If winter's here, can spring be far behind? This old adage is particularly meaningful in relation to the annual ritual which takes place among cooperative housing corporations each spring: The Annual Shareholders Meeting. Even though the ground may now be covered in snow, it is not too early for boards to start preparing for a successful annual meeting. Each year the shareholders must meet to elect a board of directors which will run the business of the building for the ensuing year. That election takes place at the co-op's annual meeting. The New York Business Corporation Law requires an annual meeting and the corporate by-laws specify a time for such a meeting.
While the election of a board is, of course, an important aspect of the meeting, it is also a time to report on the State of the Co-op, financial and otherwise; amend the corporate documents and proprietary lease, if needed; permit shareholders to pose questions to their board; meet new residents of the building; and last, but not least, provide a platform for shareholders to air their pleasure or vent their dissatisfaction with the manner in which their building has been operated for the past year.
Good Turnout Is Essential
A thoughtful board must start planning in advance if it wants the meeting to go smoothly. New York law requires at least 50 percent of the shares to be present (in person or by proxy) in order to create a quorum; and while election for board membership is by plurality, the corporate documents often require two-thirds of the outstanding shares to effectuate amendments. Accordingly, the first order of business is to create enough interest in the meeting so as to obtain a quorum. Next, the board must determine whether or not it is seeking to amend its corporate documents to incorporate such modifications as flip taxes (transfer fees); sublet fees; limitation of liability for the board members; shareholder late charges; or proprietary lease extensions. All of these changes generally require a larger turn-out to afford the two-thirds vote needed to effectuate change.
It is never too early to poll the existing board to determine who is seeking reelection or retirement. Serving on the board can be a thankless, time-consuming task, and it is not always easy to find shareholders who are willing to devote their time and energy to running the affairs of the co-op. It may very well take the board several months to secure the minimum requisite number of candidates. Advance prep time may also be needed to electioneer among the shareholders to obtain sufficient support to amend the corporate documents and institute new and needed programs.
Power of the Proxy
As in any corporate community, the board should understand and utilize the proxy to its best advantage. A proxy is, in effect, a power of attorney given by a shareholder to the board, or to any individual, to vote his or her shares at the meeting, and to be counted present for attendance and quorum purposes. Accordingly, if the board wants to make sure a quorum is present for the meeting or for insuring the passage of an amendment to the corporate documents, it must start early in soliciting proxies from shareholders.
Although management (board) proxies are often distributed with the Notice of the Annual Meeting, they may, in fact, be distributed and solicited months in advance. Proxies will be good for a period of eleven months from their date, unless otherwise provided within the proxy. Subject to being revoked by a subsequently dated proxy or by the appearance of the shareholder at the annual meeting with a request to exercise his or her voting right, the proxy may be used by the board to vote in favor of those changes which the board seeks to effectuate at the meeting and to elect the board's slate of candidates. However, in some instances, the proxy can be effectively used by non-board groups within the co-op to oust the existing board and substitute an entirely new body in its place.
Informing the Shareholders
The law requires that the formal Notice of the Annual Meeting be served upon each shareholder no less than ten, nor more than 50 days prior to the meeting (some by-laws limit the service period to not more than 40 days prior to the meeting). The Notice must, by State law, be served personally or by mail. Slipping the notice under each apartment door fails to comply with statute and may result in an invalid meeting and election.
Like any corporation, you must determine who is entitled to a notice and who is entitled to vote. The corporate by-laws may fix such a Record Date; failing such a by-law provision, the board may determine such date, or if no date is fixed in the by-laws or by the board, the Record Date is the day before the giving of the Notice of the Annual Meeting. All shareholders owning stock as of such date must get notice of the meeting and have the right to vote, even if they transfer their apartment before the meeting actually occurs.
The notice must be in writing and must state the place, date and hour of the meeting. It should specify the purposes of the meeting; such as the election of directors and any changes which are being proposed to the corporate documents. If changes are being proposed by the board, the board may wish to include a statement along with the official notice outlining the reasons for the changes it seeks.
