Thursday, August 19, 2021

Model Nonprofit Corporations Act and Designated Bodies

In February, Lloyd mentioned that the 4th edition of the Model Nonprofit Corporations Act was available for comment.

In May, the ABA released the Final Exposure Draft of the Model Act. And while I have every intention of reading through it entirely, I haven't yet.

I did start it, though. And one change it makes is the introduction of "designated bodies." Under the new Model Act, a designated body is a group to whom some, but not all, of the powers, authorities, or functions of the Board of Directors have been designated.

In an Official Comment, the ABA committee explains that it created the concept of designated body because "it is sometimes desirable for a nonprofit corporation to depart from the traditional governance structure based on a board of directors and, in appropriate circumstances, members."

It is an interesting idea, but I'm trying to think through how this new designated body differs from a committee, which was explicitly authorized in the 3rd edition of the Model Act. I'd love to hear others' ideas about the relevance of this new governance body in the world of nonprofits.

Samuel D. Brunson

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Two uses I’m aware of:

1. Charity governance traditionally had an optional board of overseers; you still see some examples in Universities, like Harvard.

2. In some Protestant churches, the deacons and elders are separate governing bodies, with different assignments, that report directly to the members. It has been difficult to fit them under a “board” model. I’m sure other religious groups also have top-level polity split among groups.

Posted by: Jonathan R Whitehead | Aug 19, 2021 5:42:15 PM

Very interesting! In reading through the comments in other sections that reference the new designated bodies two things stood out. First, the designated body needs to be created by the article of incorporation or by-laws and may have some, but not all of the powers and authority of the board. If a group is created by the board of directors it is then technically a committee. Second, and more interestingly, the members of the designated body NEED NOT BE; individuals; members, directors, or officers of the nonprofit organization; or residents of the state.

The second distinction, though not my area of expertise, seems to open up new ways of distributive governance since it would seem that other organizations could be members of the designated body. Potentially, too, a foundation could have a seat on a designated body of a grantee and be represented as an entity.

Posted by: Michelle Walker | Aug 20, 2021 3:20:19 AM

DC law allows this currently. It essentially makes it much easier to have a "bifurcated board" where different functions are assigned to each board. The difference between this and a committee is the lack of oversight by one board over functions assigned to the other -- both are ultimate authorities, within their jurisdictions. I've seen colleges and universities attempt to use a bifurcated structure, separating administration from academics. Without the provision in the new law (and in DC, and perhaps elsewhere), one of the bodies remains superior to the other.

Posted by: Rosemary Fei | Aug 26, 2021 11:49:24 AM

This isn't new, it was introduced in the 3rd edition, and as Rosemary notes has been adopted in the DC law, in effect since 2012.

Posted by: Beth Kingsley | Sep 8, 2021 7:52:39 AM

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