At Issue

Encouraging Nonprofit
Organizations in Wisconsin

A rewrite of Chapter 181 encourages the formation and work of nonprofits and their volunteers by removing many of the administrative hurdles they currently must overcome.

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By Thomas Frenn

1997 saw a resurgence in volunteerism. From the Summit on Volunteerism held in Philadelphia to passage of the federal Volunteer Protection Act, the United States is renewing its commitment to nonprofit organizations and their volunteers. Wisconsin is following suit in 1998.

Wisconsin recently saw the introduction of legislation that clarifies, conforms, protects, and provides flexibility under Wisconsin nonstock law (Wis. Stat. chapter 181) to nonprofit organizations and other entities regulated by the statute. The legislation was introduced in each legislative house as Senate Bill 423 and Assembly Bill 765.

Even though local and state nonprofit organizations provide many essential services, over the years Wisconsin law has created a confusing web of administrative hurdles for these organizations to overcome. Following are some of the provisions under this legislation that will help nonprofits in their daily governance.

Flexibility

Nonprofit organizations are not all alike; they can range from trade to religious organizations. The current approach to nonprofit law imposes some unnecessary barriers to organizations' effectiveness. The Chapter 181 rewrite will give nonprofits the flexibility to tailor their organization's structure to fit their needs.

Nonprofits also may authorize governing action by written ballot if it is permitted in either the articles of incorporation or the bylaws. The rewrite also provides for "emergency bylaw" procedures that can be implemented when a catastrophic event occurs preventing a quorum from attending. No such provision exists under current law.

Distributions in certain instances are allowed under the rewrite. The distributions must specifically be permitted by the articles of incorporation, be consistent with the organization's purpose, and the organization's assets must continue to exceed its liabilities after the distributions are made.

The legislation also permits derivative actions in the right of the corporation under certain circumstances. Specific procedures and guidelines have been established to govern the derivative actions, including a requirement that the court dismiss the derivative proceeding if a majority of independent directors or a court-appointed panel determine that the proceeding is not in the corporation's best interest.

Conformity

Nonprofit law was intended to mirror Wisconsin's Business Corporation Statute (Chapter 180). The latter has seen significant revisions since the early 1990s. This legislation brings nonprofit law into conformity with business corporation laws (where appropriate).

Foreign nonprofit organizations will be required to register in Wisconsin (that is, obtain a certificate of authority). Wisconsin is one of only a few states that do not require foreign nonprofits to register. Requiring foreign nonprofits to register provides for uniformity in how nonprofits are treated, regardless of their principal office location.

Current law also does not provide a procedure for foreign nonstock corporations to "domesticate," although they can merge and consolidate with a domestic nonstock corporation. The legislation establishes specific requirements and procedures for foreign nonprofit organizations to domesticate in Wisconsin.

Efficiency

The legislation streamlines administrative procedures and guidelines by creating a single repository for recording and filing documents, eliminating confusion on where to find any filings relating to a nonprofit organization. Procedural changes to such issues as mergers, consolidations, and judicial dissolution also are provided.

Liability

Current standards for liability for officers and directors of nonprofits are maintained, and protection for licensed professional volunteers is expanded. Individuals who volunteer in their certified or licensed capacity currently have little protection. This legislation provides limited liability to those individuals. These changes reflect, in part, the enactment at the federal level of the Volunteer Protection Act of 1997.

Summary

The State Bar's Business Law Section spearheaded the work on the comprehensive rewrite to Chapter 181 of the Wisconsin Statutes. In cooperation with attorneys, legislators, state agencies, and other organizations, the committee, over several years, completed a line-by-line review to produce the final bill. The committee, representing numerous types and sizes of nonprofits, based its work on a model act of the ABA Business Law Section.

The committee thanks Sen. Brian Burke, Sen. Joanne Huelsman, Rep. Scott Walker, Sen. Margaret Farrow, and all the cosponsors of this legislation for their involvement. The committee especially thanks the legislative bill drafter, attorney Scott Hubli of the Legislative Reference Bureau, for his countless hours of work on this project.