Changes in the New Washington Nonprofit Corporation Act (SB 5034)
Governor Inslee signed SB 5034 replacing the nonprofit statutes for the first time in 50 years. The Washington Nonprofit Corporation Act (“New Act”) will take effect on January 1, 2022 and will have a significant impact within the nonprofit sector. It seems the main goal of this legislation was to modernize the current act. The New Act adds significant changes and rules regarding the interactions of nonprofits and their members.
Nonprofits should expect and plan for the following changes effective January 1, 2022:
Nonprofits Without Members: Most Washington nonprofits without members will not need to amend their articles of incorporation or bylaws pursuant to the New Act. However, the New Act provides several opportunities to introduce additional structure and operations within existing Washington nonprofits.
Nonprofits With Members: Nonprofits that have members may need to update their corporate documents to address the new rules which address governing membership and powers.
Out-of-State Corporations: The New Act did not make significant changes to the governing, registration, or operation of out-of-state nonprofit corporations.
Notice and Meeting Changes: The New Act permits email notices by default while allowing an opt-out option for members, directors, or officers who prefer notice in writing.
Fiduciary Duties of Members: The New Act establishes that members in general do not have fiduciary duties to the nonprofit corporations they serve. This is a significant change and will affect the liability born by members and will likely impact the bylaws of existing nonprofits.
Fiduciary Duties of Directors: The New Act establishes that directors of nonprofits have the traditional fiduciary duties of corporate directors.
Three Directors Required: The New Act requires that three directors serve on nonprofit boards. Private foundations with 501(c)(3) classification may continue to have one or two directors.
Youth can serve on the Board of Directors: The New Act allows youth to serve on nonprofit boards subject to specific conditions and limitations. Youth are not held to the same fiduciary standard of adult members of a nonprofit board.
“Redomestication”: The New Act allows nonprofit corporations to “redomesticate” and change their state of incorporation if the target state allows it.
For-Profit/Nonprofit Conversion: The New Act allows for-profit corporations to convert to nonprofit status without requiring reincorporation subject to specific conditions and applicable laws. The New Act also allows for nonprofit corporations to convert to for-profit corporations.
