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Information and Procedure for the Organization of an Investment Company under Article XII of the New York Banking Law

Please refer to the Department's Application Fee Schedule to determine the proper fee for the application being filed.


The purpose of this outline is to give prospective incorporators an idea of the scope of subjects to be considered in evaluating the merits of a proposal to charter an investment company under Article XII of the New York Banking Law. Among the areas which must be addressed by the organizing group are the following:

1. Name of Institution: A suitable name should be selected.

2. Incorporators/Directors: Number, names, occupations, business interests, approximate financial worth, standing in the community, character and fitness to serve on the Board of Directors and its various committees. Incorporators should be aware that they:

a) will be subject to an investigation;
b) will be asked to submit a questionnaire, a financial report, a litigation affidavit, an investigative report, and fingerprints;
c) may be asked to attend a conference with Department representatives; and
d) will be required to assume legal and other responsibilities upon becoming directors.

3. Type of Business:

a) Description of the type of business to be undertaken;
b) Size and characteristics of the market to be served; and
c) Reasons for failure of existing institutions to service the market.

4. Public Convenience and Advantage: The manner in which the establishment of the investment company would enhance public convenience and advantage.

5. Competitive Impact: The likely impact of the proposed investment company on the financial institutions located in the target market area.

6. Proposed Site

a) Where the institution will be located;
b) Availability;
c) Advantages of purchasing or leasing the site;
d) Cost of developing the site as a banking office; cost of improvements, furniture, fixtures and equipment; the relation of these costs to the proposed capital funds; and
e) Whether any incorporator, director, or major shareholder has any interest in the proposed site.

7. Capital Funds

a) Adequacy: To determine the amount of capital initially needed to support the operation of a new institution, it will be necessary to consider the proposed business plan as well as develop projections on the volume of business that may be expected. The ability of the incorporators to raise additional capital as needed should also be considered. The investment in fixed assets should represent only a small percentage of total capital funds.

b) Shares and Distribution: The number of shares, their par value and subscription price, adequacy of surplus to absorb pre-opening costs and operating losses in the initial years, and the amount of stock to be purchased by the incorporators and directors and any known large investors.

8. Management Team

Candidate for the Chief Executive Officer of the institution; resume of his/her education, experience and general knowledge of the type of business contemplated; probable salary; stock participation; etc. For this position, the Department will only consider an individual who has extensive experience in the type of business to be conducted by the investment company. He/she should be available for an interview with the Department.

Top management personnel should also have substantial experience in the type of business contemplated. At least one member of senior management, preferably the proposed Chief Executive Officer, should be prepared to devote full time to the operation of the investment company.

9. Name of Representative

The organizers must select an individual who will be responsible for submitting all material to the Department, and will have authority to discuss all aspects of the submission in detail (including, but not limited to, personal questionnaires, litigation affidavits, financial statements, and investigative reports) and respond to requests for additional information.

Before the formal application process begins, a meeting with the appropriate Department staff will be held to discuss the proposal.

If the organizers decide to proceed with the formation of the institution, it is recommended that the group’s representative gather and develop all economic and financial data outlined in the form a Certificate of Merit.

Some of the applicable sections of the Banking Law are Sections 23, 24, 25, 1003, 4001, 4003, 4004, 4005, 7001 and 7002.

The steps involved in organizing an investment company follow:

