Q. I reside in a residential co-op in which the board elected to pass on the capital assessment to its shareholders based on the their respective shares. My question is does the board of directors need to use the outstanding shares or authorized shares to calculate the increase per share?
A. “Typically when a cooperative corporation is formed,” says attorney Richard Klein of the New York-based firm Romer Debbas, “both the offering plan and the corporation’s Certificate of Incorporation (which gets filed with the New York State Department of State) indicate the total number of shares which are authorized. Typically, this number of shares will be more than what the corporation intends on issuing out to the shareholders because you want to have extra shares available if you, in the future, designate some new space to be sold, like storage units, roof space or the like. So, for example, a cooperative may have 22,000 authorized shares, but then only ‘issue’ a total of 19,375 to the various apartments. Those shares are considered the ‘issued’ or ‘outstanding’ shares because they have been designated to the corporation’s apartments.
“When a board of directors is trying to determine maintenance amounts or how to allocate an assessment, most boards will work with the number of shares that have been issued and are outstanding. As a practical matter, if a building wants to raise $20,000 for an assessment and figures out the per share amount based upon the shares that are authorized, they will not collect the necessary funds. So they do the calculation based upon what is outstanding. In fact, just about every proprietary lease that I have seen provides that the ‘cash requirements’ shall be fixed based upon ‘the number of shares of the [cooperative] allocated to the apartment’ divided by the ‘total number of shares of the [cooperative] issued and outstanding.’ Note that it says ‘issued and outstanding’ and not ‘authorized.’”