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Editors Note: Following are the Articles of Organization of a Massachusetts Limited Equity Co-op in a Tax Credit deal. The primary area of interest here is in share transfer; other Sections do not vary a great deal from co-op to co-op. This document is not a substitute for legal counsel, but it is a good starting point for developing Articles.

Interesting or unusual elements are discussed in sidebars.

 

 

ARTICLES OF ORGANIZATION

(CONTINUATION PAGES)

Article I is the Name, and is on the cover page provided by the State.



ARTICLE II

2. The purpose of this Corporation is to engage in the following business activities:

2.1 To provide cooperative housing facilities in perpetuity, especially for low and moderate income households who are its stockholders in a fair and non-discriminatory manner, and in that connection to (i) acquire, lease, use, operate and maintain one or more buildings located on or near (location) Massachusetts as cooperative apartments; (li) to sell, transfer, convey, lease, mortgage or otherwise dispose of same or any part thereof or any interest therein; to make such apartment units available to stockholders of this corporation for residential purposes under leases commonly known as proprietary leases (and sometimes referred to in these Articles of Organization as "Occupancy Agreements"), said proprietary leases to provide that the stockholders of this corporation shall be entitled, solely by reason of their ownership of shares of this corporation, to occupy such apartment units for residential purposes; and (iv) to acquire, own, sell, transfer or otherwise dispose of and deal in real property or any interest therein, and all activities directly and indirectly related thereto;

2.2 To support efforts aimed at the stabilization and economic development of the (location) neighborhood, as those goals are defined by neighborhood residents;

2.3 To develop tenant awareness and consciousness by promoting a high degree of tenant organization and participation;

2.4 To promote a sense of community among residents;

2.5 To assure a safe and healthy living environment;

2.6 To promote communication with other resident organizations, and build mutual support;

2.7 To borrow money and to give promissory notes, mortgages or other instruments or undertakings incidental thereof;

2.8 To act as a member or manager of any limited liability company or a limited or general partner of any partnership in furtherance of the foregoing purposes, including the partnership which owns or controls the buildings (or any of them) in which the stockholders reside (the "Partnership"); and

2.9 In furtherance of the foregoing purposes, to carry on any business or be a partner in any business permitted for a corporation organized under Chapter 157B of the General Laws of the Commonwealth of Massachusetts, as now in force or as hereafter amended.

Section 3. Restrictions on Transfer

Except as provided herein, shares of stock m the Corporation shall not be transferable and, in any event, no transfer of shares shall be made upon the books of the Corporation within a ten (10) day period immediately before the Annual Meeting of the Stockholders. For purposes of these Articles of Organization, a stockholder is sometimes referred to herein as a "member" or "Member". In all transfers of shares, the Corporation shall be entitled to a reasonable fee for services performed m connection with such transfer, as determined by the Board of Directors from time to time Other restrictions are as follows:

3.1 Death of Member

3 1 1 Membership by Member of Household. If, upon the death of a stockholder, his or her shares of stock of the Corporation pass by will or intestate distribution to a member, at least 18 years of age, of the deceased's household as defined at the time of death by the most current Occupancy Agreement, such legatee or distributee may, by assuming in writing the terms of the applicable Occupancy Agreement within sixty (60) days after the stockholder's death and paying all amounts due thereunder, become a stockholder of the Corporation.

3.1.2 Application by legatee or Distributee. If a stockholder dies and the Occupancy Agreement is not assumed in accordance with the provisions of Section 3.1.1 above, then the legatee or distributee may apply to the Corporation for membership. If the legatee or distributee is accepted for membership by the Corporation, such legatee or distributee may, by assuming in writing the terms of the applicable Occupancy Agreement within sixty (60) days after the stockholder's death and paying all amounts due thereunder, become a stockholder of the Corporation. The Corporation's consideration of such an applicant will be identical to the process used to consider other applicants.

3.1.3 If the deceased member's membership is not assumed in accordance with the provisions described in either Section 3.1.1 or Section 3.1.2 above, then the Corporation shall purchase the shares of stock from the deceased member's estate in the manner provided in Section 3.3 of this Article. If the Corporation does not exercise this option, the provisions of Section 3.4 of this Article shall apply (the reference to "stockholder" therein to be construed as a reference to the executor(s) or administrator(s) of the deceased stockholder's estate).

