Court Opinion

ID: 3573839
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:27:01.020718+00
Date Added: 2024-06-11T09:21:52.419217
License: Public Domain

Hon. Richard A. Kahan President New York State Urban Development Corporation
Your Vice President, Legal, has advised us that the Economic Development Administration of the United States Department of Commerce has requested an opinion as to whether your incorporation of a subsidiary under the Business Corporation Law rather than the Not-For-Profit Corporation Law alters the subsidiary's status as a public entity. The Economic Development Administration's regulations governing urban revitalization grants require that the recipient be a public entity. As explained below, a subsidiary corporation of the New York State Urban Development Corporation (Corporation) incorporated under the Business Corporation Law remains a public entity.
The Corporation has the power to accept grants from a federal governmental agency (Unconsolidated Laws, § 6255 [25]) and to create subsidiaries (id., § 6255 [8]) which have the powers of the Corporation (id., § 6262 [1]). These subsidiaries may incorporate as not-for-profit corporations (id., § 6262 [1]) if they are not formed for pecuniary profit (Not-For-Profit Corporation Law, §§ 102, subd [a], par [5], 201, subd [a]), or as business corporations for any lawful purpose not otherwise prohibited (Business Corporation Law, § 201, subd [a]).
Not-for-profit corporations may not distribute profits to members (Not-For-Profit Corporation Law, §§ 508, 515), whereas business corporations may distribute part or all of the profits to shareholders (Business Corporation Law, § 510). However, a Corporation subsidiary incorporated as a business corporation may not pay profits to anyone other than the State of New York or its instrumentalities. Neither the Corporation nor its subsidiaries are authorized to permit private ownership of stock in those corporations, which are corporate governmental agencies (id., § 6254 [1]); participation of the investing public is limited to the purchase of bonds and notes (id.,
§ 6252, fifth unnumbered paragraph). Not only is there no provision for distribution of corporate assets to private interests, but upon termination of the Corporation, all its properties belong to the State (id., § 6254 [9]).
There are any number of reasons for you to have taken the business corporation route, from avoiding technical legal requirements applicable to not-for-profit corporations to a desire to obtain profits, if any, as they become available in order to use the funds for other public purposes for which you were established. Under all circumstances, your "business corporation" remains a public entity in the sense that the people of the State of New York and not private parties, benefit from the operation of the subsidiary.