The Iowa General Assembly passed legislation during the 2021 session focused on Iowa nonprofit corporations.
HF 453 and HF 309 – Protection Against Access to Donor and Other Nonprofit Information
Iowa nonprofit corporations are governed by the Revised Iowa Nonprofit Corporation Act, Iowa Code Chapter 504 (“Nonprofit Act”). HF 453 and HF 309 amend different parts of the Nonprofit Act as well as the state open records law.
HF 453 adds a new section to the Nonprofit Act to provide that a state agency or state official may not impose any regulation or reporting requirement on a nonprofit corporation that exceeds the requirements of state or federal law. Iowa Code section 504.103.
HF 309 creates a new Iowa Code Chapter (22A) as well as amends the state open records law to prevent any public agency from (1) requiring an entity exempt under Section 501(c) of the Internal Revenue Code to provide the public agency with personal information; (2) releasing, publicizing, or otherwise disclosing personal information in the possession of the public agency without the express, written permission of every member, supporter, volunteer, and donor of the tax-exempt entity identified in the information and the tax-exempt entity; and (3) requesting or requiring a current or prospective contractor with a public agency to provide the agency with a list of entities exempt from taxation under Section 501(c) to which the contractor has provided financial or nonfinancial support. Iowa Code section 22A.2.
The statute defines “personal information” and “public agency” in a manner that gives broad reach to the statute. The term “personal information” is defined to mean any list, record, register, registry, roll, roster, or other compilation of data that directly or indirectly identifies a person as a member, supporter, or volunteer of, or donor of financial or nonfinancial support to, any entity that is exempt from Section 501(c) of the Internal Revenue Code. Iowa Code section 22A.1(1). The definition expressly excludes information reportable to the Secretary of State pursuant to the Nonprofit Act or information provided to the Attorney General or State Auditor pursuant to the Nonprofit Act, the Iowa Consumer Credit Code, or the Iowa Consumer Fraud statute. Iowa Code section 22A.1(1). The term “public agency” is defined broadly to mean the state, a state or municipal governmental unit, a political subdivision of the state, an agency, authority, council, board, or commission of a political subdivision of the state, and a state or local court, tribunal, or other judicial or quasi-judicial body. Iowa Code section 22A.1(2).
HF 309 includes some exceptions, including where the information is required by a lawful warrant issued by a court, a lawful request for discovery, the agency and nonprofit agree to such disclosure, or disclosure in judicial proceedings that are public pursuant to Iowa Code section 602.1601; however, upon petition of an entity, the court is to seal a case file that is otherwise public pursuant to Iowa Code section 602.1601 to protect the personal information contained in that file. In addition, the legislation does not affect any provision of Iowa Code Chapter 68A which relates to campaign finance. Iowa Code section 22A.2.
HF 309 amended the Iowa open records law to include civil and criminal penalties for any violations of the new provisions in the Iowa open records law. Iowa Code sections 22A.3 and 22A.4.
The Nonprofit Act provisions addressing corporate records also have been amended to make conforming changes consistent with the addition of Iowa Code Chapter 22A. In particular, Iowa Code section 504.1604 was amended to provide that if a court orders inspection of records containing personal information, such inspection is to be made under seal from public disclosure. In addition, Iowa Code section 504.1605 was amended to limit the use of corporate records to provide that without the consent of the board, corporate records, including, without limitation, a membership list or any part thereof, shall not be used to obtain personal information as defined in Iowa Code section 22A.1(1).
There was support for the legislation from a wide range of nonprofits. It appears the two pieces of legislation are due in part to actions taken by state attorneys general in other states – particularly California which was an issue addressed this year by the U.S. Supreme Court. The Court recently held in Americans for Prosperity Foundation v. Bonta, No. 19-251, that the California attorney general cannot require charitable nonprofits to disclose to the attorney general’s office the names and addresses of their major donors.
HF 844 – Virtual Member Meeting
The Nonprofit Act previously provided that the articles of incorporation or bylaws of a nonprofit corporation could allow a virtual annual, regular, or special meeting of members if the meeting was held by means of the internet or other electronic communication technology in a manner pursuant to which the members have the opportunity to read or hear the proceedings substantially concurrent with the occurrence of the proceedings, vote on matters submitted to the members, pose questions, and make comments.
HF 844, which includes a new Iowa Business Corporation Act, amends the Nonprofit Act’s remote-only member meeting provision to no longer require that the articles of incorporation or bylaws include such a right to hold a virtual member meeting. Iowa Code section 504.702A. Under HF 844, the board of directors can determine whether to have a virtual member meeting. Iowa Code sections 504.701 and 504.702. This change allows nonprofit boards to elect to hold remote member meetings even if there is not a provision in the articles of incorporation or bylaws of the nonprofit, which should make it easier for a nonprofit corporation to take advantage of the virtual member meeting option.
The new provisions in the Nonprofit Act also incorporate updated language on remote-only member meetings that gives further flexibility to nonprofits. Under the new Nonprofit Act provision, members participating in a meeting of members by means of remote communication shall be deemed present and may vote at such a meeting if the nonprofit corporation has implemented reasonable measures to (1) verify that each person participating remotely is a member; and (2) provide such members a reasonable opportunity to participate in the meeting and to vote on maters submitted to the members, including an opportunity to communicate, and to read or hear the proceedings of the meeting, substantially concurrently with such proceedings. Iowa Code section 504.702A.
Notices of member meetings may be communicated in person, by mail, other method of delivery, or by telephone, voice mail, or other electronic means. If these forms of notice are impracticable, notice may be communicated by a newspaper of general circulation in the area where published or by radio, television, or other form of public broadcast communication. When electronically transmitted, the notice needs to be sent to the member in a manner authorized by the member. Iowa Code section 504.142.
It is important to note that the recent Nonprofit Act amendment on virtual meetings applies only to member meetings and not board of director meetings. The Nonprofit Act already allows for virtual board meetings. Iowa Code section 504.821(3).
HF 844 – New Iowa Business Corporation Act and Benefit Corporations
HF 844 includes a new Iowa Business Corporation Act, which itself includes provisions allowing for an Iowa business corporation to elect to become a “benefit corporation.” Iowa Code sections 490.1701 et seq. A benefit corporation has some similarities to a nonprofit corporation in its ability to function in a manner that pursues the creation of a positive effect on society and the environment as well as other public benefits. “Public benefit” is defined as a positive effect, or reduction of a negative effect, on one or more communities or categories of persons or entities, other than shareholders solely in their capacity as shareholders, or on the environment, including the effects of an artistic, charitable, economic, educational, cultural, literacy, medical, religious, social, ecological, or scientific nature. Iowa Code section 504.1701(2)(b).
A benefit corporation is distinguishable from a nonprofit corporation in certain respects. For example, a benefit corporation is a business corporation and has owners (shareholders) whereas a nonprofit corporation has no owners. In addition, a benefit corporation is taxed like any other “C” corporation or “S” corporation whereas most nonprofit corporations are eligible for tax-exempt status. While the benefit corporation statute uses the terms “benefit corporation” and “public benefit,” such terms should not be confused with the term “public benefit corporation” used in the Nonprofit Act to describe a charitable nonprofit corporation that is tax-exempt under Section 501(c)(3) of the Internal Revenue Code. Iowa Code section 504.1705.
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Bill Boyd is an attorney with the Nyemaster Goode law firm in Des Moines. He works primarily with corporate entities on acquisitions, secured loans, and contracting matters, as well as on governance, organizational, operational, and planning issues. He advises health care and health insurance...
