Kentucky Updates Rules Governing Nonprofits—For the Better

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April 2, 2015; Floyd County Times (Frankfort, KY)

Gov. Beshear of Kentucky, while surrounded by a host of dignitaries, recently signed into law new regulations governing nonprofit organizations. Largely, it appears that the new law, House Bill 440, will make governance of nonprofits in Kentucky a little bit easier and the management of small associations less cumbersome.

The Kentucky Uniform Unincorporated Nonprofit Association Act has been added to the laws governing nonprofits in the Commonwealth. It creates and describes the rules for unincorporated nonprofit associations, a new classification for nonprofits. Acknowledging that initiatives like Little League teams or local fundraising efforts are being undertaken for the good of the community, but are not large or organized enough to warrant formal filing and incorporation, the new law allows them to file a certificate of association. As such, the unincorporated nonprofit associations are allowed many of the benefits and protections incorporated nonprofits enjoy. For example, they can own property, hire staff, etc. Perhaps more important, directors and members are offered protection in that they will not be held liable in any action taken against the unincorporated nonprofit association unless it can be proven that they were negligent or acted wrongfully.

Another portion of HB 440 brings Kentucky nonprofit law in line with many other states regarding the ability to use modern technology for communication. boards of directors can now take action outside of a meeting through means of electronic voting, unless the organization’s bylaws prohibit such action. If that vote is taken, and the directors vote for it unanimously, the action passes and is effective just as if a vote had been taken in a regular meeting.

Similarly, board directors are now allowed to telecommute into a meeting. If a director is using a method of communication whereby they can hear all the other participants in the meeting, they are allowed to be deemed “present” in the meeting and, therefore, count towards quorum. It is probably unintended that this precludes people who are deaf from taking advantage of this newly acceptable way of participating in a meeting. Interestingly, the law also does not require a director who is telecommuting to have the same materials as all of the other directors, a stipulation that has been included in laws in other states.

Finally, the new law also creates the ability for organizations to change into “nonprofit limited liability corporations.” This is only allowed if any member(s) of the LLC are nonprofit organizations themselves. For-profit organizations and individuals are not allowed to be members of the new nonprofit LLC.

HB 440 definitely seems to make things easier for nonprofits in the Commonwealth of Kentucky, and as such, we applaud the change.—Rob Meiksins