What You Need to Know About The Revised Illinois Not For Profit Corporation Act

1. What You Need to Know About TheRevised Illinois Not For Profit Corporation Act Kimberly A. Pendo, Esq.

2. Overview • Illinois as preferred state of incorporation for NFP’s • Why change a good thing? • What you need to know about SB 1390 • SB 1387: The Clean-Up Bill • Next Steps • Q&A

3. Illinois: The State of NFP’s • A statutory construct specifically developed for the wide-range of entities incorporated as not-for-profits • Broad flexibility • Excellent limited liability protection for Directors, Officers & Volunteers • Ability to limit member’s voting rights • Opportunity for electronic communications The old Illinois General Not-for-Profit Corporation Act provided:

4. Why Change a Good Thing • Expand flexibilities • Eliminate need to opt-in to take advantage of certain flexibilities (allow opt-out) • Address inadequacies of existing “informal action by members” and “mail ballot” provisions

5. Section 101.80(g)(4) Section 101.80(p) Section 103.12 Section 107.10(a), (b) & (c) Section 107.40(c) Section 107.50 Section 107.75(a) Section 108.05(b) Section 108.10(d) & (f) Section 108.35(a) Section 108.45(b) Section 108.60(e) Section 108.70(b) Section 110.30(4)(ii) Revised Sections of Act Effective Date of Revised Act: January 1, 2010 To view a copy of SB 1390 (Public Act 96-0649) go to www.ilga.gov and search for SB 1390

6. What you need to know about SB 1390Section 101.80(g)(4) & Section 101.80(p) • Improves ability to communicate and take action via e-mail and electronic means • No longer required to specifically provide for electronic communications in bylaws (e.g., no longer an “opt-in” provision) • If electronic communication is not desired/wanted, must affirmatively “opt-out” • Revises definition of “delivered” - specifically includes transmittal to e-mail address or fax number, or other contact information authorized or approved in the bylaws or articles • Revises definition of “written,” “in writing,” “written approval” to allow action to be taken by members and directors by electronic means unless specifically prohibited in the organization’s bylaws or articles. For example, if written approval or notice is required, communications transmitted or received by electronic means are acceptable.

7. What you need to know about SB 1390Section 103.12 • Updates an outdated reference to Internal Revenue Code of 1954

8. What you need to know about SB 1390Section 107.10(a), (b) & (c) • Old Act never provided for a general “mail ballot” option; only allowed mail ballots for elections (Proxy Section 107.50) • Act always provided members the right to vote by proxy (hence, “proxy meetings” substituting for “email ballots”) • Amendments now allow full electronic voting

9. What you need to know about SB 1390Section 107.10(a), (b) & (c) • Informal Action of Members/Elections • Revised Section 107.10 covers all voting by members conducted outside of meeting (e.g., informal action), including, and not just limited to, elections • Formerly, the election of directors and officers could be conducted by mail pursuant to the last sentence of “Section 107.50 Proxies.” That sentence is now deleted. • Under revised Act, any business that can be conducted at a meeting (including, without limitation, elections) may be conducted by mail, e-mail or other electronic means pursuant to Section 107.10 (unless specifically prohibited in the bylaw or articles)

10. What you need to know about SB 1390Section 107.10(a), (b) & (c) • Informal Action Voting Requirements: • Approval by same number of members as at a meeting (e.g., majority of a quorum) • Beware: This may create new requirements for elections unless addressed by the bylaws • Members must have the opportunity to vote for or against the proposed action • Voting must remain open for 5 days from delivery of ballot (20 days for merger, dissolution, etc.) • Notice of action must be delivered to all members entitled to vote 5 days prior to effective date

11. What you need to know about SB 1390Section 107.40(c) • Clarifies that where members have no right to vote with respect to a particular matter, the Board of Directors has the sole voting power with respect to such matter

12. What you need to know about SB 1390Section 107.50 • Deletes language referring to the conduct of elections by mail (see Section 107.10) • Clarifies that members may vote by proxy unless the articles of incorporation or bylaws specifically prohibit proxy voting