3.2 Intra-household Transfers: Assumption. If a stockholder desires to transfer his or her shares of stock of the Corporation to a member, at least 18 years of age, of his or her household as defined by the most current Occupancy Agreement, such transferee may, by assuming in writing the terms of the applicable Occupancy Agreement and paying all amounts due thereunder, become a stockholder of the Corporation.

3.3 Purchase Options in Favor of Corporation. Any transfer of stock to a proposed transferee other than those described in Sections 3.1 and 3.2 above shall be made in accordance with the provisions of this Section 3.3 and Section 3.4 below.

3.3.1 Corporation's Option. The Corporation shall have an option to purchase stock exercisable (i) within a period of thirty (30) days following the failure of a legatee or distributee to become a stockholder in accordance with and within the time periods prescribed under Sections 3.1.1 or 3.1.2 above, or (ii) within a period of thirty (30) days after receiving written notice from a living stockholder that such stockholder wishes to transfer shares of stock other than to an eligible member of his or her household, by notifying the transferring stockholder or transferee or distributee as applicable as to whether the Corporation wishes to purchase such stock or waives its option to purchase.

3.3.2 Exercise of Option. If the Corporation elects to purchase the stock within the applicable time period set forth above, it shall tender the purchase price (described below) within sixty (60) days following its notice to the transferring stockholder of its intent to purchase. The purchase price for the stock shall be the "Transfer Value" as defined in Section 3.7 below, less any amounts owed by the stockholder to the Corporation under the Occupancy Agreement and less the cost or estimated cost of repairs and replacements as are deemed necessary by the Corporation to restore the applicable dwelling unit to as good condition as the stockholder received it, reasonable wear and tear excepted.

3.3.3 Termination of Stockholder Rights. The purchase by the Corporation of such stock pursuant to this Section 3.3 will immediately terminate the rights of the stockholder under these Articles of Organization, the By-Laws and the Occupancy Agreement and the stockholder shall forthwith vacate such dwelling unit unless the stockholder has entered into a rental agreement with the Corporation for occupancy of such unit.

3.4 Procedure where Corporation Does Not Exercise Option. If the shares of stock are not purchased by the Corporation within the applicable time period described above, the stockholder may sell or transfer his or her shares for not more than the Transfer Value, as hereinafter defined, only after the following have occurred:

(i) the Corporation waives in writing its rights to purchase the stock under the foregoing option (failure to exercise such option within thirty (30) days of receipt of the written notice of the proposed transfer in the case of a voluntary transfer by a living stockholder, or within thirty (30) days following expiration of the time periods specified in Sections 3.1.1 or 3.1.2 for purchase by a legatee or distributee, being deemed a waiver, and

(i) the Corporation has approved the transferee named in the stockholder's notice to the Corporation in accordance with the By-Laws, with consideration given to the transferee's household income and whether it is consistent with goals the Corporation or an applicable subsidizing agency might have that relate to the overall income profile of members;

(ii) the transferee has executed an Occupancy Agreement and other papers related thereto in the form or forms then being used by the Corporation; and

(iii)If the Corporation agrees, at the request of the stockholder, to assist the stockholder in finding a purchaser, the Corporation shall be entitled to charge the stockholder a fee it deems reasonable for this service.

3.5 Release from Obligations. A shareholder who has given notice to sell his or her stock as described in Section 3.3 above, and who has vacated his or her unit within sixty (60) days following such notice; shall not be responsible for paying carrying charges that accrue following such sixty (60) day notice period, regardless of whether the Corporation has repurchased the shareholder's shares.

3.6 No Transfer by Stockholder. If a stockholder having given notice of an intent to transfer stock does not transfer his or her stock within sixty days from the satisfaction of the conditions specified in Section 3.4 above, then the stockholder's right to transfer his or her shares pursuant to Section 3.4 shall terminate and the provisions of this Article S with respect to future transfers, including the Corporation's right to purchase such shares shall once again apply.

There are many ways to set Transfer Value formulas. Accumulating interest as invested (as set forth here) is preferable to indexing the value to inflation, because it avoids creating a cash drain for the co-op. Other bylaws include provisions for augmenting value according to improvements in the unit. This can work, provided that provisions are made for the fact that improvements can depreciate in value over time.
     Some co-ops also add provisions for appreciation as the co-op mortgage is amortized, but this is not recommended as it creates a need for the co-op to raise large sums of money to repurchase shares.

