Most of the 50 states (and the District of Columbia) have a specific statutory regime for nonprofit corporations. Some states, such as Delaware, regulate nonprofit corporations under general corporate statutes. For over 15 years I have represented nonprofit organizations across the U.S., which has allowed me the need, opportunity, and desire to become familiar with many of those different regimes, including those of Alabama, California, Colorado, Delaware, District of Columbia, Florida, Georgia, Illinois, Kansas, Michigan, Minnesota, North Carolina, Oregon, Texas, Washington (and likely others that I cannot now recall).
This Freeman Law Insights blog focuses on the legal and regulatory scene in the State of Michigan.
Michigan Nonprofit Corporations Act.
Michigan’s nonprofit corporation statutory regime is more cumbersome than other states, such as Texas. But, with patience and focus, the what-for and why-is of Michigan law can be managed and overcome to advance charitable, religious, educational, or other nonprofit objectives.
The Michigan Nonprofit Corporation Act (the “Act”) is located at MCL § 450.2101, et. seq. Under the Act, “nonprofit corporation” means “a corporation incorporated to carry out any lawful purpose or purposes that does not involve pecuniary profit or gain for its directors, officers, shareholders, or members.” Id. at § 450.2108(2). A “charitable purpose corporation” means a domestic corporation that meets any of the following: (a) Is recognized by the IRS as exempt or qualifies for exemption under section 501(c)(3) of the Internal Revenue Code. (b) Is a corporation whose purposes, structure, and activities are exclusively those that are described in section 501(c)(3) of the Internal Revenue Code. (c) Is a corporation organized or held out to be organized exclusively for one or more charitable purposes. MCL § 450.2106.
The Act addresses all the usual and customary matters seen in most states’ nonprofit corporation statutory regimes, including foreign registrations, duties of directors, membership matters, dissolution, merger, and other. Some are unique.
For example, in Michigan, a nonprofit corporation must have a president, a secretary, and a treasurer, but any one individual may hold two or more offices. See MCL § 450.2531 (providing an exception for execution of an instrument that requires signature by two officers). Also, a board of directors or a committee of the board may take action by unanimous written consent, unless prohibited by the articles of incorporation or bylaws. Id. at § 450.2525. The Act does not permit action by written consent of less than unanimous consent, which can be burdensome if a matter involves a person who, due to conflict of interest, is not able to or should not vote on the particular matter. Michigan’s conflict-of-interest transaction statute should also be incorporated into the governance of the Michigan nonprofit corporation. See id. at § 450.2545a.
Whether, in any particular situation, one state’s statutes are better than another is difficult to pinpoint in a vacuum. But, it is always worth evaluating the laws of the state of incorporation in order to at least gain a high-level understanding of those state law requirements for the organization.
If an organization is principally located in Michigan, but elects to be incorporated in another state, then the organization will likely have two sets of laws to consider – one for internal affairs and governance (usually the laws of the state where incorporated) and another for external matters (usually the laws of the state where the business is transacted, unless agreed otherwise by third-party contract). And, the organization would likely need to register to do business in the states where it “does business” sufficient to require registration, which will require a registered office and a registered agent in each state where registered.
Michigan Ecclesiastical Corporations
Michigan has a distinct class of corporation called “ecclesiastical corporations.” An ecclesiastical corporation is defined as a corporation that exist for the purpose of establishing a church organization for the purpose of teaching and spreading their religious beliefs and principles. The statutory regime specifically applicable to ecclesiastical corporations is contained at Michigan General Corporation Statutes, sections 450.178 through 450.186. However, an ecclesiastical corporation must also be a nonprofit corporation and is thus subject to the provisions of Michigan Nonprofit Corporation Act, MCL § 450.2101, et. seq., generally except as specifically otherwise provided. At least three persons are required to incorporate for the purpose of establishing an ecclesiastical corporation under Michigan law. See MCL § 450.178.
The term “church,” as used in MCL § 450.178, includes any church, denominational unit, or church society as the term is commonly used and understood “but shall not apply to such organizations as Sunday schools, Epworth Leagues, Young People’s Unions, Bible classes and similar societies organized by and affiliated with the parent churches.”
The statutes contain specific provisions for ecclesiastical corporation powers, articles, bylaws, gift acceptance, and other. See id. at § 450.178-.186.
Michigan Corporate Forms
The State of Michigan’s form for articles of incorporation for a nonprofit corporation and for ecclesiastical corporations indicate that the particular form is designed only to address Michigan’s requirements. Section 450.2202 of the Act contains the provisions required for the articles of incorporation of a Michigan nonprofit corporation. Michigan’s statutory requirements for articles of an ecclesiastical corporations are contained at MCL § 450.179, although the incorporating church should also consider the Michigan Nonprofit Corporation Act.
If Michigan’s forms are completed to honor only Michigan’s requirements, the corporation will likely not meet the requirements for exemption from federal income tax under sections 501(a) and 501(c)(3) (for example) of the Internal Revenue Code. So, due care should be taken by any nonprofit corporation in Michigan who will want to seek tax exemption from the IRS. The articles of incorporation should be drafted and adopted so as to honor both Michigan law for the nonprofit corporation and the Internal Revenue Code for exemption from federal income tax.
Michigan Annual Registration
Michigan statute, MCL § 450.2911, contains the annual filing requirements. “Each domestic corporation and each foreign corporation authorized to conduct affairs in this state [of Michigan] shall file a report with the administrator not later than October 1 of each year.” Id. The report must contain the following information listed in subsections (a) through (e) of section 450.911, including business or residential addresses of the corporation’s president, secretary, treasurer, and directors.
Michigan Charitable Solicitation Registration
Michigan, unlike states such as Texas but like about 40 other states, requires charitable solicitation registration. The Michigan Charitable Organizations and Solicitation Act is contained in Michigan statutes 400.271 through 400.294. The Michigan statute’s definition of “charitable organization” excludes religious organizations, if the religious organization has obtained tax exempt status from the United States. See MCL § 400.272.
The information required for registration is contained in MCL§ 400.273, and includes a laundry list of items in subsections (a) through (l). Exceptions may apply, such as for organizations that receive less than $25,000 in a year and pays no individuals (including employees) for fundraising efforts. See Michigan Department of Attorney General Exceptions to Solicitation Registration Requirements.
Nonprofit corporations incorporated under Michigan law should evaluate and understand the incorporation, charitable solicitation registration, and annual filing requirements. Each organization should consider engaging and budgeting for engagement of a competent legal advisor and certified public accountant knowledgeable of these Michigan and federal organizational and filing requirements. While the Wolverine State’s “requirements-to-do-good” may seem more than desired, the organization will hopefully gain a nice, steady cadence for complying with these regulatory matters, which, over time, should remove the sting and burdensomeness of administration.