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Election and Term of Directors

Oct 02, 2018

Allen Brill, Partner, Brill & Meisel

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 “date 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 somebody to 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 they write in the name but don't cross out some other names, that proxy doesn't count.


Election and Term of Directors 

At each annual meeting of shareholders, directors shall be elected to hold office until the next annual meeting. The certificate of incorporation may provide for the election of one or more directors by the holders of the shares of any class or series. Each director shall hold office until the expiration of the term for which he is elected, and until his successor has been elected and qualified. (Business Corporation Law, Sec. 703)


The proxy should indicate who is the designated carrier of the proxy so they 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 issues really are 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. They never had cumulative voting before because it wasn't in the bylaws, it wasn't in the prior notices. In cumulative voting, if you have seven directors and you have 100 shares, you effectively have 700 votes. You can vote all of that for one candidate or spread it 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 at that meeting. 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 announced at the meeting the adjourned time and date and that everybody is aware of it. If you do not announce it at the meeting, you have to re-notify everyone in the building.


So 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, that you’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.

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