Most condo associations are incorporated and for good reason; the advantages to incorporating a condo association strongly outweigh the cons.
Advantages to Incorporating a Condo Association
Incorporation limits the level of personal liability of the individual members for association obligations. This is also known as “corporate shield”, which assists in the protection of personal assets of the members in the condo association in case of a lawsuit. The organization becomes a “separate legal entity”, which means that a member can only bear losses through a decline of his or her stock value in the association.
An incorporated condo association has the capacity to borrow funds. The capacity to solicit for loans is essential for associations when it is faced with large unfunded and unexpected capital repair/improvement costs. The association can solicit for funds, and commit itself to pay; the member reaps the benefits of incorporation without incurring additional risk unlike in unincorporated associate where he or she would have to part with personal assets or resources.
The incorporated condo association acquires the power to hold real estate title deeds. If an unincorporated association acquires property such as an offsite parking area, common areas, or resident manager’s condominium unit, it must place the title deed to the property under a trust or another corporation owned by the association. These complicated procedures are expensive and may incur additional tax and liabilities. Therefore, incorporation of the condo association helps eliminate property ownership and title issues.
An incorporated condo association acquires a safer legal grounding because laws governing corporations can help in resolving some issues that may arise due to gaps in the association rules/documents. Following rules for corporations reduces or eliminates the possibility of court proceedings and removes uncertainty.
An incorporated condo association is subject to a separate set of taxation rules, which means the opportunity for tax savings. Some association expenses might become tax deductible, for example which means higher profits retained for the expense fund.
An incorporated condo association has a wide range of powers as a separate entity to act as permitted by its own corporate charter and by the law. The incorporated condo association can buy and sell both real and personal property, sue and be sued, and can enter into contract.
The condo association can be represented in a small claims court by any of its directors, officers, or even an employee. The condo association is thus able to take advantage of its legal power and enhance business without stopping any major businesses or transaction to appear in small claims court.
The advantages of incorporating a condo association are worth the price because it protects the association members assets while giving the association more power to take care of business.
We work with condo associations every day. Contact us today if you are in need of property management services.