CarolP5 (North Carolina)
Posts: 17
Posts: 17
Posted:
My homeowners association is incorporated with 75 members and a 5 member board of directors. The association is considering a merge with a neighboring association. I am a member of a newly formed merge committee charged with researching the merge process and presenting our findings to the board of directors and then to the association membership.
The legalities of a merge are complex with many components and our governing documents provide only a boilerplate reference to dissolution and nothing about mergers. We asked the board to seek legal counsel to provide guidance, voting requirements, and all other details regarding the process of merging homeowners associations in North Carolina.
Full disclosure of the attorneyâs information to all homeowners was expected in order to provide transparency around the issue and to ensure proper oversight of the merge process. The board instructed the PM to contact the HOA attorney, the attorney provided a written opinion, and the association paid the $1400 invoice. The PM sent me a copy of the invoice.
In lieu of providing full disclosure, the board decided to extrapolate information from the attorneyâs opinion, create a flow chart summarizing the steps in the merge process, and mailed this out to homeowners. Multiple requests from for the board to provide full disclosure of the attorneyâs opinion (at least to the merge committee) have all have been refused, with the board citing attorney/client privilege.
The majority of our 5 member board apparently DOES NOT want to merge. It appears that three board members approved release of the attorney opinion (not yet confirmed). However, according to the board liaison, two board members refuse to waive their right to privilege. It seems to me that a majority board vote should be enough to release the information, which would be in the best interest of the association.
Review of the boards flow chart (attached) indicates they have complete control under the âMerger of Nonprofit Corporationsâ over the first vote in a merger. This is interpreted to mean that a majority vote by a 5 member board (3 homeowners) can approve or disapprove a merger without any vote from the members needed. According to the chart, if the board disapproves, the merger is dead and the vote will never make it down to the other 70 homeowners. This just doesnât seem right.
It is my understanding that a positive vote from the board is not required for a merger to proceed, but a two-thirds majority vote from the ENTIRE membership is the requirement (which includes the 5 homeowners serving on the board.) This leaves the board members with an individual âequalâ vote to the rest of us; the boardâs vote should weigh no more or no less than the rest of the membership. This make sense, otherwise a decision such as a merge (for or against) could be made by only 3 homeowners.
Since the governing documents do not address a merge, I used the state laws for guidance. In North Carolina, those statutes are NC General Statutes â 47F NC Planned Community Act and 55A Nonprofit Corporation Act. The board is using the guideline under the Nonprofit Corporation Act which lists the voting process as 1) Board 2) Members entitled to vote. But it also states that a merger can only be approved by a majority of the directors if the corporation DOES NOT have members entitled to vote.
Which of these statutes would take precedent over the other regarding a vote to merge? Or do both come into play? I want to ensure that the entire membership is given the opportunity to vote on a merge whether they are for or against it. Any guidance and insight would be greatly appreciated!
Planned Community Act § 47F 2 121. Merger or consolidation of planned communities.
(a) Any two or more planned communities, by agreement of the lot owners as provided in subsection (b) of this section, may be merged or consolidated into a single planned community. In the event of a merger or consolidation, unless the agreement otherwise provides, the resultant planned community is, for all purposes, the legal successor of all of the preexisting planned communities, and the operations and activities of all associations of the preexisting planned communities shall be merged or consolidated into a single association which shall hold all powers, rights, obligations, assets, and liabilities of all preexisting associations.
(b) An agreement of two or more planned communities to merge or consolidate pursuant to subsection (a) of this section shall be evidenced by an agreement prepared, executed, recorded, and certified by the president of the association of each of the preexisting planned communities following approval by owners of lots to which are allocated the percentage of votes in each planned community required to terminate that planned community. Any such agreement shall be recorded in every county in which a portion of the planned community is located and is not effective until recorded.
Nonprofit Corporation Act § 55A 11 03. Action on plan.
(a) Unless this Chapter, the articles of incorporation, bylaws, or the board of directors or members (acting pursuant to subsection (c) of this section) require a greater vote or voting by class, a plan of merger to be adopted shall be approved for each constituent corporation:
(1) By the board;
(2) By the members entitled to vote thereon, if any, by two thirds of the votes cast or a majority of the votes entitled to be cast on the plan of merger, whichever is less; and
(3) In writing by any person or persons whose approval is required by a provision of the articles of incorporation authorized by G.S. 55A 10 30 for an amendment to the articles of incorporation or bylaws.
(b) If the corporation does not have members entitled to vote thereon, the merger shall be approved by a majority of the directors then in office. The corporation shall provide at least five days' written notice of any directors' meeting at which the approval will be considered. The notice shall state that the purpose, or one of the purposes, of the meeting is to consider the proposed merger.
