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1

Dealing with director loans and guarantees in New York Corporations.Anytime, that a member of the Board of Directors, is provided with a loan or debt guarantee by the Corporation, a myriad of potential legal problems may arise.  Thankfully, the Business Corporation Law has tried to address a lot of these potential legal controversies via statutory law.An easy way to avoid to avoid any potential legal disputes that may arise from loans and guarantees given by the corporation to directors, is by seeking unanimous shareholder and Board of Directors member approval, wherever and whenever feasible.Sources:

Business Corporation Law (BCL) 714

2

Electing and removing executive officers in a New York Corporation.Perhaps there is no bigger aspect with regards to having a say in the Corporation’s executive management, other than the ability to elect and remove its executive officers.

It is important to note that executive officers, are normally not appointed by the shareholders, but rather the members of the Board of Directors which has been appointed by the shareholders.  However, in smaller privately held corporate entities the lines between shareholders, Board of Directors and officers may get very blurry.Sources:

Business Corporation Law (BCL) 716

3

What are the statutory liabilities of shareholders, officers and directors in a New York Corporation?

There are certain public policy concerns, which often prompt the State government to usurp its powers with regards to setting the parameters upon which the internal affairs governance of a Corporation are to be built upon.

Sources:

Business Corporation Law (BCL) 630

Business Corporation Law (BCL) 513

Business Corporation Law (BCL) 714

Business Corporation Law (BCL) 719

4

What is the ordinary prudent person rule per New York BCL (Business Corporation Law)?

A number of legal doctrines have been developed over the years with regards to helping the Courts and Legislatures alike, in determining many matters involving corporate governance.  One of the more famous examples is that of the ordinary prudent person rule.

Sources:

Business Corporation Law (BCL) 715

Business Corporation Law (BCL) 717

 

5

What is the business judgement rule per New York BCL (Business Corporation Law)?

Out of the slew of legal doctrines, that has been developed over the years, with regards to helping lawmakers, in deciding many matters involving corporate governance, perhaps few are as important as the business judgement rule.

Sources:

Business Corporation Law (BCL) 715

Business Corporation Law (BCL) 717

6

What are the legal requirements for a New York Professional Service Corporation?

Professional Service Corporations are a legal entity, which often happens to also be tax classification.  However, putting tax considerations aside, we need to always remember that a PSC is above all a legal entity which is chartered by a State. 

Sources:

Business Corporation Law (BCL) 1503

Business Corporation Law (BCL) 1504

7

What are the legal name requirements for a New York Professional Service Corporation?

Similar to other legal (fictional) entities, there are a set of unique requirements that the legal name of a Professional Service Corporation would need to meet in New York State.

With the exception of corporations offering professional design services, the general rule, is that a corporation providing professional services  (i.e. professional services corporation) must end in one of the two following ways: a) Professional Corporation, or b) P.C.. It should be noted that the name of a corporation providing professional design services should end in one of the two following ways:  a) D.P.C. or b) Design Professional Corporation.

Sources:

Business Corporation Law (BCL) 1512

8

What are some rules involving professional relationships and liabilities in NY Professional Service Corporations?

Unlike Business Corporations, the rules with regards to personal liability exposure may be different for Professional Service Corporations, for no other reason, that this type of entity structure are generally owned and managed by licensed professionals who are deemed by virtue of their professional relationships to be imposed to certain liabilities.

The acquisition of professional licenses carries with many significant benefits.  However, as a popular adage goes, with great power comes great responsibility.  More specifically, unlike owners, directors and/or offices of other type of business corporations, the agents of a professional service corporation, would typically be required to be personally liable for any negligent or wrongful acts committed during the scope of rendering professional services.

Sources:

Business Corporation Law (BCL) 1505

9

What are the different types of corporation laws in New York State?

Although, when dealing with Corporations, we typically tend to think of business corporations, the truth is that there are many distinct types of corporations.

In New York, the rules governing the most common types of Corporations – business corporations – are typically found in the BCL.  However, many corporation law statutory frameworks have emerged over the years, in order to account for any number of specific purposes for which a corporation many need to be created and operated.

