To Incorporate, or Not to Incorporate

I attended and audited the M203 course today, and during breaks talked to two different community managers, each of whom had recently spoken to two different lawyers, and both of whom were led to believe that the incorporation of associations had become undesirable, in light of the Park West v. Deppe case.

I hope to get those two lawyers to confirm or deny these understandings, (and perhaps to start a lively e-dialogue on the subject), but for now, I assure you that I continue to recommend the incorporation of community associations.

A Good Summary of the Utah Nonprofit Act

One of the initial recommendations that I make to all associations is that they register themselves as nonprofit corporations. There are lots of reasons for that recommendation, that I've mentioned before (and will undoubtedly mention again).

In the interim, I just ran across this great summary of the Utah Revised Nonprofit Corporation Act, prepared by Bruce Olson, Esq. With thanks to Bruce (and he's not the Olson of Hobbs & Olson), here it is:

Nonprofit Act Summary

Are Your Records in Order?

16-6a-1601. Corporate records.
(1) A nonprofit corporation shall keep as permanent records:

(a) minutes of all meetings of its members and board of directors;

(b) a record of all actions taken by the members or board of directors without a meeting;

(c) a record of all actions taken by a committee of the board of directors in place of the board of directors on behalf of the nonprofit corporation; and

(d) a record of all waivers of notices of meetings of members and of the board of directors or any committee of the board of directors.

(2) A nonprofit corporation shall maintain appropriate accounting records.

(3) A nonprofit corporation or its agent shall maintain a record of its members in a form that permits preparation of a list of the name and address of all members:

(a) in alphabetical order, by class; and

(b) showing the number of votes each member is entitled to vote.

(4) A nonprofit corporation shall maintain its records in written form or in another form capable of conversion into written form within a reasonable time.

(5) A nonprofit corporation shall keep a copy of each of the following records at its principal office:

(a) its articles of incorporation;

(b) its bylaws;

(c) resolutions adopted by its board of directors relating to the characteristics, qualifications, rights, limitations, and obligations of members or any class or category of members;

(d) the minutes of all members' meetings for a period of three years;

(e) records of all action taken by members without a meeting, for a period of three years;

(f) all written communications to members generally as members for a period of three years;

(g) a list of the names and business or home addresses of its current directors and officers;

(h) a copy of its most recent annual report delivered to the division under Section 16-6a-1607; and

(i) all financial statements prepared for periods ending during the last three years that a member could have requested under Section 16-6a-1606.

Enacted by Chapter 300, 2000 General Session


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57-8-17. Records of receipts and expenditures -- Availability for examination.
The manager or management committee shall keep detailed, accurate records in chronological order, of the receipts and expenditures affecting the common areas and facilities, specifying and itemizing the maintenance and repair expenses of the common areas and facilities and any other expenses incurred. Records and the vouchers authorizing the payments involved shall be available for examination by the unit owners at convenient hours of weekdays.

Enacted by Chapter 111, 1963 General Session

New Case for the New Year

Park West Condominium Ass'n v. Deppe, 2006 UT App. 507

On the eve of the Winter Solstice, the Utah Court of Appeals shined some further light upon the conflicts between the Utah Condominium Act and the Utah Nonprofit Corporations Act. While the impact of the case is somewhat limited by subsequent amendments to the Utah Revised Nonprofit Corporations Act, it serves as an important reminder of the need for care in the meeting and voting process.

The case involved the voting upon, and apparent passage of, a special assessment. The sellers and purchasers of a condominium both refused to pay a special assessment of $32,965; the association sued. The appelate court found that the assessment had not validly passed, because the association received only a majority of votes in favor of the special assessment, whereas the statutes in place at the time required unanamity in the case of mail-in ballots. (Since the meeting in question, the non-profit act has been amended; unanimity of mail-in ballots is no longer required. See Utah Code Ann. 16-6a-707 and 709.)

The Park West case left a few unanswered questions; what is to happen with those who did pay the assessments on the assumption that they were valid, and how is the association to deal with the dilemna presented by this decision? Undoubtedly, this opinion is only the beginning of a long series of challenges for the association.