HOA as “Non-stock corporations”

Hi Saad,

Welcome to the forum. To respond to your questions, I offer the following (and please keep in mind that I am not an attorney nor do I work within the legal profession):

1) Incorporating: There is no requirement within Virginia that Assocaitions be incorporated (at least, none I could find). How an Association incorporates is up to them (typically the Decalarant/Developer files the initial paperwork for incorporation, so they are the ones who normally decide). If an Association has a lot of commercial lots, they may want to incorporate as a for profit corporation. I know of one Association that created an LLC for its community pool.

An association isn't considered a corporation until they file the necessary paperwork, along with the Articles of Incorporation, with the State Corporation Commission. Individuals may check the corporation status in Virginia via the SCC webpage (click earlier link).

2) The Virginia Nonstock Corporation Act applies to all nonstock (nonprofit) corporations registered in Virginia. If your Association was not incorporated under that act, then the act would not be applicable.

As for the legislative intent, you would need to ask the original author of the bill (which was written in 1986).

3) Not that I am aware of. There certainly are advantages to being incorporated, but it's not a requirement.
Per Fairfax County Community Association Manual:

Incorporation is a very common business practice that assures a property owners’association of the powers, duties, privileges and obligations of a nonstock corporation. Most importantly, incorporation provides liability protection to the directors and individual members against claims and court judgments against the
association. No law mandates incorporation, however, a property owners’ or condominium association declaration might require incorporation. Such choice is entirely voluntary, first by the developer, and then by the owner/directors after transition of the association control. In Virginia, non-profit property
owners’ and condominium associations are incorporated under provisions of the Virginia Nonstock Corporation Act (Title 13.1, Chapter 10, Section 13.1-801 et. seq. of the Code of Virginia, Ann.) which is regulated and enforced by the State Corporation Commission (SCC).

Hope this helps,

Tim

This is Saad again who asked the questions. For some reasons I was not able to log back in with my original ID, The system recommended that I create a new one.

Thank you Tim for your detailed and helpful answers. I was very impressed!

I understand you are not an attorney and you don't work within a legal profession. Before I submitted my questions to your forum, I consulted with an attorney who is in practice for 30 years in Virginia. Your answers are clear and very helpful than the one I received from the same attorney, which was the following and I quote:

"Each HOA has to file the necessary Articles of Incorporation to be authorized to operate in Virginia."

Thank you again for your time and dedication to serve your subscribers!

Is there any further discussion on this topic?

-- From the Nonstock Corporation Statute:
=== Start Excerpt from NonstockCorporation Statute, Definitions Section ===
"Corporation" or "domestic corporation" means a corporation not authorized by law to issue shares, irrespective of the nature of the business to be transacted, organized under this Act or existing pursuant to the laws of the Commonwealth on January 1, 1986, or that, by virtue of articles of incorporation, amendment, or merger, has become a domestic corporation of the Commonwealth, even though also being a corporation organized under laws other than the laws of the Commonwealth or that has become a domestic corporation of the Commonwealth pursuant to Article 11.1 (§ 13.1-898.2 et seq.) of this Act.
=== End Excerpt ===

-- The Articles of Incorporation on file with the state will typically state that the corporation is subject to the Nonstock Corporation Act. For example, see the Articles of Incorporation within the condo docs at https://mrwilliamsburg.com/wp-content/uploads/2019/03/Gleneagles-Condominium-HOA.pdf

--Regarding liability: I do not think this is so. That is, it appears unincorporated associations have liability protection for officers and directors, pursuant to the Nonstock Corporation Act, as follows:

=== Start Excerpt from Nonstock Corporation Statute===
§ 13.1-870.2. Limitation on liability of officers and directors; additional exception.
A. As used in this section, "community association" shall mean an unincorporated association or corporation which owns or has under its care, custody or control real estate subject to a recorded declaration of covenants which obligates a person, by virtue of ownership of specific real estate, to be a member of the unincorporated association or corporation.

B. In any proceeding against an officer or director who receives compensation from a community association for his services as such, the damages assessed arising out of a single transaction, occurrence or course of conduct shall not exceed the amount of compensation received by the officer or director from the association during the 12 months immediately preceding the act or omission for which liability was imposed. An officer or director who serves such an association without compensation for his services shall not be liable for damages in any such proceeding.

C. The liability of an officer or director shall not be limited as provided in this section if the officer or director engaged in willful misconduct or a knowing violation of the criminal law.

D. The immunity provided by this section shall survive any termination, cancellation, or other discontinuance of the community association.

1989, c. 422; 2007, c. 925; 2011, cc. 693, 704.

=== End Excerpt ===

JosephC12, if you have a specific question about the Act, ask it, and maybe folks here can help.