3 7 Transfer value. No stock may be sold or otherwise transferred for consideration greater than the consideration paid for the stock by the transferor as shown on the books of the Corporation increased (except as otherwise provided in this Section 3.7) by whatever interest the stock's purchase price has accrued as invested by the Corporation, commencing with the date of the payment in full for the stock by the purchaser (the "Transfer Value"). A certification by an officer of the Corporation as to the Transfer Value of any stock (including both the statement as to the original consideration paid and the interest accrued thereon as invested by the Corporation) shall be binding on the Corporation and on any transferor or transferee.

3.7.1 Member for Less than One Year. In the event of a transfer of stock by a stockholder who was a member of the Corporation for less than one year, the stock may not be sold or otherwise transferred for consideration greater than the consideration paid for the stock by the transferor as shown on the books of the Corporation, and the Transfer Value shall not include any interest accrued on the original stock purchase price.

3.7.2 Sale by Corporation. After the Corporation repurchases stock from a departing shareholder, the Transfer Value shall revert to its original value when sold by the Corporation to the first holder of that stock.

3.8 No Transfers in Violation. The Corporation shall not be required to transfer any shares of stock on its books which shall have been sold, assigned, or otherwise transferred (including transfers by operation of law) in violation of the foregoing provisions or in violation of the provisions of the By-Laws or to treat the transferee as owner, or to permit any such holder of shares transferred to occupy any dwelling unit owned by the Corporation. From and after any sale, assignment or transfer of any shares of stock made in violation of these provisions, the Corporation shall be deemed to be the owner of such shares of stock, subject to the rights of any former holder thereof to receive reasonable compensation therefor.

3.9 Transfer on Books. Subject to the restrictions in this Article V and as stated or noted on the stock certificates, shares of stock may be transferred upon the books of the Corporation by the surrender to the Corporation of the certificate there for properly endorsed or accompanied by a written stock transfer power properly executed, with any necessary transfer stamps affixed, and with such proof of the authenticity of signature as the directors of the Corporation may reasonably require. Except as may be otherwise required by law, by these Articles, or by the Bylaws of the Corporation, the Corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the right to receive notice and to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock until the shares have been transferred on the books of the Corporation in accordance with the requirements of these Articles.

3 10 In approving transferees pursuant to Section 3.4 above, the Corporation shall not discriminate on the basis of race, ethnicity, national origin, religion, disability, gender, family or marital status, sexual preference, or any other factor prohibited by applicable federal, state, or local statute or regulation or by policy of the City of Boston or the Secretary of Housing and Urban Development.

3.11 Notices and elections with respect to the transfer of stock or the option held by the Corporation under this Article V shall be in writing and shall be delivered or sent by registered or certified mail, postage prepaid, if to the Corporation, at its principal place of business and if to any stockholder, at the address then listed in the stock transfer records of the Corporation. Notices regarding any other matter, such as notices of meetings of the stockholders, may be given in any manner permitted under the By-Laws of the Corporation.

3.12 Termination of Membership for Cause. As a qualification of stock ownership, each stockholder shall sign an Occupancy Agreement with the Partnership. The Occupancy Agreement shall entitle the stockholder to occupancy rights in the dwelling unit to which the shares pertain. If the Partnership has terminated a stockholder's rights under the terms of the Occupancy Agreement, the stockholder shall deliver immediately to the Corporation his or her stock certificate or certificates and the Occupancy Agreement, each endorsed as the Corporation may direct. The Corporation shall repurchase the stock at its Transfer Value (as hereinabove defined). The selling stockholder shall be entitled to net proceeds of such sale after deduction oft

(i) any amounts due the Corporation from the stockholder under the Occupancy Agreement;

(ii) the cost or estimated cost of repairs and replacements as are deemed necessary by the Corporation to as good condition as the stockholder received it, reasonable wear and tear excepted;

(iii) legal and other expenses incurred by the Corporation in connection with the default of such stockholder and the resale of stock.

3.13 Exercise of Rights of Corporation. The Corporation shall be deemed to have exercised its right to purchase stock pursuant to Section 3.3 and Section 3.12 above by tendering the Transfer Value of such stock to the transferring stockholder, regardless of whether such tender is actually accepted by the transferring stockholder (subject to the rights of such stockholder to receive such Transfer Value). After such tender is made, the Corporation shall be entitled to cancel the stock certificate issued to such transferor or stockholder on its books and to issue a new stock certificate in the name of the Corporation, which shall then be treated as the record holder of stock as shown on its books.

