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Non-Profit Reserves being drained by for-profit side - is this legal?

Started by JohnC73 • 49 replies • 693 views

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JohnC73 (Massachusetts)
Posts: 344
Posted:
Here is my question, followed by the supporting background info. Sorry if this is long.

Is it legal to merge finances between the “non-profit” side of our HOA with the “for-profit”(commercial) side/business of the HOA?

Or should there be a clear delineation of finances between the non-profit and for-profit business? Separate Budgets and special assessments, if needed?

I think what we are doing financial could be illegal but wanted to see what others thought. Here is the background.

Our seasonal HOA in New Hampshire consists of a "non-profit" entity and a "for Profit"(commercial) entity. There are 456 units that make up the non-profit side and there are 3 units that make up the for-profit side. The for-profit side consists of a Store, Snack bar, Laundry and 2 apartments. The for-profit business is a constant money loser and loses between $30K and $60K each season which is about 4 months of operation. This year we lost $58K and these loses were covered by taking $58K from the "non-profit" side reserve account and that has me wondering if this is illegal.

Our declaration clearly states that the non-profit and commercial wings of the HOA should be operated independently also, but I would think the law would supersede this and require that all finances be separate.

Prior to 2009 the commercial(for profit) side was owned and operated by someone outside of the park and the budgets were separate. In 2009 the HOA purchased the commercial units and apparently merged the financials to some extent. We also have a single BOD overseeing both the non profit and for profit operations.

When the commercial(for profit) business comes up short the money is always transfered from the non profit side and this happens each year.>

Seems like there is a little slight of hand going on with the finances. Last yr we had a special assessment for $50k for a bathhouse renovation and this year we can apparently just pull the $58K store loss out of thin air without any special assessment. All in the while depleting the non-profit side of the reserves.

Thanks
John Cummings
CathyA3 (Ohio)
Posts: 6,299
Posted:
I think that the language in your declaration about the separation of non-profit and for-profit areas is pretty clear and that what they are doing is probably illegal. But not just for this reason - it's because they're tapping reserves for operating expenses, which would be a problem even if confined within one area.

Do your governing documents address what will happen if there is a shortfall in either side?

I'm not a tax person, but I believe that the laws are different for non-profit and for-profit organizations, which is an important reason to keep the two areas separate. (And not just tax law. For instance, if the commercial area is open to the public, then the facilities have to be ADA compliant, whereas the non-profit residential section does not. The areas also have difference insurance needs.) Do your bylaws require periodic audits of the books? Something like this would probably be cited.

There may or may not by anything underhanded going on, but this situation makes it more likely. What is happening is that the HOA is underfunded. Since the commercial side contains physical property, it should have its own reserve studies. If the same board is in charge of both parts of the HOA, they should be having a serious discussion over whether or not it's in the best interest of the association to continue to operate the commercial area at a loss, and if they believe it is, then they should fund it properly.
JohnC73 (Massachusetts)
Posts: 344
Posted:
Quote:
Posted By CathyA3 on 12/01/2022 10:31 AM
I think that the language in your declaration about the separation of non-profit and for-profit areas is pretty clear and that what they are doing is probably illegal. But not just for this reason - it's because they're tapping reserves for operating expenses, which would be a problem even if confined within one area.

Do your governing documents address what will happen if there is a shortfall in either side?

I'm not a tax person, but I believe that the laws are different for non-profit and for-profit organizations, which is an important reason to keep the two areas separate. (And not just tax law. For instance, if the commercial area is open to the public, then the facilities have to be ADA compliant, whereas the non-profit residential section does not. The areas also have difference insurance needs.) Do your bylaws require periodic audits of the books? Something like this would probably be cited.

There may or may not by anything underhanded going on, but this situation makes it more likely. What is happening is that the HOA is underfunded. Since the commercial side contains physical property, it should have its own reserve studies. If the same board is in charge of both parts of the HOA, they should be having a serious discussion over whether or not it's in the best interest of the association to continue to operate the commercial area at a loss, and if they believe it is, then they should fund it properly.

Thanks Cathy!

