Amendments to the Illinois General Not For Profit Corporation Act of 1986

Public Act 96-0649 (the “Amendment”), a noteworthy amendment to the Illinois General Not For Profit Act (the “Act”), will take effect January 1, 2010. The primary effect of the Amendment will be to expand the ability of the directors and members of not for profit corporations to take action by electronic means. The Amendment should aid the ease and speed with which not for profit corporations are able to take actions.

Action by Electronic Means

As amended, the Act will permit actions required to be taken in writing to be taken by electronic means unless the articles of incorporation or bylaws specifically prohibit action by electronic means. The acceptable “electronic means” include the e-mail address, facsimile number or other contact information appearing on the records of the corporation as may be authorized or approved by the articles of incorporation or the bylaws. The Amendment specifically permits informal board of director and membership votes to be conducted via electronic means that provide a written record of approval, and the Act will no longer require the traditional written consent signed by the directors or members, respectively. When such informal action is taken by the members entitled to vote, the amended Act will provide specific minimum time frames for which the vote must remain open, depending upon the nature of the matter upon which the members are voting. Importantly, the amended Act will permit an action to be taken by the members without a meeting upon the approval of the action by a majority of a quorum of the members, whereas the current version of the Act requires the approval of not less than the minimum number of members whose approval would be required at a meeting where all members entitled to vote were present and voting. In addition, when such informal action is taken by the members under the amended Act, a notice of the proposed action must be delivered to all the members entitled to vote on the proposed action at least five days before the effective date of the action.

Inspection of Corporate Documents

The Amendment sets forth more detailed parameters regarding the right of voting members to inspect the books and records of account and minutes of the corporation. The current version of Section 107.75(a) of the Act does not provide any detail as to how the process of such inspection by a member is to take place. The Amendment specifies the nature of the written demand to be provided by the member to the corporation and the proper action to be taken if the corporation refuses the member’s demand. Additionally, the Amendment states that the burden of proof is on the member to establish that a proper purpose exists for the member’s inspection of books or records of account, while the burden of proof is on the corporation to establish that a proper purpose does not exist for a member’s requested inspection of the minutes.

Board Vacancy Due To Expiration of Director’s Term

The current version of Section 108.10(d) of the Act states that upon expiration of a director’s term, he or she will continue to serve until the next meeting of the members entitled to vote on the election of directors. It also provides that a decrease in the number of directors does not shorten the incumbent director’s term. Under the Amendment, this Section will provide that upon the expiration of a director’s term, he or she will continue to serve until the next meeting of the members or directors entitled to vote on the election of directors, and it will also provide that an amendment to the bylaws decreasing the number of directors or eliminating the position of a director elected or appointed by persons other than the members may shorten the terms of incumbent directors, if such amendment to the bylaws was approved by the party with the authority to elect or appoint such directors.

Director Conflicts of Interest and Limited Liability

The Amendment adds new language to Section 108.60 of the Act, which addresses director conflicts of interest. The new language states that the provisions of Section 108.60 regarding director conflicts of interest do not apply where a director of the corporation is directly or indirectly a party to a transaction involving a grant or contribution, without consideration, by one organization to another. The new language is intended to permit the directors of a controlled supporting organization who are also directors or officers of the controlling supported organization to vote on grants from the supporting organization to the supported organization. In addition, Section 108.70(b) as amended will state that a director shall generally not be liable for his or her actions unless, among other things, such director earns in excess of $25,000 per year for his or her services as a director. Prior to the Amendment, this amount was $5,000 per year.

For more information, please contact the Seyfarth attorney with whom you work or any Corporate attorney on our website (www.seyfarth.com/corporate).