13. What you need to know about SB 1390Section 107.75(a) • Clarifies rights of members to inspect an organization’s books & records • Conforms to Business Corporation Act • Right to inspect is explicitly limited to books and records of account and minutes • “Right” applies to members only (or their agents); for certain records only; for inspection only (not copies); and only for a proper purpose • Establishes burden of proof • If an organization denies a request to examine its books and records, the member will have the burden of proving that he/she has a proper purpose • If an organization denies a request to review minutes, the organization will have to prove that the member does not have a proper purpose • Demands to inspect records must: • Be made by a voting member • Be in writing • State reason with particularity • Be for a proper purpose

14. What you need to know about SB 1390Section 108.05(b) • Deletes repetitive language

15. What you need to know about SB 1390Section 108.10(d) & (f) • In the old Act, a bylaw amendment decreasing the size of the board or eliminating a position could not shorten an incumbent director’s term • Revised Act allows an organization to immediately decrease the size of the Board by shortening the term of an incumbent director but if and only if: • Such amendment is approved by those persons that have the authority to elect/appoint such Director • Revised subsection (f) allows either the bylaws or articles of incorporation (as opposed to only the articles) to authorize the election of all or a specified number of directors by a specific class of members

16. What you need to know about SB 1390Section 108.35(a) • Clarifies that a corporation having different classes of directors may specify in its bylaws or articles that such directors may only be removed for cause

17. What you need to know about SB 1390Section 108.45(b) • Eases requirements regarding informal action by Directors • Old Act required • unanimous written consent • such consent be evidenced by one or more written approvals and “bear the signature of” the directors • Revised Act • only requires “written record of approval” • fax, e-mail, or other electronic record of approval is sufficient to demonstrate an action taken by informal action of the directors

18. What you need to know about SB 1390Section 108.60(e) • Adds a new subsection (e) that clarifies that a Director is not “indirectly” a party to a transaction involving a grant or donation (without consideration) where the Directors sits on the Boards of both involved organizations

19. What you need to know about SB 1390Section 108.70(b) • Increases cap on Director compensation from $5,000 to $25,000 (without loss of limited liability protection)

20. What you need to know about SB 1390Section 110.30(4)(ii) • Old Act required that in the event amendments to a corporation’s articles of incorporation were approved by the informal action of the members, the filing of such amendment must be accompanied by a statement that the amendment was adopted by a “written consent signed by” the members • Under the Revised Act all that is required to be filed is a statement that the amendment was adopted by the members in accordance with Section 107.10 of the Act (and in accordance with the corporation’s articles of incorporation and bylaws)

21. The Clean-Up Bill • SB 3387 • Section 107.10(d) • Section 108.45(a) and (c) • Section 108.60(d) (deletion of 108.60(e)) • Will be effective immediately upon enactment To view a copy of SB 3387 go to www.ilga.gov and search for SB 3387

22. Next Steps…What you may want to do as a result of SB 1390 • Bylaws • Review (and conform/amend) “informal action of member” requirements and provisions addressing elections conducted by mail ballot • Consider opportunity to raise compensation level of directors up to $25,000 (without concern for losing limited liability protection) • Opt-out of statutory defaults if you do not want them to be available • Electronic communications • Proxy voting • Election of directors and officers by mail, e-mail or other electronic means

23. Next Steps…What you may want to do as a result of SB 1390 • Processes & Procedures • Structure a process for obtaining unanimous written consent of directors • Consider cost saving opportunities in connection with use of electronic communications (instead of mailings) • Consider greater use of electronic ballots to conduct member voting

24. That’s a wrap… • Questions and Answers

25. Contact Information Kimberly A. Pendo, Esq. Neal, Gerber & Eisenberg LLP 2 North LaSalle Street, Suite 1700 Chicago, IL 60602 (312) 269-5330 kpendo@ngelaw.com