The business is private and inside our gated community. Only owners or renters have access to the businesses. Which is part of the reason we constantly lose money. When the condo/campground was established in the 1980's many were still really camping and didn't have refridgerators, so the store and snackbar made money. Fast forward and now the tents are gone and have been replaced with fully functional Park Model RV's. Most owners shop and the supermarket and load their fridge like you would at your primary residence and don't frequent the store/snackbar.

I don't think there is anything underhanded taking place intentially, but still think it is wrong to share finances and probably being done by ignorance. This practice has been going on since 2009 when the HOA purchased this commercial side and was never given a thought until I questioned it.

I agree, for tax purposes and tax audits both businesses should work in a silo and not share anything.

Here is what the declaration states, it doesn't mention how to handle shortages, but thinking any shortage or either side would require a special assessment targetted towards the non-profit or profit and can't be shared.

The three Commercial Units shall continue to be operated as a
commercial enterprise. These units shall be operated independently
from the recreational units, although they will continue to form a
part of The Condominium. The structures and improvements
constituting the Commercial Units may _be altered, replaced and
modified as the owners of the Commercial Units shall determine
without vote or approval of the Unit Owners Association but subject
to all governmental regulations. Any physical expansion of the Units
shall require the pnor approval of the Unit Owners Association, as
well as appropriate Town approval. All obligations of maintenance,
use, taxes and service charges of any nature whatsoever pertaining
to the Commercial Units shall be the direct responsibility of its
owner.

As far as keeping this losing business running. That is a sore subject - lol. Many owners want to shut it down, but the opposing side always states that it is only costing each owner $125/year for the convenience of having the store and snack bar.

You hit the nail on the head and identified my major concern. They commercial side is depleting the non-profit sides reserves that have been set aside for park operations and maintenance. The store/snackbar has probably lost over $500K since we purchased it in 2009 and that doesn't include the loan and other things required to keep it afloat.

Thanks
John
CathyA3 (Ohio)
Posts: 6,299
Posted:
Quote:
Posted By JohnC73 on 12/01/2022 11:29 AM
... snip ...

As far as keeping this losing business running. That is a sore subject - lol. Many owners want to shut it down, but the opposing side always states that it is only costing each owner $125/year for the convenience of having the store and snack bar.

... snip ...

This gives the board a way forward since it isn't only costing $125 per year.

"Yes, we can keep the store and snack bar, but they have to be funded properly instead of taking funds out of the reserves that have to be replaced. It will require raising assessments by $XXX.00 by year. Are you willing to pay this?"

I can understand the convenience argument, but convenience costs money. If homeowners have to actually pay for it in addition to the cost of the goods, they may decide they'd rather bring their groceries with them.

CathyA3 (Ohio)
Posts: 6,299
Posted:
I hope somebody else chimes in because I'm starting to rethink my answers.

When I think of commercial units in HOAs, I think of things like golf courses and restaurants that are also open to the public and are supported by outside funds (and possibly assessments as well). And it sounds like your CC&Rs are sort of leaning into that because they refer to the commercial unit's "owner", as if that were someone other than the HOA.

Your store/snack bar sound like they're owned by the HOA and supported entirely by assessments. (If that's wrong, please tell me.) I still think you have to keep the books separate, both because your CC&Rs say you have to and because it helps to get a handle on the finances of that unit.

But I think the HOA needs to get professional opinions - eg. the professionals who do your taxes and audits, and maybe the HOA's attorney. There are potentially a number of issues in play here, including some we haven't talked about (for instance, if you're paying someone to work in the store, there are employment issues as well).

JohnC46 (South Carolina)
Posts: 14,265
Posted:
I say keep separate books but as the HOA owns the facilities then paying shortages from assessments is proper.
JohnC73 (Massachusetts)
Posts: 344
Posted:
Quote:
Posted By CathyA3 on 12/01/2022 11:51 AM
Posted By JohnC73 on 12/01/2022 11:29 AM

This gives the board a way forward since it isn't only costing $125 per year.

