements to the Act that are applicable to nonprofit corporations, but not to other types of corporations. Although some of the improvements may appear to be relatively insignificant in terms of corporate governance, they offer useful alternatives and options for nonprofit corporations.
The amendments provide that the bylaws of a nonprofit nonstock corporation may contain any provision, not inconsistent with law or with the certificate of incorporation, relating to the business of the corporation, the conduct of its affairs, and its rights or powers or the rights or powers of its members, directors, officers or employees. Additionally, the certificate of incorporation or bylaws of a nonprofit nonstock corporation may include the following types of provisions, which are different from those specified in the Act for business corporations:
- The business and affairs of the corporation may be managed in a manner different from that provided for business corporations. The differences may include additional classes of directors and longer terms of service, the use of less than unanimous consent for board action, and permitting the Chair of the governing body to designate committees and appoint members.
- Less than one-third of the members of the governing body or of a committee may constitute a quorum for the transaction of business by the governing body or committee, as applicable.
- Action required or permitted to be taken at any meeting of the governing board of a nonstock corporation may be taken without a meeting by written consent of less than all members of the governing body. Unanimous written consent is not required.
- The number of members having voting power who must be present or represented by proxy at any meeting of the members in order to constitute a quorum for the transaction of any business may consist of less than one-third of the members who are entitled to vote at the meeting. In the absence of a specification in the certificate of incorporation or bylaws, one-third of the members of the corporation will constitute a quorum at a meeting of the members.
- Any other provisions that are not contrary to Oklahoma law. The following are examples and suggestions:
- The mission statement.
- A statement of support of the mission by the directors and officers.
- A statement of final authority, which provides that the governing board has final interpretive authority with respect to matters pertaining to the interpretation of the certificate of incorporation and bylaws.
- Rules of procedure for the conduct of meetings.
- Committee charters of each committee, which should include the committee designation and title, composition, terms of committee members, authority, functions, and responsibilities of each committee.
- Provisions addressing conflicts of interest.
- A provision authorizing the governing board to establish and enforce a Code of Conduct and Ethics.
- Comprehensive indemnification provisions that conform to the indemnification provisions specified in the Act.
- Limitations on the personal liability of members of the governing board for a claim for monetary damages based on a breach of the duty of care by the director.
- If the corporation will be organized as a “charitable nonstock corporation” that plans to file a Form 1023 application with the Internal Revenue Service for exemption from federal income tax exemption under Section 501(c)(3) of the Code, provisions relating to tax exemption, including (a) provisions for complying with Section 501(c)(3), including provisions for operating exclusively for tax-exempt purposes and for restricting private inurement, carrying on propaganda, attempting to influence legislation, and participating or intervening in a political campaign on behalf of a candidate for public office, (c) provisions that are applicable to a private foundation, if the corporation is operated as or determined to be private foundation, and (e) provisions for the distribution on dissolution of net assets remaining following payment of debts.
- Nondiscrimination provision, specifying that, in any program or activity that the corporation sponsors or conducts, it will not exclude from participation, deny benefits or services to, or discriminate against any individual on the basis of race, color, creed, national origin, religion, age, gender, marital status, physical disability or impairment.
- An authorization to the governing board to develop a crisis and disaster plan and procedures
- An authorization to the governing board to declare an emergency and suspend the bylaws.
The amendments to the Act provide and allow for interesting and important new provisions to consider for certificates of incorporation, bylaws, and governance processes for nonstock corporations. Nonprofit and nonstock corporations should consider updating, amending, and restating their corporate organizational documents to take advantage of the changes authorized in the amendments.