The contents of these slides should not be construed as legal advice or a legal opinion on any specific fact or circumstance. The slides are intended for general purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have. © Neal, Gerber & Eisenberg LLP 2010

What You Need to Know About TheRevised Illinois Not For Profit Corporation Act

Kimberly A. Pendo, Esq.

Overview

Illinois as preferred state of incorporation for NFP’s

Why change a good thing? What you need to know about SB 1390 SB 1387: The Clean-Up Bill Next Steps Q&A

Illinois: The State of NFP’s

A statutory construct specifically developed for the wide-range of entities incorporated as not-for-profits

Broad flexibility Excellent limited liability protection for Directors,

Officers & Volunteers Ability to limit member’s voting rights Opportunity for electronic communications

The old Illinois General Not-for-Profit Corporation Act provided:

Why Change a Good Thing

Expand flexibilities Eliminate need to opt-in to take advantage of

certain flexibilities (allow opt-out) Address inadequacies of existing “informal action

by members” and “mail ballot” provisions

Revised Sections of Act

Section 101.80(g)(4)

Section 101.80(p)

Section 103.12

Section 107.10(a), (b) & (c)

Section 107.40(c)

Section 107.50

Section 107.75(a)

Section 108.05(b)

Section 108.10(d) & (f)

Section 108.35(a)

Section 108.45(b)

Section 108.60(e)

Section 108.70(b)

Section 110.30(4)(ii)

Effective Date of Revised Act: January 1, 2010

To view a copy of SB 1390 (Public Act 96-0649) go to www.ilga.gov and search for SB 1390

What you need to know about SB 1390 Section 101.80(g)(4) & Section 101.80(p)

Improves ability to communicate and take action via e-mail and electronic means – No longer required to specifically provide for electronic

communications in bylaws (e.g., no longer an “opt-in” provision)– If electronic communication is not desired/wanted, must

affirmatively “opt-out”– Revises definition of “delivered” - specifically includes

transmittal to e-mail address or fax number, or other contact information authorized or approved in the bylaws or articles

– Revises definition of “written,” “in writing,” “written approval” to allow action to be taken by members and directors by electronic means unless specifically prohibited in the organization’s bylaws or articles. For example, if written approval or notice is required, communications transmitted or received by electronic means are acceptable.

What you need to know about SB 1390Section 103.12

Updates an outdated reference to Internal Revenue Code of 1954

What you need to know about SB 1390Section 107.10(a), (b) & (c)

Old Act never provided for a general “mail ballot” option; only allowed mail ballots for elections (Proxy Section 107.50)

Act always provided members the right to vote by proxy (hence, “proxy meetings” substituting for “email ballots”)

Amendments now allow full electronic voting

What you need to know about SB 1390Section 107.10(a), (b) & (c)

Informal Action of Members/Elections– Revised Section 107.10 covers all voting by members

conducted outside of meeting (e.g., informal action), including, and not just limited to, elections

– Formerly, the election of directors and officers could be conducted by mail pursuant to the last sentence of “Section 107.50 Proxies.” That sentence is now deleted.

– Under revised Act, any business that can be conducted at a meeting (including, without limitation, elections) may be conducted by mail, e-mail or other electronic means pursuant to Section 107.10 (unless specifically prohibited in the bylaw or articles)

What you need to know about SB 1390Section 107.10(a), (b) & (c)

Informal Action Voting Requirements:– Approval by same number of members as at a meeting

(e.g., majority of a quorum)• Beware: This may create new requirements for elections

unless addressed by the bylaws

– Members must have the opportunity to vote for or against the proposed action

– Voting must remain open for 5 days from delivery of ballot (20 days for merger, dissolution, etc.)

