Modernizing North Carolina's Nonprofit Laws

The Center is appreciative of Representative Brandon Lofton (D-Mecklenburg) and Senator Mike Woodard (D-Durham) for introducing legislation to bring state nonprofit statutes into better alignment with best practices for nonprofit organizations.

Bills in the NC House of Representatives (H.B. 696) and NC Senate (S.540) would make a variety of improvements to the North Carolina Nonprofit Corporation Act, including:

• Creating a simple, online, no-fee annual report for North Carolina nonprofits. This change would help protect the reputation of our state’s nonprofits by helping prevent fraud and abuse of defunct nonprofits. Almost all other states currently have annual reporting requirements for nonprofits.
• Allowing more nonprofit boards to use email to take action by unanimous written consent. Currently, nonprofits need to “opt in” to allowing board members to use email for unanimous written consent votes (usually by a provision in their bylaws). However, during the COVID-19 pandemic, many nonprofits have discovered that their bylaws do not include the necessary language to allow for email board votes.
• Allowing nonprofits to merge with unincorporated nonprofit associations or limited liability companies (LLCs) that are treated as 501(c)(3) charitable organizations for federal tax purposes. As more nonprofits are looking to collaborate with other organizations or consolidate their operations, this revision would help ensure that they have the option of merging with other charitable organizations, regardless of their corporate form.
• Not requiring nonprofits that are ending their operations to have the NC Attorney General approve of their distribution of assets. This change could help nonprofits ensure that any remaining assets go to programs consistent with their missions and their donors’ intent – rather than to attorney’s fees – when they are going out of business.
• Simplifying the process for nonprofits incorporated in other states to become North Carolina nonprofit corporations. This type of “domestication” provision could allow nonprofits to relocate to North Carolina without having to re-apply for tax-exempt status with the Internal Revenue Service.
• Requiring nonprofits incorporated in North Carolina in the future – other than private foundations – to have at least three board members. This would make the North Carolina law consistent with nonprofit best practices and with most other state nonprofit statutes.

Bils in the NC House of Representatives (H.B. 695) and NC Senate (S.681) would make a variety of improvements to the North Carolina charitable solicitation statute, including:

• Exempting more small nonprofits from needing charitable solicitation licenses. Currently, nonprofits are exempt from having charitable solicitation licenses if they receive less than $25,000 in contributions per year and do not pay compensation to fundraisers. The $25,000 threshold was established when the Internal Revenue Service (IRS) had a threshold of $25,000 in annual expenses for filing Form 990 (the annual information return for tax-exempt entities). Because the IRS threshold is now $50,000 (and organizations below that threshold now need to file the simple, online Form 990-N), some small nonprofits need to have charitable solicitation licenses – and spend significant time completing paperwork and preparing financial statements – even though they are exempt from basic filing requirements from the IRS.
• Eliminate notarization requirements for charitable solicitation applications and renewals. Currently, the state charitable solicitation licensing law requires nonprofits to have charitable solicitation licensing applications and renewals notarized each year. The notarization requirement creates an extra burden for nonprofits in completing their charitable solicitation licensing documents and does not provide any additional public protection. During the COVID-19 pandemic, many nonprofits have found it difficult to have documents notarized.
• Making automatic extensions of charitable solicitation filings identical to those for IRS Form 990. The IRS currently allows nonprofits to receive an automatic six-month extension of their filing deadline for 990s.  The North Carolina charitable solicitation statute only allows for a three-month automatic extension, and further extensions may be made at the discretion of the NC Secretary of State. Practically, this creates situations where some nonprofits are unable to file their charitable solicitation paperwork in a timely manner if their Forms 990 have not yet been completed.
• Counting charitable solicitation forms as timely filed if they are postmarked by the filing deadline. This change could help prevent nonprofits from being identified as out of compliance if there are mail delays.

Both bills, which were recommended by the Center, were developed based on input the Center has receive from nonprofits and from accountants and attorneys representing tax-exempt organizations over the past several years.