Relates to authorized and unissued shares of bank, trust company and investment company stock and changes the presumption as to preemptive rights of shareholders

Summary of provisions

Section 1 of the bill would amend Banking Law § 4001 to allow banks, trust companies, stock-form savings banks, savings and loan associ- ations, safe deposit companies and investment companies to have author- ized but unissued shares. In particular, this section of the bill would allow such institutions to have authorized shares sufficient to meet expected needs of any initial offering or such other amount as permitted by the Banking Board.

Section 2 of the bill would amend Banking Law § 6021 to change the presumption regarding shareholder preemptive rights currently in the Banking Law to conform it to the Business Corporation Law. Pursuant to these amendments, shareholders in corporations chartered under the Bank- ing Law after the effective date of these amendments would only have preemptive rights if provided for in the organization certificate.

The shareholders of a banking corporation whose organization certificate was approved prior to the effective date of the amendments will, unless the corporation amends such certificate, or unless another exception applies, continue to have preemptive rights if there is an issuance of equity shares or securities convertible into equity shares that would adversely affect the shareholders' unlimited dividend rights under Bank- ing Law § 6021(3 )(a) or voting rights under Banking law § 6021(3)(b).

Section 3 of the bill would provide for an immediate effective date.

Existing law

Banking Law § 4001 currently provides that the organization certificate for corporations chartered under the Banking Law must set forth the amount of the corporation's capital stock. Because the term "capital stock" is defined as outstanding shares, the Banking Department has interpreted this section to prohibit authorized but unissued shares,

except for shares to be issued upon the exercise or conversion of outstanding stock options or securities convertible into common stock.

In practice, this restriction means that a corporation would have to obtain approval of its shareholders to issue additional capital stock, even when additional capital is required by bank regulators. This is sometimes a time-consuming exercise. Similar restrictions do not apply to federally chartered banking corporations or to bank holding companies chartered under New York or Delaware law.

Banking Law § 6021 currently states that unless provided for to the contrary in the organization certificate, shareholders in corporations chartered under the Banking Law have preemptive rights with respect to additional equity offerings by the corporation. This means that in the event of an additional equity offering by the corporation, existing shareholders have the right to purchase within a specified time period additional securities in the corporation so as to maintain their respec- tive proportionate share interests.

Legislative history

This is a new bill.

Statement in support

The amendments that would be made in this bill are intended to make the capital raising efforts of newly organized and continuing by banking corporations more flexible. The proposed amendments to Banking Law 4001 address the problems arising from the need to specifically identify the amount of capita] stock that a corporation would have outstanding after its organization. Often, corporations cannot accurately estimate the amount of shares that will be sold or cannot quickly respond to capita] raising opportunities.

It would be much more efficient if corporations could have as author- ized, but unissued shares, some portion of their capita] stock. This would avoid the requirement otherwise set forth in the Banking Law that a corporation must obtain shareholder approval of any amendment to the corporation's organization certificate to issue additional capital. Such authorized but unissued capital stock would be set at amounts equal to that which the corporation expects to issue at its first public offering or such other amounts as would be established by the Banking Board.

The proposed amendments to Banking Law § 6021 likewise are intended to make management of the corporation's capital needs more flexible. The current law reflects a time period when most banking corporations were owned by a relatively few individuals. Such shareholders naturally want- ed to maintain their relative ownership interests in the corporation's capital structure.

In contrast, the shares of most banking corporations are today widely held, either directly or through a holding company structure. There-

fore, the need to maintain shareholder preemptive rights is no longer a significant issue. This amendment also is inconsistent with changes in corporate law that have occurred in recent years.

Budget implications

This bill would not have an impact on state finances.

Effective date

This bill would take effect immediately.