Q&A: Sponsor's Role in Board Voting

Q My question is about the co-op’s building sponsor. I understand the building is owned by each shareholder and that they vote in a board to run the corporation. How does the sponsor factor into all of this? Is the sponsor part owner apart from the shareholder?

— Confused Shareholder

A “The answer to the question requires a review of your co-op’s governing documents (i.e.—the bylaws, proprietary lease, offering plan and any amendments thereto) and the co-op’s certificate of incorporation,” says Garden City-based attorney Marc H. Schneider with the law firm of Schneider Mitola LLP. “Sponsor voting rights are usually restricted by the New York State department of law (attorney general’s office,) in that, sponsors are not permitted to control (elect and/or designate a majority of the directors) a co-op’s board for more than the sooner of five years from the date of closing of the co-op, or when the sponsor owns less than 50 percent of the unsold shares of the co-op.

“Once the control period has passed, you must turn to the governing documents to determine what rights the sponsor has with respect to voting for directors in an election for the co-op’s board of directors. In that regard, there are typically two types of provisions which govern the sponsor’s rights; to wit: (1) a voting control clause; and (2) a “will not elect” clause.

“A voting control clause is one which permits the sponsor to vote his/her/their shares for the election of directors in any manner they choose (for all candidates) provided the sponsor did not nominate the candidates and the candidates are not related parties to the sponsor. In that regard, voting control clauses are very similar to the New York State department of law regulation discussed above. An example of such a clause is as follows: ‘sponsor may vote for all candidates up for election, but no more than three members shall serve by reason of the votes cast by sponsor.’”

“‘Will not elect’ clauses, on the other hand, actually prohibit a sponsor from voting his/her/their shares for one more than a majority of the seats up for election (i.e.—if there are five board seats up for election, the sponsor can only cast his/her/their votes for two seats.) An example of such a clause is that the sponsor agrees not to elect a majority of the board.”

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2 Comments

  • i am in the middle of an arguement with my coop board the sponsor no longer controls the board we have a will not elect clause 4 positions were up last year and the sponsor was allowed to vote as many seats as he wanted i believe he voted all four how do I stop this from happening again this year
  • I actually have a question that relates to this topic. Does a Sponsor get automatic seats on a Board year to year? The Sponsor of my co-op in Queens has been on the Board forever. He currently only owns 18% of the total shares. Shouldn't he have stopped being on the Board a long time ago? Thanks!