It would be wise to distribute the preceding year's financial statements as well as the current budget around the same time as the Notice. This will afford everyone an opportunity to study the building's finances and to more intelligently discuss them at the meeting. In this regard, it should be noted that the more communication and information which is supplied to the shareholders, the less likely they are to be suspicious of the actions of the board and/or its managing agent, especially if the board is ready to announce a needed maintenance increase or special assessment to meet the inevitably increasing budgetary needs of the building. In the same vein, thought should be given to the dissemination of a regular informational letter distributed among the cooperators to keep them apprised of the major happenings in the building, both financial and physical, on a continual basis.
Running the Meeting
If the board believes that voting may be contentious, they may wish to appoint Inspectors of Election. These individuals oversee and determine whether a quorum is present and the validity of the votes cast. Inspectors of Election are not always required by the by-laws. However, if mandated, and neither appointed nor requested by a shareholder, the requirement for their presence is waived. If present and officiating, they must each sign an oath that they will faithfully execute their duties. Certification by the Inspectors of Election as to the voting results becomes prima facie evidence of those results. Since a contested election or change in the corporate documents requires a specific number of votes, a written ballot will be necessary.
It is always best to prepare the ballots in advance, by entering each shareholder's name, apartment number, and the number of shares which they own on each ballot. By doing this the ballots can be distributed expeditiously at sign-in time, without creating long lines which will delay the start of the meeting. The ballots should be prepared, taking into consideration the manner of voting (i.e., straight voting or cumulative voting). The by-laws of most co-ops provide for straight voting; that is to say, one vote for each share owned, all of which can be cast for each seat on the board. However, some co-ops, in their Certificate of Incorporation, provide for cumulative voting. This method of voting is designed to provide a minority group represent-ation on the board. In cumulative voting, each shareholder is entitled to as many votes as is equal to the number of shares which he owns, multiplied by the number of directors to be elected. Shareholders may distribute the total product of the foregoing for any one director (bullet vote) or for as many as they see fit.
The meeting should start as promptly as possible after the chairman receives a certification that a quorum is present (in person or by proxy) and that proof is on hand attesting to the fact that the shareholders were duly notified of the meeting. The chairman, who should be the board president, has great latitude, and, contrary to misbelief, Roberts Rules of Order need not apply (at the discretion of the chairman).
The chairman should first welcome the shareholders and introduce the members of the existing board. Then, introduce those shareholders who have purchased apartments during the preceding year. The president should follow with a State of the Co-op address in which the major accomplishments of the board for the preceding year are discussed. The president's address should be followed by a treasurer's report outlining the financial health (or lack thereof) of the co-op. Individual committee reports can be made thereafter (i.e., house committee, gardening committee, etc.).
If major capital improvements are under way or planned, the building's engineer or architect should be on hand to discuss these. If specific problems exist concerning the co-op's finances, the accountant should be present and report. If the building has been engaged in litigation or specific legal problems, the co-op's attorney should be present and provide his review.
While many shareholders may seek to ask questions of those people giving reports, it is best to postpone the question and answer period until after the election, and during the time that votes are being tabulated. By doing this, time will be utilized most effectively, and it will not be necessary to tabulate votes into the early morning hours.
The election should take place after the reports are concluded. Either the chairman, or possibly corporate counsel, should conduct the election. The manner and method of voting should be described to the share-holders. If a slate of candidates has been proposed by the board or by a group of shareholders, it may then be placed in nomination by motion. Nominations can then be taken from the floor. When nominations are closed, it is appropriate to have each candidate rise and address the group for a period of several minutes to explain why he or she should be elected to the board for the coming year. Immediately thereafter, the voting may take place and the ballots taken for tabulation (with or without the review of Inspectors of Election, as the case may be).
Once the ballots have been picked up for tabulation, the floor can be opened for a question and answer period. In doing so, the chairman should strike a balance between letting the shareholders vent their feelings and not spending excessive time on individual problems that do not affect the bulk of the shareholders.
When the results of the election have been tabulated, they should be announced, and if an appropriate time has been spent on questions and answers, the chairman should politely ask for a motion to adjourn. It is common practice, and most appropriate, for the newly elected board to have an organizational meeting immediately following the close of the meeting. This will permit the new board to elect its officers and thereby continue the orderly functioning of the cooperative.
The late Edward Braverman founded the firm of Braverman & Associates, P.C. It is now Braverman | Greenspun, a law firm specializing in real estate, with an emphasis on cooperative housing law.