N.Y. Not-for-Profit Corporation Law § 506: Bonds and security interests

§ 506. Bonds and security interests.

(a) No corporation shall issue bonds except for money or other

property, tangible or intangible, or labor or services actually received

by or performed for the corporation or for its benefit or in its

formation or reorganization, or a combination thereof. In the absence of

fraud in the transaction, the judgment of the board as to the value of

the consideration received by the corporation shall be conclusive.

(b) A corporation may pay reasonable interest on its bonds, may issue

its bonds at a reasonable discount and may pay a reasonable premium for

the redemption thereof prior to maturity, but the holders of its bonds

shall not be entitled at any time to receive any part of the income or

profit of the corporation nor at maturity to receive more than the

principal sum thereof plus interest due and accrued thereon. In the

absence of fraud in the transaction, the judgment of the board as to the

reasonableness of any such interest, discount or premium shall be

conclusive. However, with respect to bonds not a part of a public

offering, notwithstanding the terms of the instrument, no member of a

corporation shall be entitled to receive, directly or indirectly, as a

holder or beneficiary of such bond, prior to maturity or redemption,

more than simple interest thereon at a rate equal to the higher of (1)

the maximum interest authorized pursuant to section 5-501 of the general

obligations law or (2) one percent over the prime rate of interest

generally prevailing on the interest due date in the Federal Reserve

District of New York, nor at maturity or redemption, more than the

principal sum thereof plus any interest, not exceeding the maximum

interest herein specified, due and accrued thereon.

(c) A corporation may, in its certificate of incorporation or by-laws,

confer upon the holders of any bonds issued or to be issued by the

corporation, rights to inspect the corporate books and records and, upon

default of interest or principal, to vote in the election of directors.

The certificate of incorporation or the by-laws may apportion the number

of votes that may be cast with respect to bonds on the basis of the

amount of bonds held.

(d) The board may authorize any mortgage or pledge of, or the creation

of a security interest in, all or any part of the corporation's personal

property, or any interest therein. Unless the certificate of

incorporation provides otherwise, no vote or consent of the members

shall be required to approve such action by the board.