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INDEX OF LAWS INDEX OF LAWS

 

 

 

 

Board of Directors -- Their Duties & Rights

Books & Records

Committees

Conflict of Interest

Liability Protection

Meetings

Members -- Their Duties & Rights

Officers

Voting

 

 

 

 

 

If you formed a Michigan nonprofit corporation, then the Michigan Nonprofit Corporation Act prescribes certain duties and obligations for the incorporators, directors and/or members of the charity. Below is a summary of the requirements with links to the sections of the law that apply. 

 

 

The following list of requirements for corporations is provided for informational purposes only.  For legal advice concerning what specific requirements apply to a particular charity, you should consult your own legal counsel.  It is also highly recommended that you go directly to the language of the law, since this list is a topic summary only and does not include many provisions that may discuss these topics and that may apply to your organization.

 

Also, a number of other sections, especially in Chapter 5 of the Nonprofit Corporation Act (Michigan Compiled Laws, Sections MCL 450.2501 through 450.2569), provide specific rules to follow only if the articles of incorporation or bylaws for the corporation fail to provide rules on those particular issues.  To locate the entire law go to the Michigan Legislature website

 

 

Below are descriptions of the types of corporations provided for in the Nonprofit Corporation Act

 

Directorship Corporation

Chapter 2 & Section 305. This is the most typical type of charitable nonprofit corporation. The corporation may be formed by one or more incorporators who then name the initial board of directors. Any member of the original board of directors may call the first meeting at which the initial board of directors may adopt bylaws, elect officers and conduct any other business. In a directorship, only the board of directors has voting rights in the organization. While a directorship may have members, even various classes of members, the members do not have voting rights.

 

Membership Corporation

Chapter 2 & Section 304. A charity may be a membership corporation in which the membership chooses the board of directors. Members have the same voting rights as the directors, unless those rights are restricted or limited by the articles of incorporation or bylaws.

 

Stock Basis (Shareholder) Corporation

Chapter 2 & Section 303. While a charity may be organized as a shareholder corporation, with the shareholders choosing the board of directors, the shareholders may not have any financial interest in the corporation. Occasionally, a charity will choose to form as a stock-basis corporation, but the organization must be very careful to strictly limit the rights of shareholders to voting rights or rights of participation; stocks issued must have no monetary value, since all assets of the nonprofit corporation are to be used to carry out the nonprofit purpose, not to benefit directors, members or shareholders.

 

 

Below is a list of topics covered by the Nonprofit Corporation Act and the sections where the issues are discussed. As stated in the Disclaimer above, this list should be viewed only as a partial list. The list includes only major topics and major sections where those topics are discussed; however, there may be other sections that apply to these topics and to your particular organization. For advice on how the law applies to your organization, you should obtain the advice of legal counsel.

 

 

Section 501.  “The business and affairs of a corporation shall be managed by its board, except as otherwise provided in this act.”

 

Section 505.  “Except as provided in subsection (5), the board shall consist of 3 or more directors.”  The requirement changed from 1 or more directors to 3 or more directors with the enactment of Public Act 222 of 2008. This requirement takes effect 180 days after the effective date of the amendment, which is January 12, 2009. Other specific requirements for directors, including their term of office, the method for filling positions, and for resignations, are contained in this section.

 

Section 511. This section describes the process for removing a director, unless the articles of incorporation or bylaws includes other provisions.

 

Section 541.  This is an extremely important section covering the duty of the director or officer of a charity to “discharge the duties of that position in good faith.”  Failure in the duties of care, loyalty, and obedience could subject an officer or director to legal action.  The duty of a director or officer to discharge the duties of the position in good faith includes such obligations as ensuring accuracy and timeliness of government filings and reports to government agencies, such as the IRS, Department of Labor, the Michigan Attorney General, the Michigan Corporation Division, and any others that may govern the organization.  It also includes disclosure of conflicts of interest and an obligation to always ensure that the officer or director is acting in the best interests of the charity.

 

Sections 551 & 552. This section describes liability and protection of directors for acts of the corporation.

 

For a more in depth description of these duties go to page 8 of MNA’s “Principles & Practices for Nonprofit Excellence in Michigan.”  A more complete discussion of officer/director obligations is also in The Michigan Nonprofit Management Manual, 4th Edition, which is available at the MNA online bookstore.

 

 

 

Section 485.  A nonprofit “shall keep books and records of account and minutes of the proceedings of its shareholders or members, board, and executive committee, if any.” 

 

 

Committees

 

Section 527. Forming committees.

 

Section 528. Powers & limitations of committees.

 

 

Conflict of Interest

 

Sections 545 & 546. Contracts and business transactions where an officer or director may have a personal interest.

 

 

Liability Protection for Volunteer Directors and Officers

 

Section 209. Permissible provisions to be included in articles of incorporation.

 

Sections 551 & 552. This section describes liability and protection of directors for acts of the corporation.

 

 

 

Section 402. Annual meeting of membership corporations.

 

Section 403. Special meetings of members.

 

Section 404. Notice of meetings.

 

Section 521. Regular and special meetings of the board.

 

Section 523. Rules concerning a quorum and the votes required to transact business, including amending bylaws.

 

Section 525. Taking action without a meeting.

 

Section 527 & 528. Committees -- rules for creating committees and making appointment or election to committees.

 

Section 901.  This section requires at one meeting each year at which meeting the annual report is distributed to members, directors or shareholders, depending on the organizational form.  The report must include a statement of assets 

 

Members - Their Duties & Rights

 

 

 

Section 531.  A nonprofit corporation must have a “president, secretary, treasurer,. . . .”  An organization may have other officers, but these positions are required by the law.  This section includes a further discussion 1 person holding 2 offices, elections, and appointments.

 

Section 535. Removal and/or resignation of officers.

 

Voting

 

Section 523. Rules concerning a quorum and the votes required to transact business.

 



Annual Information Update

An Annual Information Update must be filed each year by the corporation.  This form is not required the year the organization is incorporated, but thereafter must be filed each year by October 1.  For example, if an organization is incorporated prior to October 1, then an Annual Information Update is not due until October 1 of the following calendar year.

 

Registered Office and Registered Agent

Every corporation must be sure that its resident agent and registered office address information is kept up to date with the Corporation Division because the Information Update form is sent to each corporation’s registered office address approximately two months before the due date.  If a corporation fails to file this form for two years, the corporation is “automatically dissolved” and can only be reinstated by filing back reports, along with filing fees and penalties.  Notice of impending “automatic dissolution” is sent to the corporation’s resident agent at the registered office prior to the action taking effect.