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17 Mar 2017
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You Can Have Your Cake & Be A Shareholder Too

The question of who “owns” a co-op is more complex than deliberating about who owns a condo. Where condo buyers actually buy the unit they reside in, individuals purchasing co-ops are actually only buying a set amount of shares equal to the value of the unit – it is essentially a securities transaction. The proprietary lease permits the shareholder to occupy the apartment. So the question arises, who is the shareholder? Does a shareholder’s spouse automatically own half of the shares and have the ability to exercise rights set out in the proprietary lease? Can non-shareholders vote, nominate or be nominated as directors? Mostly, the answer is no because marriage alone does not transfer the ownership of shares from one spouse to another.

When setting up a co-op, the board will designate the amount of shares for each apartment. The IRS requires the amount to be “relative and reasonable”, therefore having a direct relationship between the number of shares and the value of the unit.  If two units are identical, then the share price will be equal. So in order to be considered a shareholder to your co-op, your name must be on the stock certificate. The stock certificate represents the shareholder’s stake in the co-op.

The proprietary lease will stipulate who the shareholder can transfer his or her shares to (it is regularly acceptable to transfer shares to a spouse) and who has the right to occupy a shareholder’s unit. However, some proprietary leases are considered outdated. Lawyer Marc Luxemburg explains that “the clauses addressing occupancy are based on the concept of a traditional family.” Luxemburg asserts that co-op boards should be more open to allowing not only the spouse but all immediate and extended family to live on the property (of course not all at once).

Who can vote? If a couple does not have joint ownership of the co-op shares, then normally only the shareholder can vote or be nominated for director. The NY Business Corporation Law section 612 stipulates that “[e]very shareholder … shall be entitled at every meeting of shareholders to one vote.” However, if the spouse is “an administrator, executor, guardian, conservator, committee, or other fiduciary” he or she can vote on behalf of the shareholder, in person or by proxy, without an official transfer of shares. If both spouses’ names are listed on the stock certificate, they are also only eligible for one vote. If only one person casts a vote, “the vote shall be accepted by the corporation as the vote of all” (BCL s.612(h)(1)).

As discussed in last week’s blog, a shareholder can implement a trust to transfer the shares to a beneficiary, which in this instance could be the spouse. Additionally, the shareholder can leave the shares to their surviving spouse using a will or through joint tenancy ownership. If you’re not overly fond of your spouse and you are tenants in common, you can always transfer the title of your shares to a beneficiary.

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