Q&A: Non-Shareholders on the Board?

Q A resident, married to a shareholder, wants to run for the board. She is not on the purchase agreement. Can she legally become a member of the board if she is not a legal owner of shares in the co-op?

--Not Above Board

A “A cooperative unit resident who is not a shareholder, but is the spouse of the shareholder, has asked whether she is permitted (qualified) to run for election to the cooperative board of trustees or directors and to serve on the board. The answer to this question requires a review of several documents and, for a New Jersey cooperative unit, the applicable corporation statute, says attorney Kenneth Sauter, a partner with the Morristown-based law firm of Berman, Sauter, Record & Jardim PC. “Surprisingly, board qualifications are frequently very basic and sometimes nearly non-existent. The resident spouse should review, for instance, the proprietary lease with the cooperative association, the cooperative association’s bylaws and certificate of incorporation, and, if necessary, applicable New Jersey corporation acts (either the New Jersey Business Corporation Act, N.J.S.A. 14A:1-1, et seq., or the New Jersey Nonprofit Corporation Act, N.J.S.A. 15A:1-1, et seq).

“The bylaws will most likely address and establish the qualifications for board members. Some bylaws expressly state that the board member candidate must be an owner; some bylaws have more expansive qualifications; and some bylaws are silent as to qualifications. If the bylaws are silent, then the applicable corporation act should be reviewed. For instance, N.J.S.A. 15A:6-1 states that a nonprofit corporation trustee must be 18 years of age and need not be a resident of New Jersey or a member of the cooperative corporation “unless the certificate of incorporation or bylaws so require”. In addition, the New Jersey Nonprofit Corporation Act permits the cooperative’s certificate of incorporation or bylaws to prescribe other qualifications for trustees. Therefore, if the cooperative’s bylaws and certificate of incorporation are silent as to qualifications, the resident spouse would be qualified to run for election to the board.

“If the cooperative association documents (bylaws or certificate of incorporation) require board members to also be owners, the resident spouse may be able to qualify by acquiring an interest in the cooperative shares and that interest may be nominal. Any such transfer would, however, be subject to the cooperative association’s governing documents and requirements regarding the sale or other transfer of shares. Absent an express provision precluding or requiring more than a nominal shareholder interest, following such transfer, the resident spouse, now a nominal co-owner, would then be qualified. Of course, any transfer of spousal interest should take into consideration gift and estate tax ramifications.”

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Comments

  • What does the law say about non-resident non-shareholder on the board? In other words if the spouse of the shareholder who is a member of the board brakes up with the share holder ...