When a small condo association is just starting out or forming, there are a number of crucial first steps to take to make sure everything is done above board. There are many different pitfalls that can be included with trying to get a condo association off the ground, which can open the door to legal issues and plenty of liability risks.
Creating a Condo Association
In some states, a homeowners association is considered to be a formal legal entity even if the developer nor the owners of the condos do anything to create one. But in most cases, an original developer of a condominium or the owners must file Articles of Incorporation with a government agency. This kind of filing is necessary to the owners if they want to convert the entity to another type, possibly to a corporation.
Holding the First Meeting
After the initial formation, it’s time to begin the process of holding meetings and electing members to a governing board as well as taking care of important tax and legal registration. While it may seem like a snap to take care of, there are plenty of steps needed to establish a board and handle meetings in the best way. Here is a quick list of items to take care of during a first meeting:
- Electing a governing board
- Electing an officer or officers
- Establishing management
- Complying with filing and taxation requirements
- Opening bank accounts after obtaining a tax ID
- Confirming condo associations insurance
- Establishing collection procedures and fines
How Condo Associations Register and File Forms
There are many different ways condo associations can register legally and file the forms needed to complete the creation of an association. They can include:
- Creating a Legal Entity: Creating a legal HOA is optional in most states in the country. But where it is required, associations must file the Articles of Incorporation or an analogous entity formation with a government agency.
- Establishing Authority: When a condos association files its documents, it establishes who can accept legal papers and documents on its behalf and who has authority to handles the finances, like sign checks and contracts. But if a condo association does not file a legal entity, it is unclear who the main contact is.
- Getting a Tax ID: A tax identification number identifies the association for tax purposes. The developer of the condominium has to get in contact with the Internal Revenue Service (IRS) to be issued one. After a tax ID is established, then a bank account could be opened.
Obtaining Condo Associations Insurance
Condo associations insurance options are put in place to protect boards and their members from liability issues. There are many different options that condo associations have when it comes to condo associations insurance, so making sure to cover the right risks is important. Errors & omissions insurance can help provide financial and legal coverage during a time of litigation related to negligence, and director and officers insurance can provide protection for board members when it comes to exposures like breach of contract, wrongful foreclosure and employment practices liability.
Overall, looking into a comprehensive condo associations insurance plan is meant to provide the right guidance and protection to keep legal and financial pitfalls at bay, and keep operations running smoothly.
About Kevin Davis Insurance Services
For over 35 years, Kevin Davis Insurance Services has built an impressive reputation as a strong wholesale broker offering insurance products for the community association industry. Our president Kevin Davis and his team take pride in offering committed services to the community association market and providing them with unparalleled access to high-quality coverage, competitive premiums, superior markets, and detailed customer service. To learn more about the coverage we offer, contact us toll-free at (877) 807-8708 to speak with one of our representatives.