Q&A: Understanding the Bylaws

Q&A: Understanding the Bylaws
Q I have been an apartment owner in a Woodside cooperative since 1985. Presently,  we shareholders are faced with the problem of an overly controlling board.  

 I am looking for an explanation, in layman’s terms, of ARTICLE III, titled ‘Directors,’ of my cooperative’s bylaws, following here as a direct quote:  

 ARTICLE III Directors

 Section 1: Number: The number of the Directors of the Corporation shall be not  less than three nor more than nine, commencing with the first election of  Directors by tenant-shareholders of the Corporation. At least one less than a  majority of Directors must be resident tenant-shareholders of the building of  the Corporation. At such time as the ‘Unsold Shares’ (as defined in the proprietary lease of the Corporation) constitute less than  50 percent of all the shares of the Corporation issued and outstanding, but in  no event later than fifth anniversary of the date the Corporation acquires  title to the building, not less than a majority of Directors to be elected at  all subsequent annual meetings of shareholders shall be resident  tenant/shareholders of the building of the corporation…  

 These bylaws have not been amended even since the building’s conversion to a cooperative. At this time, the co-op is self-managed by the  nine self-elected board members who control all aspects of the co-op and have  blatantly stated that they as board members have ‘absolute power’ over all decision making. In May of every year, the board members call all of  the non-resident and resident shareholders to get their proxy and subsequently  vote for themselves as board members. The majority is always easily achieved,  as there are many shareholders who simply do not want to be involved, and so,  year after year, this same board is reelected.  

 At this time, there are three board members and officers, including the  president and vice president, who are non-residents of the co-op. Many  shareholders do not believe this should be the case, but since the ‘modus operandi’ of voting is controlled by the existing board of directors, our hands are  pretty much tied. We need to know that there is a solid foundation beneath our  concerns, and hope that there is something that can be done about the  situation. This is why we are looking for a more clear interpretation of the  above article of our bylaws, particularly the highlighted section. Thanks for  your time.  

 -Woodside owner

A According to Attorney Bruce A. Cholst, Esq. of the New York-based law firm of  Rosen & Livingston, “In layman’s terms the bylaw provision which you quote means that at least five of the nine  members of your building’s board must be resident tenant-shareholders. (In the time period immediately  following the building’s conversion only four of the nine board members were required to be resident  tenant-shareholders).  

 “Since your board is apparently now comprised of six resident  tenant-shareholders, the building is operating in compliance with this bylaw  provision. Insofar as the provision does not specify how many officers need be  tenant-shareholders, the fact that the president and vice president of the  board are non-residents is irrelevant. Moreover, there is no legal prohibition  against resident members teaming up with non-resident members to form a  controlling voting bloc on the board.  

 “However, it is not true that boards have ‘absolute power over all decision making.’ In the exercise of decision making power board members may not exceed the  limits upon their authority as established by the building’s governing documents (i.e. the by-laws, proprietary lease, and Certificate of  Incorporation). Moreover, board members may not deal in bad faith (i.e. breach  their fiduciary duty) with respect to the shareholders whom they serve. In the  event that any specific board action violates the building’s governing documents or constitutes a breach of fiduciary duty, an aggrieved  shareholder can challenge the action in court.  

 “Moreover, most cooperative bylaws permit shareholders to convene a special  shareholder meeting even against the board’s wishes upon presentation of a petition containing the signatures of holders of  25 percent of the corporation’s shares. You might consider circulating such a petition for the purpose of  calling a meeting to vote upon amendments to the cooperative’s bylaws, which would place limits upon the board’s control over building affairs.  

 “Finally, you might consider running a slate of six opposition candidates, all of  whom are resident tenant-shareholders compatible with your views on governance,  at the next annual meeting.”  

 

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