OHIO LEGISLATIVE SERVICE COMMISSION
Office of Research Legislative Budget
www.lsc.ohio.gov and Drafting Office
H.B. 301 Bill Analysis
135th General Assembly
Click here for H.B. 301’s Fiscal Note
Version: As Passed by the House
Primary Sponsor: Rep. Swearingen
Effective Date:
Joe McDaniels, Division Chief
SUMMARY
 Requires nonprofit corporation directors to be natural persons (i.e., individuals rather
than business entities).
 Authorizes a committee consisting of one or more directors of a nonprofit corporation
to create a subcommittee, unless otherwise provided in the articles, the regulations, or
the resolution of the original committee.
 Specifies the fiduciary duty required of an officer of a nonprofit corporation.
 Expands the circumstances in which provisional directors may be appointed.
 Revises the standards for determining liability of directors when nonprofit corporations
make loans and the interest rate relating to that liability.
 Establishes that a loan made in violation of the law governing nonprofit corporation
does not affect the borrower’s liability on the loan.
 Authorizes a majority of the incorporators of a nonprofit corporation to amend the
articles of incorporation if (1) the articles do not name initial directors, (2) a meeting of
voting members has not yet occurred, and (3) the incorporators have not yet elected
directors.
 Establishes that a certificate issued by the Secretary of State confirming that a nonprofit
corporation is in good standing is conclusive evidence of certain facts.
 Limits the liability of those who provide goods to, or perform services for, nonprofit
corporations or their members to only the person or entity to whom the goods or
services were provided.
 Provides an exception to religious organizations excluded from the definition of an
unincorporated nonprofit association in the Unincorporated Nonprofit Association Law.
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 Allows a dissolving corporation to provide certain tax-related information as an
alternative to securing a certificate from the Department of Taxation confirming that all
state taxes have been paid.
DETAILED ANALYSIS
The bill makes numerous changes to the Nonprofit Corporation Law, including changes
related to director qualifications and appointment, director and officer liability, and certificates
of good standing from the Secretary of State. It also makes one change to the Unincorporated
Nonprofit Association Law and one change to the General Corporation Law.
Director qualifications
The bill requires nonprofit corporation directors to be natural persons (i.e., not business
entities). Current law simply requires directors to have the qualifications, if any, stated in the
nonprofit corporation’s articles of incorporation or regulations.1
Director duties
Evaluating duties
Continuing law requires a nonprofit corporation director to perform their duties (1) in
good faith, (2) in a manner the director reasonably believes to be in, or not opposed to, the
best interests of the corporation, and (3) with care that an ordinarily prudent person in a like
position would use under similar circumstances. In determining what is in the best interests of
the corporation, or what is not opposed to those interests, current law, changed in part by the
bill, requires the director to consider the purposes of the corporation and allows the director to
consider the following:
 The interests of the corporation’s employees, suppliers, creditors, and customers;
 The economy of the state and nation;
 Community and societal considerations;
 The long- and short-term interests of the corporation, including the possibility that the
interests may be best served by the corporation’s continued independence.
The bill modifies the application of these criteria in two ways: First, it clarifies that the
director’s consideration of the permissive criteria (the bulleted items above) is discretionary.
Second, it specifies that both the mandatory criterion (the purposes of the corporation) and the
permissive criteria apply only to determining what is in the best interests of the corporation. It
retains the requirement that the director act in a manner that is not opposed to the
1 R.C. 1702.27(A)(3).
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corporation’s interests, but eliminates guidelines as to how the director may determine what is,
or is not, opposed to those interests.2
Committees and subcommittees
The bill authorizes any committee consisting of one or more nonprofit corporation
directors to create subcommittees and delegate any or all of the committee’s power to the
subcommittee. This authority, however, may be withheld by the corporation’s regulations or
the resolution that created the original committee.
The bill does not change provisions in current law that provide for the creation of
committees by nonprofit corporation boards of directors. It only establishes the new authority
for those committees to create subcommittees.3
Provisional directors
The bill expands the circumstances in which a court may appoint provisional directors
for nonprofit corporations. Currently, a provisional director may be appointed by a court upon
the complaint of at least one fourth of the directors. In order to make an appointment, the
plaintiffs must establish that the continued operation of the corporation is substantially
impeded or impossible because of irreconcilable differences among the existing directors.