The different types of corporation laws in New York State, may include: a) The banking law, which may be important to Corporations that provide banking services, such as state-charted banks. b ) The education law, which may be vital to corporations that carry themselves as universities, colleges and museums. c ) The insurance law, which may of particular importance to insurance related legal entities, that are often incorporated under the auspices of the financial services superintendent.

Sources:

New York Banking Law

New York Insurance Law

New York Education Law

10

A look at a New York Certificate of Incorporation.

Many (if not virtually all) of the rules governing NY Certificates of Incorporation, may often be found by simply looking at the appropriate section of the BCL (Business Corporation Law).

The New York Secretary of the State is the filing office upon where the Certificate of Incorporation may need to be legally filed. The filing of such an important legal document, would typically be required to contain the following:  the corporate name, the purpose of the corporation, the location of the corporation’s office, information regarding authorized shares to be issued, the legal duration of the corporation if one other than unlimited (i.e. not infinite, non-perpetual), a statement with regards to designation of the Secretary of the State of New York as the agent for service of process, and at the option of the proper parties involved – the designation of a registered agent.

Sources:

Business Corporation Law (BCL) 402

 

11

What are the name requirements for New York Corporations?

Similar to other fictional (legal entities), it makes legal and practical sense for the Corporation to go about operating its activities through the use of a name.  However, because the use of a company name in the world of business is very important in terms of both differentiation and branding purposes, a statutory provision is often set aside which deals with most of the legal requirements in the use of a corporate name.

Some specific requirements with regards to names of the Corporation, which are mentioned by statute, include the designator term (the last term of the Corporation’s name) to include one of the following three words (or their abbreviated equivalents): Corporation, Incorporated, Limited.

It is important when considering regulations regarding names of legal entities, it should not be surprising to learn that New York Corporations and the BCL, follow the universal trend of having a set of prohibitive and permissive terms that may be allowed to be used as the name of the corporation.  More specifically, terms that are prohibited are not allowed to be used.  Whereas, terms that are deemed permissive, are typically restricted, but may be allowed subject to approval from proper government agency.Sources:

Business Corporation Law (BCL) 301

 

12

Adopting Bylaws for a New York Corporation.

Bylaws are generally a privately filed document that sets out the principles of the corporation’s internal governance.  Hence, it is important to be attentive to the rules dealing with adoption of bylaws.

Bylaws can contain a number of provisions, as they may relate to the corporation’s business, the conduct of its internal affairs, and more importantly, the rights and powers to be conferred to its shareholders. Generally, an adoption of the bylaws would require a majority vote from the shareholders. However, it may be possible that if properly provided in its Certificate of Incorporation, such powers to adopt the bylaws may be deferred to the Board of Directors.Sources:

Business Corporation Law (BCL) 601

 

13

Repealing Bylaws for a New York Corporation.

The rules regarding the repeal of bylaws in a Corporation are extremely important, since they often times can be a source of potential legal disputes and controversies among the varying factions of the Corporation.

Bylaws can contain a number of provisions, as they may relate to the corporation’s business, the conduct of its internal affairs, and more importantly, the rights and powers to be conferred to its shareholders. Generally, a repeal of the bylaws would require a majority vote from the shareholders. However, it may be possible that if properly provided in its Certificate of Incorporation, such powers to repeal the bylaws may be deferred to the Board of Directors.Sources:

Business Corporation Law (BCL) 601

 

14

Amending Bylaws for a New York Corporation.

Before joining a Corporation in either an ownership and/or managerial capacity, it may be important to take a close look at the internally laid out procedures, as well as, the broader statutory legal framework, with regards to amending the Corporation’s bylaws.

Bylaws can contain a number of provisions, as they may relate to the corporation’s business, the conduct of its internal affairs, and more importantly, the rights and powers to be conferred to its shareholders. Generally, an amendment of the bylaws would require a majority vote from the shareholders. However, it may be possible that if properly provided in its Certificate of Incorporation, such powers to amend the bylaws may be deferred to the Board of Directors.

Sources:

Business Corporation Law (BCL) 601

 

15

New changes in New York’s Business Corporation Laws (BCL).

Although, it may seem like a long time ago, the changes in the BCL that occurred in the late 1990s have frequently been the source of potential litigation and corporate governance controversies.

