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Significant revisions to Michigan’s Nonprofit Corporation Act

February 19, 2015

In January 2015, Governor Snyder signed three bills that significantly change the laws governing Michigan nonprofit corporations. The majority of the changes were made to Michigan’s Nonprofit Corporation Act (Amended Act). Consequently, Michigan nonprofit corporations should evaluate their governance documents and related policies to:

  • Ensure compliance with the Amended Act;
  • Avoid being subject to undesirable default provisions contained in the Amended Act; and
  • Take advantage of opportunities presented by the Amended Act.

An overview of some of the more notable changes is set forth below.

Liability and indemnification

A nonprofit corporation’s articles of incorporation now may include a provision eliminating or limiting a director’s liability to the corporation, its members, or its shareholders, except for liability related to intentional wrongdoing. Previously this protection only could be extended to volunteer directors and officers. Additionally, the Amended Act expands the provisions permitting a corporation to indemnify a person that is, or is threatened to be made, a party to a proceeding by virtue of the fact that the person is or was a director, officer, employee, nondirector volunteer or agent of the corporation.

Director classes with differing powers

The Amended Act permits the creation of different classes of directors with differing powers over the governance of the corporation.

Management of a corporation

The Amended Act permits a nonprofit corporation to shift its management completely away from its board of directors to an independent third party. Doing so also will shift to the third party liability for the acts or omissions imposed by law on directors to the extent that the discretion or powers of the directors have been shifted to the third party.

Mergers and dissolution

Nonprofit corporations and limited liability companies may now merge into one another. However, nonprofit corporations organized for charitable purposes are now prohibited from merging, converting or dissolving without the Attorney General’s consent.

Learned professions

Both domestic and foreign nonprofit corporations operating in Michigan may now permissibly provide “services in a learned profession,” which include services provided by a dentist, an osteopathic physician, a physician, a surgeon, a doctor of divinity or other clergy, or an attorney. The amendments codify and expand on the Michigan Attorney General’s longstanding opinion that nonprofit hospitals and other nonprofit corporations may provide medical services through employed physicians.

Limiting a member’s/shareholder’s ability to obtain certain corporate information

A nonprofit corporation may now adopt a provision that limits the rights of its members or shareholders to inspect the corporation’s stock ledger, lists of members or shareholders, lists of donors or donations, or its other books and records, so long as certain communications are preserved.

Electronic voting; quorum

Many new, modern provisions are included in the Amended Act to permit electronic voting and electronic notice regarding various corporate actions and affairs. For example, participation in meetings by conference call or other form of electronic communication is now permitted by default, unless there is a provision in the articles or bylaws prohibiting it. Additionally, the Amended Act now permits a quorum for board of directors meetings to be 1/3 of the directors then in office regardless of the total number of directors on the board.

Action steps

In light of the changes, Michigan nonprofit corporations are encouraged to review and consider modifying their articles of incorporation, bylaws and governance procedures. The Honigman Health Care Practice Group is assisting nonprofit corporations in this effort. For assistance, or if you have any questions regarding these recent amendments, please contact any attorney in Honigman’s Health Care Practice Group.

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