The bill expands the field of eligible complainants to include at least one fourth of a
nonprofit corporation’s voting members. It also expands the circumstances allowing
appointment to include situations where there are no directors and the voting members are
unable to elect directors, making the continued operation of the corporation substantially
impeded or impossible.4
Corporate officers
Fiduciary duties
The bill establishes a default fiduciary duty that applies to a nonprofit corporation’s
officers (e.g., president, treasurer, etc.) unless the corporation’s articles or regulations, or a
written agreement with an officer, establishes additional fiduciary duties.
These new provisions largely mirror existing law regarding fiduciary duties for directors.
Under the bill, officers must perform their duties in good faith, in a manner reasonably believed
to be in or not opposed to the corporation’s best interests, and with the care an ordinarily
prudent person in a like situation would use. When performing their duties, officers may rely on
information, including financial statements and other data, prepared or presented by either:
2 R.C. 1702.30(B) and (F).
3 R.C. 1702.33(G).
4 R.C. 1702.521.
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 The corporation’s directors, officers, or employees who the officer in question
reasonably believes to be reliable and competent;
 Counsel, accountants, and other professionals working in their scope of practice.5
Liability for failure to fulfill fiduciary duties
Under the bill, in order for a court to find that a corporate officer failed to act in good
faith, in a manner reasonably believed to be in or not opposed to the corporation’s best
interests (i.e., to have violated the relevant fiduciary duty), the failure must be proved by clear
and convincing evidence. Clear and convincing evidence is evidence indicating something is
highly likely or reasonably certain. That is a higher standard than the normal evidentiary
standard in civil cases, which is a preponderance of the evidence (the evidence for a
proposition outweighs the evidence against, even if only slightly). The bill further provides,
however, that an officer will not be considered to be acting in good faith if the officer knows
something about the matter in question that would make reliance on information provided by
other corporate personnel or professional advisors unwarranted.6
The bill has additional provisions for actions seeking to make a nonprofit corporation’s
officer liable for money damages. In those cases, it must be shown by clear and convincing
evidence that the officer’s action or inaction was undertaken with deliberate intent to cause
the corporation injury or with reckless disregard for its best interests. The bill does provide that
this requirement can be nullified by the corporation’s articles or regulations or a written
agreement with the officer in question.7
Limitation of fiduciary duty provisions
The bill limits its new fiduciary duty provisions for corporate officers to those instances
where they are acting as corporate officers. The fiduciary duties do not apply when corporate
officers are acting in any other capacity.8
Director and officer liability
Under continuing law, directors and officers of nonprofit corporations are not personally
liable for the corporation’s obligations. They may, however, be liable to the corporation itself
under certain circumstances. Those are where there is a distribution of corporate assets to
members contrary to law or the corporation’s articles, where there is a distribution of assets
5 R.C. 1702.341(A) and (B).
6R.C. 1702.341(C), Black’s Law Dictionary (11th ed. 2019), and Ohio Trial Practice (Baldwin’s Ohio
Handbook Series) § 9:3 (2021 ed.).
7 R.C. 1702.341(D).
8 R.C. 1702.341(E).
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without making sure creditors are paid when winding up the corporation’s affairs, and when
the corporation makes certain loans. The bill modifies the liability provisions regarding loans.
Under current law, directors and officers may be liable to the corporation when, other
than in the usual conduct of the corporation’s affairs or in accordance with the corporation’s
articles, the corporation makes a loan to a corporate officer, director, or member. The bill
removes the liability application for loans to members. It also removes the liability provision
altogether if, at the time of the loan, the majority of disinterested directors voted for the loan
after taking into account its terms and provisions and determining that it could reasonably be
expected to benefit the corporation.
