Knowing Your Governing Documents

By Randall A. Pentiuk

        The governing documents of your cooperative are the tools of corporate control. They set the ground rules within which the members and board must operate. They are the standards by which courts will judge issues. Ignorance of them and how they work among themselves will leave you defenseless to those who do know how to use them. It is the difference between winning and losing.

        Here, we provide a survey of the governing documents of the Cooperative. It is not as simple as one would expect. The governing documents include what you normally think: the articles of incorporation and bylaws. But it is really much more expansive than that; to fully understand your governing documents, you need to recognize that there is a much larger universe of documents which govern the cooperative. This list is an attempt to alert you to the general contours of the universe of documents but it is not exhaustive.

A. The Cooperative’s Own Documents

        The Articles of Incorporation is a document filed with the State and is, therefore, a public document. It is usually broad and general. It can be amended by the members only, once the corporation has been formed. Important clauses include the purpose of the corporation; the amendment procedure and provisions regarding the board of directors.

        Bylaws is a document that is not filed with the State. HUD should have the bylaws. Under the Regulatory Agreement, HUD is to approve them. They are usually detailed and descriptive. They can be amended by the members only. Important clauses include what constitutes quorum for meetings of the members and the board; authority of board; amendment procedure; and who can call a special meeting of the members.

        Board Policies, while not generally recognized as a governing document are, nevertheless, significant. They are not filed with the State or HUD. They are adopted and amended by the board. While relatively easy to change, if ignored it can create a basis for overturning an inconsistent board decision. For instance, a poorly written policy on fines and rule violations may cause a judge to become confused as to how or even whether a board can evict a member.

B. HUD Environment

        There is a Regulatory Agreement when the cooperative has received a HUD-backed loan or other form of assistance. This constitutes a contract between the cooperative and HUD. It is not filed with the State. It limits the authority of the board on a wide range of matters, including the need to get HUD’s approval to sue. It even allows HUD to remove the board. It exists while original HUD-insured mortgage in effect coupled with the Regulatory Agreement is the HUD Handbook. It is incorporated through the Regulatory Agreement and may be amended by HUD. It expires to be relevant when Regulatory Agreement ends.

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