Authority to Incorporate
The 2007 Oregon Legislature passed legislation relating to incorporating condominium associations. House Bill 2666 (Chapter 410, Oregon Laws 2007) amended the Oregon Condominium Act (“OCA”), ORS Chapter 100, to give the board of directors of an existing condominium association the power to incorporate the association as an Oregon nonprofit corporation, notwithstanding a provision in the declaration or bylaws providing otherwise or requiring approval of owners to incorporate. See ORS 100.405(a)(1).
This change, which became effective September 27, 2007, allows boards of directors to incorporate without having to obtain the approval of the owners, thereby avoiding what can be a costly and time consuming process.
Further, amendments to ORS 100.405 by HB 2666 require condominiums created on or after September 27, 2007 to be organized as a corporation (either profit or nonprofit) unless the condominium consists of not more than four units, excluding units used for parking, storage or other use ancillary to a unit.
The Oregon Planned Community Act (“PCA”), ORS 94.550 to 94.783 was not amended since the PCA requires that the association be incorporated before the conveyance of the first lot. This requirement corresponds with the requirement that the declaration and bylaws be recorded before the first lot is conveyed. See ORS 94.565(2) and 94.625(1)(a).
Benefits of Incorporation
The entity of choice for most incorporated associations is a nonprofit corporation formed under the Oregon Nonprofit Corporation Act, (“NCA”), ORS Chapter 65. Because the association is not formed for profit, the association has the benefits of incorporation without the tax consequences.
Some of the benefits of incorporation include:
Powers and Duties of Association and Board: Powers and duties granted the association and the board of directors in addition to the powers and duties under the PCA and OCA.
Ability to Hold Title to Real Property: For planned communities, if there is any common property be owned by the association, the association must be a legal entity to hold title to common property. When title is held by the association, liability of individual members is limited as discussed below.
Limited Liability: One of the greatest benefits of being incorporated is that the liability of owners is limited. Any liability which the association incurs is limited to the association’s assets. There are exceptions, such as when there is personal responsibility assumed by a board member or a member of the association for a liability. However, without incorporation, every person serving on the board of directors and every owner may be named as a defendant in a legal proceeding and held personally liable for action taken on behalf of the association.
Business Necessity & Convenience: Many financial institutions and insurance companies require that an association be an incorporated entity to open a checking account in the name of the association or to obtain insurance. Further, once the association is incorporated, it can file with the IRS and obtain an employer identification number (“EIN”) which allows the association to file income tax returns.
Corporation Requirements Procedure
In order to incorporate, the association must file articles of incorporation with the Oregon Secretary of State, Corporation Division. Once incorporated, the association must file an annual report. The NCA requires an association to comply with certain formalities: holding an annual member meeting; preparing minutes of all board of director meetings; maintaining proper accounting records; and keeping a list of all members. Many of these formalities are also required under the PCA and OCA.
In conclusion, the benefits of being an incorporated association far outweigh any of the formalities with which it must comply. See Chapter 7 of The Official HOA Handbook Oregon 3rd Edition for additional information.
Gregory B. Coxey
Attorney at Law