Q&A: Can Minority Shareholders Force an Election?

Q&A: Can Minority Shareholders Force an Election?
Q Our president resigned before the board appointed officer positions, but he showed up at the meeting in which a new officer was appointed to the board.

Now the board wants to fill the seat that the president resigned from, with someone other than myself, even though I had the most shareholder votes at the last annual meeting. I suspect that racism is at play in the board’s decision, and think that I am deliberately being kept off the board because of my race.

Instead of handling the issue of board vacancies at the annual meeting, they are going to fill the vacant president seat, and intend to hold a shareholder meeting at their own discretion. Should the board have appointed the five seats that came up for election solely by the plurality of the votes and not for some other reason?

—Unfairly Kept Off the Board

A “The board of directors has the right to fill vacancies on the board which occur prior to any shareholder meeting held for the purpose of electing directors,” says attorney Peter G. Goodman of Hartman & Craven, LLP in Manhattan.

“The board of directors also has the right to elect officers of the cooperative corporation. Shareholders who are not members of the board have no right to be present when the board elects officers. You are not a member of the board of directors and therefore are not entitled to be considered for a position as an officer.

“Nevertheless, the essence of your question seems to be whether the board of directors is prohibited from keeping you off of the board based upon your race. Federal, state, and local statutes and codes prohibit discrimination with respect to housing based upon race (as well as religion, national origin, gender and other classifications.) But these laws do not deal with issues of corporate governance such as the election of directors and officers. Instead, they are directed to practices such as the refusal to sell or lease, or to offer terms and conditions, based upon a prohibited classification such as race.

“You may, however, be entitled to relief from a court based upon an exception to the ‘business judgment rule.’ According to this rule, courts generally will not second guess the actions of a cooperative board of directors so long as the board acts for the purposes of the cooperative, within the scope of its authority and in good faith. Thus, if the board’s action deliberately singles out individuals for harmful treatment, a court will review the board’s business decisions and could overturn them. Based upon the facts presented it cannot be determined whether your claim of being singled out due to racist reasons would rise to the level of a court reviewing and overturning the manner in which elections were handled by the board of directors.”

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Comments

  • I have read - sorry to say I don't remember where- that it is permissible for the shareholders to be present at the election of the officers by the directors. It stated that it was rare but permissible. Can you give me a legal cite for this in NYS BCL