CORPORATE TRANSACTIONS & COMPLIANCE BLOG

Incorporating a New York Not-for-Profit Corporation: Purpose Problem

By: Don Beaulac, COGENCY GLOBAL INC. on Tue, Feb 19, 2013

The New York Not-for-Profit Corporation Law requires the certificate of incorporation to provide a specific purpose or purposes. If the purposes, as set forth in the proposed certificate, are not clear and concise, but are of a vague and/or general nature, the filing will be rejected.

Helpful Tips for Drafting a New York Not-for-Profit PurposeNew York Not-for-Profit Clause:

  • Do not use the phrase “including, but not limited to” when describing the purposes, as this phrase implies that other activities will be pursued that are not stated.
  • Do not state vague and general purposes or include all-purpose clause language.
  • Do not state general and special powers as listed in Section 202 of the New York Not-for-Profit Corporation Law (NPCL) and label them as purposes.
  • Consider the following when drafting the purpose paragraph:
    • Why is the corporation being formed?
    • What does the corporation intend on accomplishing?
    • How will the corporation accomplish these purposes?
    • Who will benefit?

Consent Requirements

Note that Section 404 of the New York NPCL provides that corporations formed for certain purposes require consent from another governmental agency and written consent or approval must be attached to the certificate before submission to the Department of State for filing. Reviewing this section to determine whether any consents or approvals are required will help you avoid surprises and unexpected delays.

Purposes Must Be Consistent with Type of Not-for-Profit

Be sure that the purposes are consistent with the “Type.” Not-for-profit corporations are of one of the following types:

  • Type A: May be formed for any lawful non-business purpose or purposes, including, but not limited to, any one or more of the following non-pecuniary purposes: civic, patriotic, political, social, fraternal, athletic, agricultural, horticultural, animal husbandry, and for a professional, commercial, industrial, trade or service association.
  • Type B: May be formed for any one or more of the following non-business purposes: charitable, educational, religious, scientific, literary, cultural or for the prevention of cruelty to children or animals.
  • Type C: May be formed for any lawful business purpose to achieve a lawful public or quasi-public objective. The public objective must appear in the document, be clearly labeled as such, and be separate and apart from the purpose clause. A typical public objective statement would begin with the words “To lessen the burden of government by….”
  • Type D: May be formed under this chapter when such formation is authorized by any other corporate law of this state for any business or non-business, or pecuniary or non-pecuniary purpose or purposes specified by such other law, whether such purpose or purposes are also within types A, B, C above or otherwise. Typical Type D corporations are those whose purposes are housing development projects and filed pursuant to the Not-for-Profit Corporation Law and the Private Housing Finance Law.        

IRS Tax Exempt Language

It is fairly common for the purpose clause of a not-for-profit corporation to begin with the following or similar language and many examples of this are on file:

“The purposes for which the corporation is organized [and shall be operated are exclusively charitable within the meaning of Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”), and] are to…”

The New York Department of State, however, has modified its views regarding this particular point and the language, as stated above, is no longer acceptable. It will prompt a rejection letter asking if the material, as bracketed by the Department, is IRS tax exempt language or is intended to be a purpose and will go on to state that if it is IRS tax exempt language, it must be labeled as such and be removed from the purpose clause, and, if it is a purpose, it is unacceptably vague.

By keeping these important points in mind when drafting the articles of incorporation for a New York not-for-profit, you can significantly reduce the chances that your filing will be rejected and delayed because of a problem with the purpose clause.

 

This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.

Topics: Nonprofit Registration and Compliance, Charitable Solicitation Registration