The bill also adjusts the interest rate applicable to a director’s liability on improper loans
from 6% annually to the federal short-term rate as determined by the Tax Commissioner under
continuing law. Finally, it adds a new provision establishing that even if a loan is made in
violation of the nonprofit corporation law, that violation does not affect the borrower’s liability
on the loan.9
Amendment of articles
Nonprofit corporations are formed when articles of incorporation are filed with the
Secretary of State. The articles may be filed by one or more persons, called incorporators, and
may name the corporation’s initial directors. Once incorporated, articles may be amended by a
majority vote of the corporation’s voting members. The bill adds a new provision allowing
articles of incorporation that do not name the initial directors to be amended, if certain
circumstances are met. Specifically, under the bill, the incorporators may adopt an amendment
to the articles at any time prior to both:
 A meeting of the corporation’s voting members;
 Election of directors by the incorporators.10
Certificate of good standing
The bill specifies that a certificate of good standing issued for a nonprofit corporation by
the Secretary of State is conclusive evidence of certain facts for seven days after it is issued.
The facts the certificate demonstrates are:
 That an Ohio nonprofit corporation’s authority has not been limited by provisions of
continuing law dealing with its termination or dissolution and the winding up of its
affairs, provided that the person relying on the certificate has no knowledge that the
9 R.C. 1702.55(A), (B), and (H); R.C. 1343.03 and 5703.47, not in the bill.
10 R.C. 1702.38(C)(1); R.C. 1702.01, 1702.04, and 1702.20, not in the bill.
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corporation’s articles have been canceled and the certificate is not presented as
evidence against the state;
 That an out-of-state nonprofit corporation’s license to do business in Ohio has not
expired, been canceled, or been surrendered.11
Dissolution
Current law requires corporations filing for dissolution with the Secretary of State
include with their certificate of dissolution a certificate or other evidence from the Department
of Taxation showing that the corporation has paid all taxes owed to the Tax Commissioner, or
an “adequate guarantee” that the taxes will be paid. The bill removes the “adequate
guarantee” option.12
Instead, the bill permits corporations filing for dissolution to substitute the certificate or
other evidence with an affidavit stating the date upon which the Department of Taxation was
advised in writing of the scheduled effective date of the corporation’s dissolution and of the
corporation’s acknowledgement of its potential liability for unlawful loans, dividends, and
distribution of assets. Furthermore, the affidavit must contain an acknowledgement by the
corporation that the dissolution does not automatically relieve it from its tax liabilities, and a
statement confirming that the corporation has submitted to the Department of Taxation
information regarding the corporation’s state tax circumstances. The statement shall be
submitted on a form prescribed by the tax commissioner. However, the bill prohibits that form
from requiring any covenants, agreements, or certifications by the corporation related to
payment of taxes, filing of returns, or closing of accounts. The form may require the corporation
to certify that the information provided is accurate.13
Providers of goods and services
The bill adds a new provision to the nonprofit corporation law providing that, absent
express agreement, those who provide goods or services to a nonprofit corporation do not
incur legal liability or owe any duties to the corporation’s members or creditors, or the
members’ creditors, by reason of providing the goods or services. Similarly, the bill specifies
that those who provide goods or service to a nonprofit’s corporations members do not incur
legal liability or owe any duties to the corporation or its creditors by virtue of providing those
goods or services.14
11 R.C. 1702.53(D).
12 R.C. 1701.86(H)
13 R.C. 1701.86(I) and R.C. 1701.95, not in the bill.
14 R.C. 1702.531.
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Nonsubstantive changes
The bill makes numerous stylistic edits to statutory language that do not appear to
substantively change the law.15
Unincorporated nonprofit associations
Unincorporated nonprofit associations are organizations, consisting of two or more
members pursuant to an agreement for one or more common nonprofit purposes. Continuing
law exempts several entities from the definition, including religious organizations. The bill
permits religious organizations to opt into the unincorporated association law by having the
religious organization’s governing principles specially state that the exemption does not apply.16
HISTORY
Action Date
Introduced 10-18-23
Reported, H. Civil Justice 2-7-24
Passed, House (92-0) 4-24-24
ANHB0301PH-135/sb
15 R.C. 1701.86(I) and 1702.30(C) through (E).
16 R.C. 1745.05(M)(5).
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