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


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.


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 General Obligations Law § 5-501 (Rate of interest)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.


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.


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.

Source: Section 506 — Bonds and security interests, https://www.­nysenate.­gov/legislation/laws/NPC/506 (updated Sep. 22, 2014; accessed Jun. 15, 2024).

Jun. 15, 2024

Last modified:
Sep. 22, 2014

§ 506’s source at nysenate​.gov

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