On  February 22, 1998 the Business Corporation Law (BCL) of New York went through some substantial changes.  Following the trend set out by Delaware, the NY BCL which for a long time seemed to be as pro-shareholder/anti-Board of Directors model corporate governance, was revised to be brought more in line with its Delaware counterpart.  More specifically the new statutory revisions seem to shift the rules with regards to permissiveness in allowing for contracts and/or transactions resulting in interested directors.

Sources:

Business Corporation Law (BCL) 614

Business Corporation Law (BCL) 615

 

16

A guide to shareholder voting rules for New York Corporations.

One of the most important ways (if not the most important way) in which shareholders of a Corporation are frequently assertive of their legal rights, is through their voting at shareholder meeting.  Hence, an important emphasis may need to be placed to legal rules dealing with shareholder voting.

Typically, the following general principle seems to lay down the bedrock idea with regards to shareholder voting: one share equals one vote.  However, it may be possible as per statutory provisions permit, to have shares be entitled to more or less voting power, with deviations in voting strength being accounted for in the Certificate of Incorporation.

Sources:

Business Corporation Law (BCL) 612

Business Corporation Law (BCL) 614

 

17

Actions by shareholders of a NY Corporation, without a meeting.

The actions of a shareholder outside the purview of a proper meeting are likely to raise substantial issues, both in terms of whether such actions are proper, and in terms of whether such actions could bind Corporations to a legal contract.

It is important to remember, that in our times, especially in the year 2020 which has seen the devastation unleashed by Covid 19, there are no strict requirements with regards to shareholder actions being legal valid and/or enforceable only upon a meeting.  Rather, the statutory provisions of the BCL seem to permit shareholder action without a meeting, provided that shareholders have consented in writing by an adequate number of owners of outstanding stock, to partake the underlying action.

Sources:

Business Corporation Law (BCL) 615

 

18

Dissolving a Corporation in New York State.

Although, Corporations operate under the notions of the legal fiction of having unlimited (infinite) perpetual duration, the truth is that at some point in time a Corporation would need to come at an end, which often times is via dissolution.

Dissolving a Corporation in New York State, and especially in New York City is neither easy nor cheap nor fast.  Typically, in order to dissolve a NY Corporation, there has to be a satisfaction with regards to the payment of all the tax obligations.

Also, a New York Corporation would typically not be subject to dissolution, unless it appears to be good standing with the New York Secretary of State (the filing office).  This means that failure to file the biannual report and pay the $9 fee, could bring substantial delays with regards to corporate dissolutions in NY.  In addition, there are typical requirements of submitting what is called a final tax return, followed by what is often referred to as Certificate of Dissolution.

Sources:

Business Corporation Law (BCL) 1104

 

19

The rights of minority shareholders of NY Corporations in judicial dissolutions.

A judicial dissolution of a Corporation can be characterized as it may be suggestive from its name – a dissolution that has been either approved and/or been imposed by way of the Courts.  An interesting topic of possible legal disputes, often times comes about with regards to determining the right (if any) of any minority shareholders.

Typically, a judicial dissolution may need to be evoked by a significant faction of the shareholders (albeit no majority is required).  How small or how big such a faction (depending on your perspective) would need to be with regards to petitioning for judicial dissolution – the answer would typically be around 20% of the outstanding stock shareholders.  It should be noted that in seeking such an extreme remedy, that faction would need to frame its argument on a good rationale, which may include:  fraudulent acts of the members of the Board of Directors to the detriment of shareholders, illegal acts carried by the Board of Directors, and situations involving corporate waste, misappropriation and looting.

Sources:

Business Corporation Law (BCL) 1104

 

20

Appraisal rights of shareholders in a New York Corporation.

Appraisal rights can often times be best described as the rights conferred upon shareholders, with regards to their ability to ascertain a right of dissenting, and when felt aggrieved, to have to have the right of being paid for their shares at a price that is fair (i.e. appraised value).

New York corporate law seems to placed increased emphasis with regards to protecting minority rights from oppression.  One of statutory allowed mechanism that allow for such protections, is via the right of any dissatisfied shareholder (irrespective of ownership – no minimum ownership requirement is required) to file a petition with judicial authorities (i.e. Courts) to exert its appraisal rights which may entitle shareholder to receive a fair value for its shares, that must paid in cash.