(c) The board may condition its approval of the proposed merger, and the members entitled to vote thereon may condition their approval of the merger, on receipt of a higher percentage of affirmative votes or on any other basis.
The legalities of a merge are complex with many components and our governing documents provide only a boilerplate reference to dissolution and nothing about mergers. We asked the board to seek legal counsel to provide guidance, voting requirements, and all other details regarding the process of merging homeowners associations in North Carolina.
Full disclosure of the attorneyâs information to all homeowners was expected in order to provide transparency around the issue and to ensure proper oversight of the merge process. The board instructed the PM to contact the HOA attorney, the attorney provided a written opinion, and the association paid the $1400 invoice. The PM sent me a copy of the invoice.
In lieu of providing full disclosure, the board decided to extrapolate information from the attorneyâs opinion, create a flow chart summarizing the steps in the merge process, and mailed this out to homeowners. Multiple requests from for the board to provide full disclosure of the attorneyâs opinion (at least to the merge committee) have all have been refused, with the board citing attorney/client privilege.
The majority of our 5 member board apparently DOES NOT want to merge. It appears that three board members approved release of the attorney opinion (not yet confirmed). However, according to the board liaison, two board members refuse to waive their right to privilege. It seems to me that a majority board vote should be enough to release the information, which would be in the best interest of the association.
Review of the boards flow chart (attached) indicates they have complete control under the âMerger of Nonprofit Corporationsâ over the first vote in a merger. This is interpreted to mean that a majority vote by a 5 member board (3 homeowners) can approve or disapprove a merger without any vote from the members needed. According to the chart, if the board disapproves, the merger is dead and the vote will never make it down to the other 70 homeowners. This just doesnât seem right.
It is my understanding that a positive vote from the board is not required for a merger to proceed, but a two-thirds majority vote from the ENTIRE membership is the requirement (which includes the 5 homeowners serving on the board.) This leaves the board members with an individual âequalâ vote to the rest of us; the boardâs vote should weigh no more or no less than the rest of the membership. This make sense, otherwise a decision such as a merge (for or against) could be made by only 3 homeowners.
Since the governing documents do not address a merge, I used the state laws for guidance. In North Carolina, those statutes are NC General Statutes â 47F NC Planned Community Act and 55A Nonprofit Corporation Act. The board is using the guideline under the Nonprofit Corporation Act which lists the voting process as 1) Board 2) Members entitled to vote. But it also states that a merger can only be approved by a majority of the directors if the corporation DOES NOT have members entitled to vote.
Which of these statutes would take precedent over the other regarding a vote to merge? Or do both come into play? I want to ensure that the entire membership is given the opportunity to vote on a merge whether they are for or against it. Any guidance and insight would be greatly appreciated!
Planned Community Act § 47F 2 121. Merger or consolidation of planned communities.
(a) Any two or more planned communities, by agreement of the lot owners as provided in subsection (b) of this section, may be merged or consolidated into a single planned community. In the event of a merger or consolidation, unless the agreement otherwise provides, the resultant planned community is, for all purposes, the legal successor of all of the preexisting planned communities, and the operations and activities of all associations of the preexisting planned communities shall be merged or consolidated into a single association which shall hold all powers, rights, obligations, assets, and liabilities of all preexisting associations.
(b) An agreement of two or more planned communities to merge or consolidate pursuant to subsection (a) of this section shall be evidenced by an agreement prepared, executed, recorded, and certified by the president of the association of each of the preexisting planned communities following approval by owners of lots to which are allocated the percentage of votes in each planned community required to terminate that planned community. Any such agreement shall be recorded in every county in which a portion of the planned community is located and is not effective until recorded.
Nonprofit Corporation Act § 55A 11 03. Action on plan.
(a) Unless this Chapter, the articles of incorporation, bylaws, or the board of directors or members (acting pursuant to subsection (c) of this section) require a greater vote or voting by class, a plan of merger to be adopted shall be approved for each constituent corporation:
(1) By the board;
(2) By the members entitled to vote thereon, if any, by two thirds of the votes cast or a majority of the votes entitled to be cast on the plan of merger, whichever is less; and
(3) In writing by any person or persons whose approval is required by a provision of the articles of incorporation authorized by G.S. 55A 10 30 for an amendment to the articles of incorporation or bylaws.
(b) If the corporation does not have members entitled to vote thereon, the merger shall be approved by a majority of the directors then in office. The corporation shall provide at least five days' written notice of any directors' meeting at which the approval will be considered. The notice shall state that the purpose, or one of the purposes, of the meeting is to consider the proposed merger.
(c) The board may condition its approval of the proposed merger, and the members entitled to vote thereon may condition their approval of the merger, on receipt of a higher percentage of affirmative votes or on any other basis.