  1. Execution by the incorporators of an Organization Certificate (Section 4001).
  2. Submission to the Superintendent of the Organization Certificate executed in duplicate originals (Section 4003) accompanied by the following documents:
    1. a) Certificate of Merit (in quadruplicate) including personal data on each incorporator, director and major shareholder (owner of 5% or more of the proposed investment company's capital stock);
      b) Investigation fee [please refer to the Department's Application Fee Schedule];
      c) Certificate of Compliance with Section 296-a of the Executive Law of the State of New York;
      d) Copy of lease or option on the proposed site.
  3. Filing of Organization Certificate for examination by the Superintendent (Section 23).
  4. Investigation of incorporators/directors and major shareholders by the Superintendent; refusal of Organization Certificate or presentation of Organization Certificate to ASuperintendent for approval (Section 23).
  5. Conditional approval by the Superintendent.
  6. Commencement of solicitation of subscriptions for shares of stock of the proposed investment company, via an Offering Circular or Private Placement Memorandum.
  7. Payment of Organization Tax in accordance with Section 180 of the Tax Law.
  8. Filing by the Superintendent of the Organization Certificate when conditions have been satisfied (Section 24).
  9. Beginning of corporate existence, but entity is not yet an investment company (Section 4004).
  10. Meeting of the incorporators and adoption of by-laws (Section 4005); first meeting of the Board of Directors; submission of certified copies of the minutes of these meetings.
  11. Filing of Affidavit of Payment of Capital Stock in the office of the Superintendent (Section 4004).
  12. Upon receipt and clearance of the above and other required items, issuance of an Authorization Certificate by the Superintendent and the filing of duplicate originals thereof (Section 25).

CERTIFICATE OF MERIT
Brochure of Economic and Financial Data In Support of an Application to Establish an Investment Company under Article XII of the New York Banking Law

Listed below is the information required for the Superintendent to assess the merits of an application to establish an investment company.

It is incumbent upon the applicant to provide complete and reliable information and to supplement the information requested with any additional data deemed relevant or material to the application. It may also be necessary to require additional information from the applicant during the application analysis process.

In accordance with Supervisory Procedure G-106, the entire application and all supporting material are available for public inspection except for confidential material. If the applicant believes that the public availability or disclosure of certain information requested in the brochure would be clearly harmful, such information should be segregated from the public portion and labeled "Confidential." The applicant should also state the reasons for any request for confidentiality.

I. Rationale for Establishment of the Proposed Investment Company

Discuss the events leading to the preliminary talks with the Department staff. Include the incorporators' motives and aspirations for desiring to organize an investment company.

II. Name of Proposed Investment Company

Reasons for selection of name.

III. Market Analysis

  1. Define the community or market from which the majority of the business of the proposed investment company is expected to be derived.
  2. Discuss present and possible future economic trends which might have an impact on the proposed investment company.
  3. Explain the strategies to be followed to capture an adequate share of the target market.

IV. Public Convenience and Advantage

  1. Discuss the products and services to be offered, and the anticipated hours of operation. If the proposed investment company is to be a subsidiary of an existing corporation, indicate the services which the investment company will be able to offer that the parent or any affiliates can not.
  2. Describe the clientele to be served.
  3. Describe how the establishment of the investment company will enhance public convenience and advantage.
  4. Discuss the likely impact, if any, of the investment company upon all financial institutions now serving the target market.

V. Premises

  1. Describe in detail the proposed or altered building and plot plan. To illustrate further, furnish copy of plot plan, interior layout and artist's or architect's sketch of exterior. If parking is involved, give details: area, size, location and number of parking spaces available for bank customers.
  2. Furnish a copy of the conditional lease or option to lease or purchase the property. The option or conditional lease should contain a renewable clause. No lease for the proposed premises may contain a clause prohibiting the landlord from renting space to another banking institution.
  3. Give a summary of rental terms by years, together with renewal options, if property is to be leased. In the case of an option to purchase, give a summary of its terms.
  4. State whether any incorporator, director or major shareholder has any interest, direct or  indirect, in the proposed site or in the construction of the premises, and describe fully the nature of such interest. Submit documentation demonstrating that any agreement involving such individual is at fair market value.
  5. List all development costs (i.e., improvements, alterations, furniture, fixtures, equipment, etc.) that will be incurred in preparing the site as a banking office.
  6. Establishment does not conflict with any of the provisions of the New York State Historic Preservation Act.