The BCL tries to strike a balance of two competing yet pivotal public policy interests, as far as setting out corporate governance regulatory provisions.  On the one hand, it encourages a democratic type governance style, where corporations can take the action that they consider beneficial.  On the other hand, the BCL provides for the appraisal rights provision, as a means of protecting the rights of shareholders who may dissent from the majority, from being oppressed.

Sources:

Business Corporation Law (BCL) 910

Business Corporation Law (BCL) 806

Business Corporation Law (BCL) 623

 

 

21

Board of Director rules with regards to numbers, election and removal in New York.

Given the vital importance (which seems to have only increased in recent decades) with regards of corporate governance played by the Board of Directors, perhaps a special focus may be merited in looking at legal rules concerning the numbers, elections and removal of Board of Directors members.

Generally, there are no numerical limitations with regards to the possible number of members that a Board of Directors have.  However, there is usually the practical (if not legal necessity) for the Board of Directors to have at least one member.

The default voting rules set out by statute, provide for a pluralistic type of corporate governance.  However, it may be possible for alternative types of corporate governance systems to be adopted, such as the adoption of cumulative voting; however, such alternative types of corporate governance would generally require to be set out in the corporate bylaws or the Certificate of Incorporation.

Sources:

Business Corporation Law (BCL) 702

Business Corporation Law (BCL) 618

Business Corporation Law (BCL) 614

Business Corporation Law (BCL) 706

 

22

Quorum and voting rules when dealing with New York Corporations.

To properly examine a corporate governance legal framework, the issues of quorum and voting would need to be studied together in unison.  Why?  Because it is particularly difficult to decipher the nuanced rules related to one without taking into account the other.  More specifically, there cannot be a proper voting without a proper quorum.

The Certificate of Incorporation and/or By-laws may set out the requirement for establishing a quorum to be anything between: one third to more than majority rule. It should be noted that either the Certificate of Incorporation or the by-laws would suffice in reducing the requirement for quorum to less than majority.  However, only the Certificate of Incorporation may fix the requirement for quorum to more than a majority.

Generally, based on statutory default provisions, if the Certificate of Incorporation and By-Laws do not contain language to the contrary, for a quorum to be established, there must be a majority of the entire board.

Sources:

Business Corporation Law (BCL) 707

Business Corporation Law (BCL) 708

Business Corporation Law (BCL) 709

 

23

The rules for NY Corporations, when dealing with director actions without a meeting.

The performance of actions by any member(s) of the Board of Directors, in absence of a proper meeting, could oftentimes be the source of lot of intercorporate litigation. Thus, statutory provisions are often said out in the State’s body of corporate laws, with the objective of trying to provide a framework for which such disputes may be avoided and/or if not avoided, then be resolved in a more harmonious manner.

The Certificate of Incorporation and/or by laws are the pivotal documents that lay out the policies regarding the internal affairs governance of the Corporation.  Hence, it follows that such documents may vary the way upon whether and/or how the actions of directors without a meeting may be decided.

However, in the absence of language contrary in either the Certificate of Incorporation and/or bylaws, the default rule is that a Board of Directors may take actions without a meeting, if all the members of the Board of Directors have consented in writing to adopt a corporate resolution authorizing such action.

Sources:                                                

Business Corporation Law (BCL) 708

 

24

What are the rules dealing with interested directors in New York Corporations?

Any time where there is an actual or perceived conflict of interest, being imputed to members of the Board of Directors, a proper examination of the underlying circumstances, internal governance privately filed documents, publicly filed governance documents with the State filing offices, and the statutory legal framework provisions may be merited.

Generally, a contractual type of a transaction entered between the Corporation and one of the members of the Board of Directors would typically be subject to being attacked as being deemed void and/or voidable.  However, there are two situations where such transaction would pass muster, despite the director being deemed interested, and even be permissible to count the presence of such interested director for purposes of establishing quorum with regards to the underlying meeting where such transaction is to decided.

One such situation involves cases where the Board of Directors knows of the potential conflict of interest, the interested director makes a good faith effort to disclose the pertinent facts revolving the possible conflict, and the board votes with a sufficient support (discounting the votes of interested director).

Another such situation arises where the contractual type of transaction is disclosed in good faith by interested director, and such transaction is approved by an adequate support from the shareholders.

Sources:

Business Corporation Law (BCL) 713

 

 

 

 

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