Changes to District of Columbia Act for Business Organizations and Nonprofits

Thu, 12/22/2011

On January 1, 2012, the District of Columbia’s new laws for Business Organizations (Title 29, or the “new Act”) will become effective for existing and future business types (except for LLCs, which will have an effective date of January 1, 2013). The new Act, based on a model code, is much more detailed than prior DC law, and focuses largely on changes in governance. Chapter 1 (General Provisions) applies to all business organizations and Chapter 4 specifically applies to Nonprofit Organizations. As such, nonprofits should look to both Chapters 1 and 4 to ensure that their articles of incorporation, bylaws, and governance policies comply with the new Act.

Generally, the new Act will not alter a nonprofit’s day-to-day operations. However, many of the new Act’s provisions differ from those of the old law and may require a nonprofit to adjust its governing documents and practices.

Some of the new Act’s changes to the former nonprofit law are significant:

Incorporation

The new Act requires only one incorporator, as opposed to three previously required. Other incorporation requirements also differ. (29-402.01)

Membership

A “Member” of a corporation is newly defined; members must now have voting rights for all fundamental transactions including amendment to the Article of Incorporation or Bylaws, merger, membership exchange, sale of all or substantially all of the assets, domestication, conversion and dissolution. (29-401.02)

Governance

The default duration for the term of a director is now one year. The Articles of Incorporation or bylaws may allow for a longer duration, but a term may not exceed five years. (29.406-05) There is still no limitation on the number of terms a director can serve in the new Act.
A director will not be liable to the nonprofit or its members for failing to take action or making a decision that results in harm to the corporation except in limited circumstances. (29-406.31)
There is an extensive new set of provisions on directors’ and officers’ standards of conduct, including an affirmative duty to disclose all material information not known to others. (see 29-406.30)
The new Act introduces the concept of a “designated body” that can stand in the shoes of the Board for executing certain powers. (29-406.12)

Officers

The old law required the organization to have a President, Secretary, and Treasurer, and that the President and Secretary roles could not be filled by the same person. The new Act, however, requires only a President and a Treasurer and that the same individual cannot fill both functions at the same time. (29-406.40)

Meetings

A quorum is now at least 1/3 of the Board or two directors, whichever is greater. The prior law required 1/3 of the Board. (29-406.24)
Once a membership corporation has set a date for a meeting, it must prepare an alphabetical list of the names of all its members, showing the address of and number of votes each member is entitled to cast at the meeting. The list of members must be available at the meeting and members must be allowed to see it. (29.405-20)

Other

There are also new provisions for merger plans (See generally 29.409) and dissolution of organizations.
The biennial report must now be filed by April 1st. The old required reporting date was January 1st. (29-102.11)
The new Act requires a nonprofit to maintain minutes, accounting records, and a list of its members. These records may be kept in written or any other form and must be housed in the nonprofit’s principal office. (29-413.01)

In sum, the new Act has caused the DC Code to undergo significant revisions – and the list above is not exhaustive. Nonprofits should take the time to scrutinize carefully their Articles of Incorporation and bylaws and compare them against the new Act requirements to determine if changes are needed to be in compliance.

For additional guidance, contact Michael B. Glomb (mglomb@FTLF.com) or Zoë Beckerman (zbeckerman@FTLF.com) at Feldesman Tucker Leifer Fidell LLP (202-466-8960).