VI. Capitalization

Give number of shares, par value, subscription price, and allocation of capital funds to capital stock and surplus.  Per Department policy, at least one-third of total capital must be allocated to capital stock.  Also, the par value of the capital stock must be at least $1.00.

(NOTE: Department policy does not permit authorized but unissued shares, options, or warrants for new investment companies.)

1. Capital Adequacy

Give reasons for believing that: (a) total capital funds will be adequate; (b) surplus will be ample to absorb all start-up costs and operating losses in the initial years; and (c) additional capital funds can and will be raised if needed.

2. Distribution of Capital Stock

List all known subscribers to the capital stock of the investment company, giving name, place of residence, and number of shares to be subscribed.

(IMPORTANT: If the proposed investment company's stock is to be sold through a public or private offering, solicitation for stock subscriptions may not be made until (1) the Organization Certificate has been conditionally approved by the Superintendent, and (2) the Offering Circular/Private Placement Memorandum, Subscription Agreement, and Escrow Agreement have been reviewed and found acceptable by the Department.)

VII. Incorporators, Directors and Major Stockholders

  1. Discuss the diversity and quality of experience which each prospective incorporator and director has in banking and/or business. If any incorporator or director has been involved in any business which will be undertaken, or taken over, by the proposed bank, annual reports of such businesses for the past three years should be included.
  2. The members of the Board of Directors should be allocated to the respective committees to show that their experience is well fitted to the respective duties of the committees. Where possible, we would not expect to see a director, except the President, on more than one committee. However, no director who is an operating officer of the bank may be a member of the Examining Committee. Discuss any plans to pay fees to the directors.
  3. Each incorporator, each director, and each major shareholder owning or controlling 10% or more of the proposed bank’s capital stock must submit: (a)a questionnaire (on Department form); (b)a litigation affidavit (on Department form); (c) a financial report (on Department form); (d) fingerprints (see Fingerprinting Procedures) ; and (e) an explanation of the source of funds for his/her intended stock purchase.
  4. NOTE: If an individual's ownership interest constitutes statutory control (10% or more of the proposed bank’s capital stock), C.P.A. prepared and reviewed financial statements, in accordance with Section 117.5(k) of Supervisory Procedure CB 117, will be required in lieu of the financial report mentioned in (c) above

  5. In addition, a personal investigative report on each of the above-mentioned persons must be developed by a licensed private investigator and sent directly to the Department by the private investigator. It is incumbent upon those individuals or their representative to advise the licensed private investigator selected that they must be subject to the broadest possible background investigation. In this regard, the portion of the investigation involving the access of public records should include, but not be limited to, contact with the following sources: (a) U.S. District Court, (b) U.S. Bankruptcy Court, (c) State Supreme Court, (d) local Criminal Court, (e) local Civil Court, (f) County Clerk's office, (g) Federal tax lien files, (h) Uniform Commercial Code files, (i) Department of Motor Vehicles, (j) a credit reporting agency, (k) a national news database network, and, where applicable (l) regulatory/administrative agencies and (m) professional licensing agencies. These sources should be contacted in and around all jurisdictions in which the subject of the investigation has resided and been employed for at least the past ten years. A copy of a credit report from a major credit reporting agency should be included with the personal investigative report. It is also expected that the personal background information contained in each individual's questionnaire will be verified, and that references will be interviewed.
  6. Each major shareholder who owns or controls at least 5% but less than 10% of the proposed bank’s capital stock is required to submit fingerprints (see Fingerprinting Procedures).
  7. In addition to the above individuals, the Superintendent reserves the right to require fingerprints and/or any additional background information from any person involved in the proposal.
  8. Counsel should submit a letter stating that the proposed directors are eligible locally to serve on the Board under the provisions of the Laws of New York and the United States, including Canon 4D(3) of the Code of Judicial Conduct, Appending to New York Judiciary Law, and 12 U.S. Code §§3201-3208, the Depository Institution Management Interlocks Act, as amended, and regulations thereunder.

