www.ag.ny.gov/bureaus/real_estate_finance/pdfs/Coop. problems.pdf
HOW TO HANDLE PROBLEMS WITH A CO-OP'S BOARD OF DIRECTORS
Q. What kind of information is contained in these documents?
A. The by-laws and proprietary lease will set forth the following:
When annual shareholder meetings and elections to the board of directors are held,
and how notice is given.
How many seats the sponsor can have on the board of directors and when the
sponsor must give up control.2
Whether shareholders have the right to call extra or special meetings (a very
valuable right if you wish to ask the board to focus on particular matters.)
The procedure for amending the by-laws.
The quorum for voting and whether cumulative voting is allowed. (Cumulative voting
allows a shareholder to vote all his/her votes for only one director instead of
apportioning the votes among the number of vacancies.)
Sublet provisions.
Sublet provisions.
Q. If something isn't specifically addressed in these documents, can the board
do whatever it wants?
A. No, there are legal restrictions. The Business Corporation Law (BCL) is the main
New York State law which governs how co-op corporations must operate. The
decisions made by courts in cases involving BCL provisions are the case law which
interprets the statute.
Q. Where can I find a copy of the BCL?
A. The BCL is published as volume 6 of McKinney's Consolidated Laws of New York
Annotated ("McKinney's") which can be found in law libraries, many lawyers' offices
and in certain public libraries.
Q. What does the BCL provide?
A. Important provisions of the BCL, and the sections in which they are found include
the following:
There must be an annual meeting of shareholders at which an election for directors
is held. (BCL Section 602(b))
Shareholders must be allowed to vote by "proxy" (or substitute) if they do not attend
the shareholders meeting. (BCL Section 609)
Any shareholder may demand that an election inspector be appointed in order to
insure the fairness of the election. Board shall appoint and if they fail to, person at
the meeting may appoint one or more person. (BCL Section 610
Upon request, any shareholder is entitled upon five days written demand to examine
a record of shareholders, and make extracts therefrom. (BCL Section 624(b)3
The corporation must keep minutes of shareholder meetings and correct, complete
records of names and addresses of shareholders which it must make available for
inspection by a shareholder or the shareholder's agent or attorney. (BCL Section
624) There is no requirement, however, that minutes of board meetings be made
available.
Any shareholder may, upon request, receive an annual balance sheet and profit and
loss statement for the past fiscal year. (BCL Section 624(e)) Be aware that these
are frequently not prepared until several months after the end of a fiscal year. Also,
offering plans should contain a commitment by the sponsor to prepare annual
certified financial statements and distribute them to all shareholders as long as the
sponsor is in control of the board. If the sponsor continues to sell, it must include
such statements in amendments to the offering plan.
Any director may be removed for cause (that is, a good reason). If the certificate of
incorporation or by-laws so provide, a director may also be removed without cause.
(BCL Section 706)
If a director has a substantial financial interest in a contract or transaction, this must
be disclosed to the board. Usually that director cannot vote on that contract or
transaction. (BCL Section 713)
Any officer may be removed with or without cause by the Board. (BCL Section 716)
Directors must act in good faith, undivided loyalty and with prudence for the good
of the corporation. They are, however, entitled to rely on information, reports and
financial statements which are prepared by officers, committees, employees or
outside professionals (like accountants or lawyers). (BCL 717)
Shareholders may sue directors and officers for misconduct. (BCL Section 720
