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Election and Term of Directors

Section 703 of the Business Corporation Law involves electing directors. Normally, it’s a relatively routine matter. Once a year, there’s a notice sent out with a proxy, usually by the managing agent, no fewer than 10 days before the scheduled meeting. The manager advises everyone that board members need to be elected at that meeting, it happens, they get elected, and they go forward.

The problem is in the details. More managing agents now are taking notices and proxies from prior years and sending them out. For instance, they may miss that the “day of the week” is different from the “day for the notice date” for the meeting. That can cause confusion.

When you have a meeting, you need to have someone look at all of the information – not just examining the notice to make sure that it’s correct, but also examining the proxies. You must make sure that they are properly executed and delivered. Proxies usually contain a number of directors. If there’s a stray mark on a proxy, or if an owner writes in the name but doesn’t cross out some other names, that proxy doesn’t count.

The proxy should indicate who is the designated carrier of the proxy so that person can vote at the annual meeting and all adjournments. If it doesn’t have that wording, you possibly don’t have a valid proxy. Once the proxies are in, somebody has to count them. So the issue really is looking at your documents – the bylaws as well as the certificate of incorporation.

I had one instance in which a co-op didn’t realize that the certificate of incorporation provided for cumulative voting. The owners never had cumulative voting before because it wasn’t in the bylaws, and it wasn’t in the prior notices. In cumulative voting, if you have seven directors and you own 100 shares, you have 700 votes. You can vote all of them for one candidate or spread them among the seven candidates. Again, if your co-op uses this method, usually its authorization is contained in the certificate of incorporation, not in the bylaws.

Now you get to the meeting. You need a quorum, and you have to determine if you have that before any action can be taken. Once that’s determined, there’s a vote. It’s what’s called a plurality: a majority of the people in attendance at the meeting elect the directors.
You have a potential problem. What if you don’t have a quorum? You can adjourn the meeting, as long as you announce at the meeting the time and date of the adjournment so that everybody is aware of it. If you do not announce it at the meeting, you have to renotify everyone in the building.

What I want everyone to take away from this is that the devil is in the details. You must make sure that documents are correct, thatyou’re not just sending out last year’s notice with updated dates. You want to have a smooth meeting so you have a duly elected board. And you go forward from there.

Allen H. Brill is a partner and founding member of Brill & Meisel.

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