Can HOA's be LLC's?

Started by JimM36 • 9 replies • 1491 views

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JimM36 (Ohio)
Posts: 1

Posted:

Our HOA Board is concerned about liability protection for their Board members should a lawsuit against one or all of its members ever arise. Insurance premiums offering such coverage appear unaffordable without a quantum increase in annual dues. As a result, thought is being given to creating a LLC because of the personal liability protection it affords. Would appreciate any comment on whether HOAs are commonly LLCs and would it provide the protections we believe it will. Thanks!

KerryL1 (California)
Posts: 14,550

Posted:

Is your HOA incorporated?

DouglasK1 (Florida)
Posts: 2,046

Posted:

HOAs are generally not for profit corporations so as Kerry mentions, hopefully yours is already.

If not, I'm not sure that an LLC would be a good option. LLCs pay their taxes on the owner's returns, and I'm pretty sure can't use IRS for 1120-H for the tax advantages it provides. Why would you want to be an LLC rather than a true corporation?

Escaped former treasurer and director of a self managed association.

SueW6 (Michigan)
Posts: 814

Posted:

Absolutely you should incorporate. You can form a non-profit corporation, (NOT a charitable one) which is governed by a board, financed by members. Members and volunteers can be protected from being sued individually.(Someone might try, but only if they did something deliberately illegal or immoral would it fly.)

You can even do this on-line, if available in your state.

I am surprised your insurance agent hasn't encouraged this.

Our HOA was sued come years ago by the family of a kid who was racing on subdivision roads on a snowmobile and was killed. The lawsuit tried to sue the association, each member of the association and the board were also named. Nothing happened.

Because of something stupid put into the minutes, our association was sued by a homeowner. He sued the association and the board members. The "corporate shield" protected the individual board members. We had to pay $12,000 in legal fees.

SamE2 (New Jersey)
Posts: 310

Posted:

I wouldn't serve on a Board without Directors and Officers insurance. I think ours is around $1400 a year. Anyone can be sued at anytime and it can be expensive to defend yourself even if the suit is thrown out eventually.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By SamE2 on 10/18/2018 1:59 PM
I wouldn't serve on a Board without Directors and Officers insurance. I think ours is around $1400 a year. Anyone can be sued at anytime and it can be expensive to defend yourself even if the suit is thrown out eventually.

I agree.

GeorgeS21 (Florida)
Posts: 3,808

Posted:

Jim,

Your HOA should be incorporated per all the comments, above.

I was recently elected to be a Director, and then agreed to be an Officer (Secretary) of our HOA Board.

They did not have insurance and a couple of folks thought it wasn't necessary.

I provided extensive information to them, and then asked them if they wanted to lose everything they had accumulated since they were children?

And, then I noted I would NOT serve as a Director unless we actively worked to get D&O as the FIRST action - took about 2 months to get bids, then we discussed and voted unanimously to obtain the coverage.

As a BTW - I also made the point the community needed liability insurance for the common areas and any number of odd circumstances - they agreed to this, as well.

Do NOT serve on a Board of an HOA without D&O!

KerryL1 (California)
Posts: 14,550

Posted:

How much $$ is the D&O aspect of your policy, Goeorge? I don't remember mine and it's not handy.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Our D&O insurance is $1,500 per year, including liability insurance.

GeorgeS21 (Florida)
Posts: 3,808

Posted:

Out D&O and Liability is $845.

The community only has a couple of concrete benches and one acre of wooded park. No other amenities.

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