VIII. Chief Executive Officer and Official Staff

In addition to the questionnaire and litigation affidavit, a resume for the prospective CEO, giving his/her education, experience, age, community and social interests, other qualifications, availability, and present salary is required. Give the views of the incorporators on their choice for the CEO and outline any arrangements made to secure his/her services. Provide a copy of his/her proposed employment contract, if any.

Resumes, questionnaires, litigation affidavits and employment contracts, if any, for the remainder of the proposed management team should be submitted.

IX. Staff

Plans to recruit the remaining members of the staff should be set forth in detail, including the number, salary, fringe benefits, etc.

X. Organization Chart

Show how the investment company will be organized and operated, and indicate how much time each member of the proposed management team intends to devote to the trust company. Also, provide an organization chart showing all direct and indirect reporting lines to all board committees including audit, compliance and BSA (Bank Secrecy Act).

XI. Fidelity Insurance

Type, amount and annual costs of insurance. The statement should be supported by a letter from a qualified insurance agent on bank protection. A Financial Institutions Bond, Type 24, would be acceptable. Minimum primary coverage of $1,000,000 is required (a deductible of $25,000 or $50,000 is advisable). If the investment company is to be covered by a policy in place for a parent corporation, and such policy has a high deductible in relation to the capital funds of the investment company, then the parent must provide assurances that losses incurred by the investment company below the deductible will be covered.

XII. Internal Audit and Control

Give plans for safeguarding assets and operations, i.e., development of adequate internal controls, full time auditor, periodic CPA audits, etc.

XIII. Compliance with Bank Secrecy Act Anti-Money Laundering Programs

The prospective investment company must establish policies and procedures designed to ensure and monitor compliance with the Bank Secrecy Act (BSA)  as amended by the USA PATRIOT Act and the anti-money laundering programs of Part 115 of the General Regulations. A compliance program must include, at a minimum, a system of internal controls to assure ongoing compliance, independent testing for compliance to be conducted by bank personnel or by an outside party, the designation of an individual or individuals responsible for coordinating and monitoring day-to-day compliance, and training for appropriate personnel.

XIV. Electronic Data Processing Service

If off-premises electronic data processing services are to be used, provide copies of any electronic data processing agreements that have been executed. The contract must include provision for examination of the facility by the Department. If the proposed investment company intends to purchase or lease the equipment, include cost of purchase and/or maintenance and the qualifications of personnel who will be responsible for its operation.

XV. Counsel for the Proposed Investment Company

Give name and address. Will counsel receive a retainer?

XVI. Organizational Fees and Expenses

List all anticipated fees and expenses which will be incurred in connection with the organization of the investment company. State separately the expenses of raising capital.

The funds for such fees and expenses must be provided by the incorporators and may not be deducted from subscriptions for the authorized shares of capital stock. If an Authorization Certificate is issued, the incorporators may be reimbursed by the investment company

for organization fees and expenses determined to be reasonable and proper. Such reimbursement may only occur after submission to the Department of an audit of such expenses by an independent C.P.A., and the receipt of specific written permission from the Superintendent.

(IMPORTANT: In no event shall the amount or payment of any fee be contingent upon any action, decision, or forbearance on the part of the Department.)

XVII. Estimated Assets and Liabilities, Income and Expenses

Furnish pro forma income and expense statements, balance sheets, and cash flow statements. The data should reflect the volume and type of business to be conducted during the first three years of operations.

XVIII. Description of Parent Organization

If the proposed investment company is to be a subsidiary of another corporation, the following additional information concerning the ultimate control party should be included:

  1. A description of the type of business conducted;
  2. A discussion of its ownership and management, including whether there are any entities which have ownership interests of 5% or more; and
  3. Financial statements for the past three years.

(NOTE: If the parent of the proposed investment company is a foreign banking corporation, additional information will be required.)