The law requires that HOAs keep their corporate status current, and failure can be disastrous.
Most California HOAs are set up as nonprofit mutual benefit corporations. To determine whether an association is incorporated, look at the first page of the HOA’s bylaws.
If the HOA was not established as a corporation, the bylaws will usually refer to it as an “unincorporated association.”
Per Civil Code Section 4805, unincorporated associations may exercise the various powers under Corporations Code Section 7140 and the powers granted by the Davis-Stirling Common Interest Development Act. Generally, unincorporated associations must comply with that Act and also Corporations Code Sections 18000 and following.
Incorporated associations are required to file at least every other year the SI-100 and SI-CID informational forms with the Secretary of State and annually file tax returns with the Franchise Tax Board.
The SI-100 form lists the HOA’s mailing address, address of its agent for service of legal process and the names and contact addresses of the top three officers.
The SI-CID form lists the manager’s contact information, the total number of homes in the HOA and the physical location of the property.
Both forms can be filed online, and the fees for filing are a combined $35. The failure to timely file these forms and file tax returns can result in the corporation’s status being “suspended.”
The state has a user-friendly site, bizfileonline.sos.ca.gov, where anyone can check the status of any corporation. If a board or manager discovers that an HOA is suspended, the SI-100 and SI-CID forms can be filed online once the corporation opens an online account.
Corporate suspension is a very serious matter.
Suspended corporations are not recognized by the law as existing. So, they cannot defend themselves in court and cannot bring lawsuits to protect their rights. A judge could dismiss a suspended corporations lawsuit against other parties, or could declare a suspended corporate defendant to be in default as a party.
Contracts entered into by corporations during the time of their suspension due to failure to file tax returns are voidable at the election of the other party to the contract.
This means that the HOA vendor can unilaterally cancel its contract with the HOA and the suspended HOA can do nothing to prevent it. Note: this consequence does not apply if the HOA has filed its tax returns and has only failed to file the SI-100 and SI-CID forms.
Another consequence of suspended corporations is the corporation’s name is no longer considered by the state to be reserved. Therefore, someone else can reserve the HOA’s name while it is suspended. When the HOA reactivates its status, it must find another name!
Imagine how embarrassing it would be to have to explain to your HOA neighbors that the HOA must amend its governing documents to change its legal name because the board or management didn’t keep those filings current.
For more information about the consequences of corporate suspension, go to ftb.ca.gov/help/business/my-business-is-suspended.html. The Franchise Tax Board has much helpful information on its site.
When beginning to work with any HOA, managers should check to confirm the HOA’s corporate status is “active.” The major problems described above are easily prevented.
The official site of the Davis-Stirling Common Interest Development Act is eginfo.legislature.ca.gov.
Kelly G. Richardson, Esq. is a Fellow of the College of Community Association Lawyers and Partner of Richardson Ober LLP, a California law firm known for community association advice. Submit column questions to kelly@roattorneys.com.
