The New York Business Corporation Law (BCL) is made up of twenty Articles regulating the operation and function of corporations, such as their formation, the rights of shareholders, voting, the duties of directors and officers, mergers and dissolutions. The BCL governs corporations in New York, which most notably includes co-ops. Many of the BCL’s articles directly impact shareholders, the board of directors and it creates a guideline for the building’s by-laws and other governing documents. Therefore, it is helpful for the board and shareholders to be familiar with the BCL, so here are some of the key provisions to be aware of.
Shareholders
Article 6 of the BCL deals with shareholders rights, voting practices, elections, the shareholders’ annual meeting, and revising the building’s by-laws. As we have discussed in previous blogs, shareholders have the right to inspect the corporation’s books and records, as long as the inspection is in good faith and for a valid purpose. Generally the documents disclosed include meeting minutes, profit and loss statements, shareholder list, and accounting and bank statements. This also gives shareholders the right to know who is sitting on the board of directors.[1]
For a shareholder vote, the shareholders who own a majority of the shares (or common interest in a condo) must hold and attend the meeting to form a quorum. Under BCL § 608(b), the building’s certificate of incorporation or by-laws can limit the quorum to one-third of the votes of shares or under § 616 increase the percentage of shares needed.
For board elections, there needs to be a quorum. BCL § 614(a) states that “Directors shall, except as otherwise required by this chapter or by the by-laws or certificate of incorporation as permitted by this chapter, be elected by a plurality of the votes cast at a meeting of shareholders by the holders of shares entitled to vote in the election.” For elections, co-op and condo boards must provide a notice to all shareholders and owners between sixty and ten days before the scheduled election.
Every building’s by-laws differ in regards to the procedure of amending the provisions. Some corporations require either a shareholder or board of directors vote in the affirmative of two-thirds, seventy-five percent, or a super-majority to amend, alter, repeal or create new by-laws. If a quorum is not present at the meeting, the holders of a majority of the shares can adjourn the meeting to another date at which time the shareholders present at the original meeting are entitled to vote regardless of a quorum. Pursuant to BCL § 608(d) however, shareholders present have the option of adjourning a meeting even if a quorum is present.
Board of Directors
The rights and obligations of the board of directors are outlined in Article 7 of the BCL. Article 7 also covers issues pertaining to the management of the corporation, such as amending the by-laws.
When adopting a new resolution for the by-laws, generally all board members must be present. What happens when a board member cannot attend the meeting? BCL § 708 allows board members to either give written consent to adopt a resolution without the need of attendance or they can participate via conference telephone or others devices allowing everyone to hear each other at the same time, such as Skype and FaceTime.
In an effort to create greater transparency, as of January 1, 2018, § 727 of the BCL requires the board to submit an annual report to the shareholders including information of all contracts made, entered into, or voted on by the board, and the relevant details of those contracts.[2] As statutes and common law evolve, it is important for boards to practice greater transparency so that they are in compliance with the law and avoid potential conflicts and litigation.
“The BCL is sort of the ‘bible’ of co-op law,”[3] therefore board members should consult their legal counsel if they have a question concerning the BCL and how it applies to their co-op.
[1] See “Who Sits on Your Co-op Board.” Available at: http://guzovllc.com/who-sits-on-your-co-ops-board-of-directors/.
[2] BCL Section 727. Available at: https://www.nysenate.gov/legislation/laws/BSC/727. Accessed on May 25, 2018.
[3] Sidranksy, A.J. (May 17, 2018) “The Business Corporation Law: A Primer.” The Cooperator.Available at: https://cooperator.com/article/the-business-corporation-law-a-primer/full#cut. Accessed on May 25, 2018.