“Constraints on Board Action—BCL §501(c)”

For decades, Business Corporation Law §501(c), which mandates equality of shares in a corporation, has been a limit on actions of cooperative housing corporations, culminating in the 1985 Court of Appeals decision in Fe Bland v. Two Trees Management Co., which expressly applied §501(c) to co-ops. Since Fe Bland, application of §501(c) to co-ops has been curtailed by the Legislature and courts in several contexts. However, courts and co-ops continue to grapple with the application of §501(c) to the co-op, a hybrid entity with both corporate shares and a real property lease component. As a result, and as shareholders continue to invoke §501(c) in court challenges to board actions which allegedly impose unequal shareholder treatment, confusion exists in the co-op community as to when §501(c) constrains board action. This column attempts to clarify this confusion, reviews co-op case law under §501(c) and identifies issues to which §501(c)’s constraint should be applied by prudent boards and managers. This column also addresses how the share proportionality embodied in §501(c) is addressed in condominiums.

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