The Michigan Nonprofit Corporation Act Amended

The Michigan Nonprofit Corporation Act and the Dissolution of Charitable Purpose Corporations Act have recently been amended. This article contains a summary of the significant changes that may warrant amending the organizing documents of existing Michigan nonprofit corporations.

ACT 162 OF 1982 MICHIGAN NONPROFIT CORPORATION ACT ("Act")

I. Electronic Ballot

Members and shareholders of nonprofit corporations in Michigan may now act without a meeting by ballot. If you would like to learn more about this new procedure, please contact us.

II. Limit Director or Volunteer Officer Liability

A nonprofit corporation can now limit a director or volunteer officer’s liability for actions less than a breach of fiduciary duty. The articles of incorporation may contain a provision that limits a director’s or volunteer officer’s liability to the corporation, its shareholders, or its members for money damages for any action taken or any failure to take any action as a director or volunteer officer, except liability for any of the following:

• (i) The amount of a financial benefit received by a director or volunteer officer to which he or she is not entitled.
• (ii) Intentional infliction of harm on the corporation, its shareholders, or members.
• (iii) A violation of section 551 (participating in illegal dividends, distributions, or loans).
• (iv) An intentional criminal act.
• (v) A liability imposed under section 497(a) (liability imposed upon termination of a derivative proceeding due to it being started or maintained in bad faith or without reasonable cause).

Existing nonprofit corporations may desire to increase the protection to existing directors and officers by amending articles of corporation.

III. Nonexecutive Committees

A Michigan nonprofit corporation is now expressly permitted to form nonexecutive committees. A nonexecutive committee cannot execute the board's power or authority in the management of the corporation's business and affairs, but can, however, perform under the board's direction the functions described in the bylaws or determined by the board.

IV. Services in a Learned Profession

A nonprofit corporation may be formed in Michigan for the purpose of providing “services in a learned profession,” as well as to employ and enter into other arrangements with duly licensed or authorized individuals who will furnish those services on behalf of the corporation. “Services in a learned profession” is defined as services provided by a dentist, an osteopathic physician, a physician, a surgeon, a doctor of divinity or other clergy, or an attorney at law.

V. Limit on Access to Information

Under select circumstances, a nonprofit corporation can now place limits on what information a member or shareholder may have access to. Please contact us if you would like to limit access to certain information in your nonprofit corporation.

VI. Use of “Foundation” in Name  

Formerly, only corporations formed for the purpose of receiving and administering funds for charitable purposes could use the term “foundation” in the name of the corporation. Now, any charitable purpose corporation may use the word “foundation” in its corporate name or in an assumed name.

VII. Number of Directors

The Act provides that there must be a minimum of three directors for a nonprofit. The Act has been amended to provide that either a private foundation or a corporation set up to provide dental services to underserved populations may only have one director.

VIII. Provisions Taken From the Business Corporation Act

Sections have been added to the Act in a form similar to corresponding provisions in the Michigan Business Corporation Act. These provisions allow nonprofit corporations to take actions currently available to profit corporations. Provisions of note are listed below.

• § 303A - Delete References to Par Value
• § 303B - Convertible shares
• § 303C - Bonds Converted into Shares
• § 303D - Redeemable Shares
• § 314 - Board Authorizing Shares     
• § 341A - Share Dividends
• § 343 - Preemptive Rights
• § 344 - Acquisition of Own Shares by Corporation
• § 345 - Distributions to Shareholders
• § 406 - Chairperson of Shareholder/Member Meeting
• § 412 - Record Date
• §§ 421-423 - Proxies
• §§ 466-473 - Voting Trusts
• § 488 - Shareholder Agreements
• § 489 - Minority Shareholder Oppression
• §§ 491-496 - Derivative Proceedings
• § 545A - Interested Party Transactions
• §§ 564A-571 - Indemnification

ACT 169 OF 1965, DISSOLUTION OF CHARITABLE PURPOSE CORPORATIONS ACT

I. Consent of the Attorney General

Formerly, the Attorney General was required to approve dissolution of a corporation formed for a charitable purpose. Now, in addition to dissolution, a corporation with a charitable purpose must seek approval for any merger or conversion. The Attorney General can require that a nonprofit corporation or other charitable entity that was involved in a merger, conversion, or dissolution submit an accounting of the assets of the corporation and of their administration and disposition. LARA cannot accept certificates of dissolution or merger, or amended or restated articles of incorporation from a conversion, from a charitable purpose corporation unless accompanied by the written consent of the Attorney General.