How Updates to Minnesota’s Nonprofit Corporation Act Impact You

Given the frenetic state of national politics you would be forgiven for not looking too deeply into what the updates to Minnesota’s Nonprofit Corporation Act (Chapter 317A) mean to you and your organization. On April 18, 2017, the Minnesota Senate approved changes to the Act and the Minnesota House approved the same changes on February 2, 2017. Now that both the House and the Senate have approved these revisions, Chapter 317A will be updated with changes effective August 1, 2017.

Ultimately, the goal these revisions is to better align Chapter 317A with the Business Corporation Act (Chapter 302A) and make modernizing and clarifying changes to prevent unintended consequences to leaders and managers of nonprofit organizations. In its current form, Chapter 317A subjects nonprofit officers to unnecessary risk and legal cost. The changes provide increased flexibility by allowing nonprofit subsidiaries to be merged with a parent nonprofit corporation and allowing for nonprofit corporation conversions and redomestications.

More specifically, the Chapter 317A has been revised as follows

Electronic Voting Methods

Given the proliferation of electronic voting tools, such as Survey Monkey, and the difficulty of organizing in-person meeting times, the revisions clarify that nonprofit directors and members are permitted to utilize electronic voting methods.

Authority of Incorporators & Board of Director Elections

The updates explicitly state that incorporators do not have the authority to act for the nonprofit corporation after the election of directors. The changes emphasize that within a reasonable time after incorporation, nonprofits must hold an organizational meeting that includes election of directors. In addition, inconsistent language regarding the method of electing or appointing directors was modified to reflect language found in the Business Corporation Act.

Independent Special Litigation Committees

The Minnesota Nonprofit Corporation Act was updated to codify Janssen v. Best & Flanagan, which held that Minnesota nonprofit corporations may establish independent special litigation committees.

Subsidiary Mergers

Under the revised Chapter n317A, wholly-owned subsidiaries of Minnesota nonprofit corporations can now be easily merged into a parent nonprofit corporation. This simple process largely mimics the method found in Chapter 302A and facilitates easy corporate cleanup.

Conversions & Domestications

Of most importance, as of August 1, 2017, nonprofit organizations domiciled in other states may convert into a Minnesota nonprofit corporation, and vis a versa. In addition, Minnesota nonprofit limited liability companies formed under Minnesota’s Limited Liability Company laws (either erroneously or intentionally) can be easily converted into a more appropriate Minnesota nonprofit corporations or for-profit limited liability companies.

Voting Members

Changes were made to remove the ambiguous term “voting members and replace it with the term “members with voting rights.”

The State of Minnesota has a deep and reach nonprofit sector.  As we work to make Minnesota a destination for both for-profit and nonprofit businesses, it is critical that our laws accommodate the changing landscape that is the American economy and lifestyle. These changes to Chapter 317A continue the ongoing efforts of nonprofit legal practitioners and organizations like the Minnesota Council of Nonprofits to keep us at the for front to continue to support and encourage this critical and important sector of our economy.