– Notice of action must be delivered to all members entitled to vote 5 days prior to effective date

What you need to know about SB 1390Section 107.40(c)

Clarifies that where members have no right to vote with respect to a particular matter, the Board of Directors has the sole voting power with respect to such matter

What you need to know about SB 1390Section 107.50

Deletes language referring to the conduct of elections by mail (see Section 107.10)

Clarifies that members may vote by proxy unless the articles of incorporation or bylaws specifically prohibit proxy voting

What you need to know about SB 1390Section 107.75(a)

Clarifies rights of members to inspect an organization’s books & records– Conforms to Business Corporation Act– Right to inspect is explicitly limited to books and records of account and

minutes– “Right” applies to members only (or their agents); for certain records only;

for inspection only (not copies); and only for a proper purpose– Establishes burden of proof

• If an organization denies a request to examine its books and records, the member will have the burden of proving that he/she has a proper purpose

• If an organization denies a request to review minutes, the organization will have to prove that the member does not have a proper purpose

– Demands to inspect records must:• Be made by a voting member• Be in writing• State reason with particularity• Be for a proper purpose

What you need to know about SB 1390Section 108.05(b)

Deletes repetitive language

What you need to know about SB 1390Section 108.10(d) & (f)

In the old Act, a bylaw amendment decreasing the size of the board or eliminating a position could not shorten an incumbent director’s term

Revised Act allows an organization to immediately decrease the size of the Board by shortening the term of an incumbent director but if and only if:– Such amendment is approved by those persons that have the

authority to elect/appoint such Director Revised subsection (f) allows either the bylaws or articles

of incorporation (as opposed to only the articles) to authorize the election of all or a specified number of directors by a specific class of members

What you need to know about SB 1390Section 108.35(a)

Clarifies that a corporation having different classes of directors may specify in its bylaws or articles that such directors may only be removed for cause

What you need to know about SB 1390Section 108.45(b)

Eases requirements regarding informal action by Directors

Old Act required– unanimous written consent– such consent be evidenced by one or more written

approvals and “bear the signature of” the directors Revised Act

– only requires “written record of approval”– fax, e-mail, or other electronic record of approval is

sufficient to demonstrate an action taken by informal action of the directors

What you need to know about SB 1390Section 108.60(e)

Adds a new subsection (e) that clarifies that a Director is not “indirectly” a party to a transaction involving a grant or donation (without consideration) where the Directors sits on the Boards of both involved organizations

What you need to know about SB 1390Section 108.70(b)

Increases cap on Director compensation from $5,000 to $25,000 (without loss of limited liability protection)

What you need to know about SB 1390Section 110.30(4)(ii)

Old Act required that in the event amendments to a corporation’s articles of incorporation were approved by the informal action of the members, the filing of such amendment must be accompanied by a statement that the amendment was adopted by a “written consent signed by” the members

Under the Revised Act all that is required to be filed is a statement that the amendment was adopted by the members in accordance with Section 107.10 of the Act (and in accordance with the corporation’s articles of incorporation and bylaws)

The Clean-Up Bill

SB 3387 – Section 107.10(d)– Section 108.45(a) and (c)– Section 108.60(d) (deletion of 108.60(e))

Will be effective immediately upon enactment

To view a copy of SB 3387 go to www.ilga.gov and search for SB 3387

Next Steps…What you may want to do as a result of SB 1390

Bylaws– Review (and conform/amend) “informal action of

member” requirements and provisions addressing elections conducted by mail ballot

– Consider opportunity to raise compensation level of directors up to $25,000 (without concern for losing limited liability protection)

– Opt-out of statutory defaults if you do not want them to be available

• Electronic communications• Proxy voting• Election of directors and officers by mail, e-mail or other

electronic means

Next Steps…What you may want to do as a result of SB 1390

Processes & Procedures– Structure a process for obtaining unanimous written

consent of directors– Consider cost saving opportunities in connection with

use of electronic communications (instead of mailings)– Consider greater use of electronic ballots to conduct

member voting

That’s a wrap…

Questions and Answers

Contact Information

Kimberly A. Pendo, Esq.Neal, Gerber & Eisenberg LLP

2 North LaSalle Street, Suite 1700Chicago, IL 60602

(312) 269-5330kpendo@ngelaw.com