 

ARTICLE IV

4. The other lawful provisions for the conduct and regulation of business and affairs of the Corporation, for its voluntary dissolution, or for limiting, defining or regulating the powers of the Corporation, or of its directors or stockholders, or any class of stockholders, are set forth in this Article VI.

4 1 Equity Contributions. The Corporation shall not spend amounts received from stockholders in consideration of their purchase of shares of capital stock of the Corporation. The Corporation shall maintain such amounts in one or more federally insured mterest bearing savings accounts with one or more reputable commercial banks or in one or more money market funds investing exclusively in obligations of the United States Government with one or more reputable financial institutions.

4.2 Meetings. Meetings of the stockholders of the Corporation shall be held at the development's community building or any other convenient location in Massachusetts as determined by the Board of Directors from time to time.

4 3 Acting as Partner. The Corporation may be a general or limited partner in any business enterprise it would have power to conduct by itself, including the Partnership.

4 4 Indemnification. The Corporation may provide, either in the Corporation's By- Laws or by contract, for the indemnification of directors, officers, employees and agents, by whomever elected or appointed, to the fullest extent presently permitted by law, provided, however, that if applicable law is hereafter modified to permit indemnification in situations where it was not theretofore permitted, then such indemnification may be permitted to the fullest extent permitted by such law as amended.

4.5 Transactions with Interested Persons. The By-Laws may contain provisions providing that no contract or transaction of the Corporation shall be void or voidable by reason of the fact that any officer, director or stockholder of the Corporation may have held an interest therein, provided that such transactions must be disclosed and approved by the independent members of the Board of Directors.

4.6 Division of Directors Into Classes. The By-Laws may contain provisions providing for the division of directors into not more than five classes and prescribe the tenure of office of the directors in each of the classes.

4.7 Repurchase by Corporation. The Corporation may from time to time offer to purchase shares from any stockholder of the Corporation upon fair and reasonable terms and at the Transfer Value specified in Section 5.7, without offering to any other stockholder an equal opportunity to sell a ratable number, or any, of his shares of stock in the Corporation to the Corporation upon comparable terms or at a comparable price, or to make any offer to purchase whatsoever to other stockholders of the Corporation.

4.8 Elimination of Directors' Personal Liability. No director shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director notwithstanding any provision law imposing such liability; provided, however, that this provision shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under section sixty-one or sixty-two of Chapter 156B of the Massachusetts General Laws, or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this paragraph shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to the date of such amendment or repeal. Each director and officer of the Corporation shall, in the performance of his or her duties, be fully protected in relying in good faith upon the books of account of the Corporation. reports to the Corporation by its officers or employees or by counsel, accountants, appraisers or other experts or consultants selected with reasonable care by the directors, or upon other records of the Corporation.

4.9 Sale. Mortgage. fledge. lease or Exchange of Property or Assets. Unless a greater proportion is required by law, the affirmative vote of at least eighty percent (80%) of the stockholders entitled to vote shall be required to approve the sale, long- term lease or exchange of all or substantially all of the Corporation's property or assets; provided that no such approval shall be required for any mortgage. pledge, or financing of such property or assets. In the event that such a decision is to come before a stockholder meeting, two statements approved by the Board, one representing opinion in favor of the decision and one opposed to the decision, shall be distributed with the notice for the meeting.

4.10 Amendment of Articles of Organization. Unless otherwise required by law, a vote of sixty-seven percent (67%) of the stockholders entitled to vote shall be required to amend these Articles of Organization; provided that any change that impairs or diminishes the preference voting powers, restrictions (including restrictions on transfer), qualifications, special or relative rights or privileges of any outstanding shares, or any amendment to any one or more of Section 4.9 or to this section shall require approval of eighty-percent (80%) of the stockholders entitled to vote. In the event that a decision requiring such eighty percent (80%) supermajorities is to come before a stockholder meeting, two statements approved by the Board, one representing opinion in favor of the decision and one opposed to the decision, shall be distributed with the notice for the meeting.

Amendments may be proposed by the Board of Directors or by petition signed by at least ten percent (10%) of the members and non-member heads of households renting units from the cooperative.

4 11 Tax matters Paid in surplus in excess of par value and capital improvements shall not be deemed to be income to the Corporation.

 

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Revised: October 02, 2003.

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