Good Business Sense

Being A Corporation

By Betsy Barbieux, CAM, CFCAM, CMCA / Published April 2023

Why Are We a Corporation?

     The question has been asked too often, “Why do we have to be a corporation? It seems too complicated. We want to be involved in making all the decisions. Why do we have to have a board of directors?”

     Well, besides the fact the legislators require community association developers to create a corporation to (1) protect the property and its value, (2) maintain the common elements and property, and (3) enforce the restrictions on the owners’ use rights, it makes good business sense. Without a corporation, all the members of the corporation would have to sign all contracts. It’s hard to imagine dozens, hundreds, or thousands of owners signing the lawn maintenance contract.

What Is a Corporation?

A corporation is a legal entity that is separate and distinct from its owners. Under the law, corporations possess many of the same rights and responsibilities as individuals. They have a tax ID number and bank accounts and can enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets, and pay taxes. Some refer to a corporation as a “legal person.”

The Creation of a Corporation

     A corporation is created when it is incorporated by a group of people who share ownership of the corporation, represented by their holding of stock or shares or a contractual membership (as is the case with Florida community associations), and pursue a common goal.

     Most corporations have a goal of returning a profit for their stakeholders. However, some corporations, such as charities or fraternal organizations, are nonprofit and do not provide a return on investment for its stakeholders. In the same way, a Florida not-for-profit corporation like a condominium, cooperative, or homeowners’ association does not provide a return on investment for its members.

Becoming a Corporation

     Each state has its own laws regarding incorporation. In our Florida community association corporations, the developer will likely be the one to file the articles of incorporation with the state. The members in these corporations have contractual rights and obligations rather than stock. The articles of incorporation name the first board of directors. Future board members will be elected at an annual meeting. 

     The members hold an annual meeting during which they elect a board of directors. The board of directors then selects who its leaders will be—president, vice president, secretary, treasurer, and any other officers required by the articles of incorporation or bylaws. On behalf of the corporation, the board members may hire professionals and other experts to oversee the corporation’s day-to-day activities.

The Day-to-Day Operations of a Corporation

     Florida law requires that all corporations, whether for profit or not for profit, have bylaws. Bylaws are the formal procedures for operating the corporation and include information on types of meetings and the collection, disbursement, and reporting of the income and expenses of the corporation. 

     Bylaws typically do not give any direction to the board members for the maintenance of the property or operations of the corporation such as office procedures, communications with owners, employees, vendors, etc. All those operational decisions are made by the board of directors or delegated to management via a contract or employment agreement.

     Although the members of the board are not personally responsible for the corporation’s debts, they owe a duty of care to the corporation and can incur personal liabilities if they neglect this duty. Florida Statutes provides in Section 617.0830 general standards for directors.—

1. A director shall discharge his or her duties as a director, including his or her duties as a member of a committee:

    (a) In good faith;

    (b) With the care an ordinarily prudent person in a like position would exercise under similar circumstances; and

    (c) In a manner he or she reasonably believes to be in the best interests of the corporation.

(4) A director is not liable for any action taken as a director, or any failure to take any action, if he or she performed the duties of his or her office in compliance with this section.

     Florida Statutes Chapters 718, 719, and 720 go a step further and make directors personally liable for their actions by giving them a fiduciary relationship to the owners.

Differences Between Nonprofit and Not For Profit

     Nonprofit organizations work for charitable purposes. A not-for-profit corporation is formed for some common interest (not charitable) like the operation of a community association. The revenues collected by a not-for-profit organization are used to manage the expenses for meeting the goal, and no profit is used for personal gain. 

Most of our Florida community associations are organized under Chapter 617, the Florida Not-For-Profit Corporate Act. Some distinctions of our Florida not-for-profit corporations are as follows:

• They don’t distribute dividends to owners, but they exist for a common purpose.
• The purpose is to protect the property and its value, maintain the common elements/property, and enforce the restrictions on the owners’ use rights.
• Florida not-for-profit organizations are chartered by the Florida Department of State, Division of Corporations, under Chapter 617. A community association will also be organized under Chapter 718, 719, or 720.
• They may have salaried employees and are subject to state and federal HR and payroll reporting requirements.
• After expenses are paid, the remaining revenues are put back into operations.
• They operate using GAAP accounting procedures and file federal tax returns on either Form 1120 or 1120H and may file Form F-1120.
• Revenue can include assessments, sales, interest, and other income.
• Florida not-for-profit corporations do not qualify for any IRS tax exempt or Florida sales tax exemption status, or have any other special reporting requirements.

     All our Florida community associations, whether condominiums, cooperatives, or homeowners’ associations, are corporations. They will have boards of directors who elect officers to direct and manage the operations of the corporation and fulfill its purposes. This eliminates the need for every member of the association to sign the lawn maintenance agreement. Thank goodness for good business sense.

Betsy Barbieux, CAM, CFCAM, CMCA

Owner, Florida CAM Schools

     Betsy Barbieux, CAM, CFCAM, CMCA, guides managers, board members, and service providers in handling daily operations of their communities while dealing with different communication styles, difficult personalities, and conflict. Effective communication and efficient management are her goals. Since 1999 Betsy has educated thousands of managers, directors, and service providers. She is your trainer for life! Betsy is the author of Boardmanship, a columnist in the Florida Community Association Journal, and a former member of the Regulatory Council for Community Association Managers. Subscribe to CAM Matters^TM at www.youtube.com/c/cammatters. For more information, contact Betsy@FloridaCAMSchools.com, call (352) 326-8365, or visit www.FloridaCAMSchools.com.