In 2021, the Washington Legislature adopted, and Gov. Jay Inslee signed into law, an all-new Washington Nonprofit Corporation Act (the “New Act”). 1 1 Senate Bill 5034. https://lawfilesext.leg.wa.gov/biennium/2021-22/Pdf/Bills/Session%20Laws/Senate/5034-S.SL.pdf?q=20210719091317. The New Act, which took effect Jan. 1, 2022, and is codified at Chapter 24.03A RCW, is a total replacement of the current Washington Nonprofit Corporation Act (the “Previous Act”), Chapter 24.03 RCW. Washington lawyers who represent nonprofits will likely want to familiarize themselves with the New Act and ensure that their clients’ governing documents and governance practices are compliant.
The Nonprofit Corporations Committee of the WSBA Business Law Section served as the primary drafter of the New Act. The committee began its work revising the Act in the fall of 2008, shortly after the Nonprofit Organizations Committee of the American Bar Association released the Model Nonprofit Corporation Act, Third Edition (the “Model Act”). The committee chose to start with the Model Act, rather than trying to fix the Previous Act, in recognition of the age (originally adopted in 1967) and haphazard organization of the Previous Act. All of the committee members serving in 2008 recognized and had experienced the challenging legal questions raised in many of the Previous Act’s provisions. In addition, there was a wish for additional clarity with respect to the treatment of charitable assets held by corporations organized under the Previous Act and the other Washington statutes that bear on the management of such assets.
The committee’s membership included attorneys in private practice who represented nonprofits in Washington, practitioners who taught classes in nonprofit corporations and charitable organizations at Washington law schools, and representatives from the Washington Secretary of State’s office (both the Corporations and Charities Divisions) and the Attorney General’s Office. These government officials generously gave their time, experience, and knowledge to the committee over the nearly 13 years in which the committee worked on the revisions to the Act. In addition, the group frequently included one or more accountants practicing in the nonprofit area, who shared their perspectives, as well as a few committed laypeople who brought their direct experience as volunteers and consultants to nonprofit organizations into the process.
During this dozen-year effort, the committee worked through three complete reviews of what would ultimately become the New Act before completing its work in early 2021.
The committee’s intent was for the New Act to reflect recent developments in nonprofit and corporate law and to improve Washington law in three key areas where the Previous Act created difficulties for nonprofits, lawyers representing them, and regulators.
1. Modernization: The New Act is intended to reflect currently accepted practices in the nonprofit sector without imposing unnecessary burdens. This has impact in multiple areas, but especially in the rules governing electronic communications (RCW 24.03A.015), notices to members and directors (respectively, RCW 24.03A.410 and RCW 24.03A.555), and meeting procedures (e.g., RCW 24.03A.485 and RCW 24.03A.580).
2. Protecting Charitable Assets: The New Act takes a new approach to regulating and protecting charitable assets held by nonprofit corporations. The New Act’s provisions in this area are designed specifically for nonprofit corporations, replacing the previous approach of governing charitable assets under trust law whether or not the assets are actually in trust. See RCW 24.03A.155-.165; RCW 24.03A.180-.205; and RCW 24.03A.944-.960).
3. Membership Organizations: The previous law governing membership nonprofits was incomplete and left many unanswered questions about the rights and duties of nonprofit members. The New Act adds a comprehensive set of provisions governing membership in nonprofit organizations. RCW 24.03A.315-.485.
These areas had the committee’s primary focus; however, the New Act incorporates changes in many others.
David Lawson is an attorney at Davis Wright Tremaine. His practice includes tax advice for tax-exempt organizations; corporate governance; compliance with solicitation and charitable trust rules; and business transactions involving nonprofits and nonprofit healthcare, with a special focus on emerging issues at the intersection of charity and technology. He can be reached at:
Judith Andrews is of counsel at APEX Law Group. Her practice focuses on nonprofit corporation law, tax-exempt organizations, and public finance. In addition, Andrews leads workshops on the formation and maintenance of 501(c)(3) organizations for Communities Rise, and served as an adjunct professor at Seattle University School of Law, having created a nonprofit legal clinic class. She can be reached at:
