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Q&A: Shareholders' Rights to See Financial Information

Q “I know you probably get tons of questions—I have combed through your site and am looking for information regarding the rights of shareholders to see books. Our managing agent and board are refusing to allow viewing of anything but minutes and an annual report. We have a commercial tenant who has not paid rent in 8 months, and an assessment foisted on us with two weeks notice has increased our maintenance about 33 percent. What recourse do we have?

—Suffering Shareholder

A “Generally, the governing documents of a co-op (the proprietary lease and bylaws) limit shareholders’ rights to review documents of the co-op (“corporation”) to the: 1) financial statements, 2) minutes of shareholder meetings and 3) list of shareholders,” says New York-based attorney Pierre Debbas of Romer Debbas LLP. “New York Business Corporation Law (“BCL”) provides that the inspection of any of the aforementioned documents is permitted by a shareholder so long as the purpose for which the request is based, is related to the shareholder’s interest in protecting its investment in the corporation as opposed to a personal interest unrelated to the corporation.

“BCL does not specifically give shareholders the right to review any and all documents in the board of directors’ (“board”) possession. However, BCL does state that a corporation is required to provide to shareholders an annual financial statement and if in the interim there are any balance sheets or profit and loss statements that have been distributed to the shareholders or otherwise made available to the public, the most recent of these statements shall be given to a shareholder upon written request.

“The shareholder should write to the board to inquire if such interim statements are available with respect to the commercial tenant and the current financial situation of the corporation. If so, request that the shareholder be provided access to such statements. Case law often provides a shareholder access to a corporation’s statements/books if the shareholder’s request is in “good faith.” Additionally, BCL requires that such requests be in the interest of the corporation and not for personal reasons of the shareholder which are unrelated to the corporation.

“Under the current circumstances, it appears the shareholder’s desire to review the corporation’s books is for the purpose of protecting its investment in the corporation in reviewing the corporation’s current financial situation and how the corporation is addressing the default of the commercial tenant. A court of law would likely deem this to be reasonable and rule that the shareholder is entitled to the requested review in an effort to protect its investment in the corporation.”

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2 Comments

  • As a shareholder at 173 east 111 street. I been denied to see the books for the building and I do believe that the money is being used for personal use. I wanna know what can I do to get that information or is there someone I can speak to about my situation.
  • Activist Shareholder on Friday, February 7, 2020 10:13 AM
    To Victor Feliciano. I'm also a shareholder having similar problems. 1. The best thing to do is organize. If you have enough support and others on your side who want to join you on the board, call for elections, take over, and then you will get your books. 2. If 1 doesn't work, you will have to go to civil court over this, so will need a lawyer. You have to have good reasons for your request and prove it, cannot be based on curiosity, speculation, or harassment, so must be in good-faith. If your propriety lease says that the lessor must provide the shareholders yearly CPA certified financial statements and the co-op board has not provided that, or has issued false statements for which you have evidence against, or has issued CPA certified statements but not with an unqualified an fair opinion, then the court will order the co-op board to go back and reissue CPA certified financial statements with a fair opinion, which it won't succeed in if there is wrong doing involved. If the board fails then the court will demand to give specific documents and records that you need to have specified. If the results of the inspection points to fraud, then take the evidence to the DA's office to make a criminal complaint.