"Yes, we can keep the store and snack bar, but they have to be funded properly instead of taking funds out of the reserves that have to be replaced. It will require raising assessments by $XXX.00 by year. Are you willing to pay this?"

I can understand the convenience argument, but convenience costs money. If homeowners have to actually pay for it in addition to the cost of the goods, they may decide they'd rather bring their groceries with them.


I agree, if the assessments and finances are separate then it will paint a clear picture of what the commercial side is actually costing. It is costing much more than $125 each year, but most owners just don't pay attention.

On top of the $58K we also need a new roof and last year had other maintenance that came out of the non-profit side.

Thanks,
John
JohnC73 (Massachusetts)
Posts: 344
Posted:
Quote:
Posted By JohnC46 on 12/01/2022 12:31 PM
I say keep separate books but as the HOA owns the facilities then paying shortages from assessments is proper.

Thanks John,

So last year we had a special assessment to rebuild a bathhouse on the non-profit side. The assessment was for $50k.

This year the store was short $58K and we didn't have a special assessment. They just shifted then money from the non-profit side to the commercial business.

I would assume there are laws required to keep them completely separate.

Thanks
John
TimB4 (Tennessee)
Posts: 21,059
Posted:
It is typically permissible to borrow from the reserves, providing that their is a method and plan in place to pay the reserves back.

I would ask the board how they plan to repay the reserves and see what their response is.
JohnC73 (Massachusetts)
Posts: 344
Posted:
Quote:
Posted By TimB4 on 12/01/2022 1:15 PM
It is typically permissible to borrow from the reserves, providing that their is a method and plan in place to pay the reserves back.

I would ask the board how they plan to repay the reserves and see what their response is.

Thanks Tim!

That is a fantastic suggestion. I will do just that.

John
KerryL1 (California)
Posts: 14,550
Posted:
Did you get on the Board, JimC?
JohnC73 (Massachusetts)
Posts: 344
Posted:
Quote:
Posted By KerryL1 on 12/01/2022 1:33 PM
Did you get on the Board, JimC?

I assume that question is for me, John C?

I came up a tad short. I lost a seat by around 20 or so votes. My primary goal was to reform our elections and looks like that is going to happen anyway as our new attorney made the BOD follow the NH Condo Act in regards to requirements to pass a by-law change. Prior to this year we always used 2/3 "YES" vote of "voters", so we passed many bylaws with less than 1/3 of the owners voting YES. The new lawyer told use the law states that in order to pass a by-law it requires 2/3 vote of ALL owners.

We now need 304 votes to pass a by-law and we rarely have them many voters using our current election process, so reform is going to be required if we ever want to make any more changes.

John
ElleN (Idaho)
Posts: 4,420
Posted:
This is one corporation. Dividing the corporation into a for-profit side and and a not-for-profit side is not appropriate. The balance sheet, income/expense statement and reserve funding should reflect all aspects of the corporation. I don't know what federal tax forms you guys use and hope you have a good accountant doing the taxes.
JohnC73 (Massachusetts)
Posts: 344
Posted:
Quote:
Posted By ElleN on 12/01/2022 4:12 PM
This is one corporation. Dividing the corporation into a for-profit side and and a not-for-profit side is not appropriate. The balance sheet, income/expense statement and reserve funding should reflect all aspects of the corporation. I don't know what federal tax forms you guys use and hope you have a good accountant doing the taxes.

This is 2 separate businesses/corporations. Not sure I'm using all the correct terminology.

From 1986-2009 the commercial business was owned and operated by an individual not associated with the HOA. This person didn't own a condo and ran the commercial business as a business only.

In 2009 the association purchased the commercial business and that is where the blending of the finacials started.

Our condo declaration states that the commercial business is separate.

The three Commercial Units shall continue to be operated as a
commercial enterprise.

Thanks
John

ElleN (Idaho)
Posts: 4,420
Posted:
First you said the HOA corporation bought these three units. Now you have the HOA corporation buying the business. Either way it looks like the HOA corporation owns the three units and the business. Which means by GAAP the business's income and expenses appear on the HOA corporation's books.

The conglomerate Berkshire Hathaway owns a few dozen private companies. Does Berkshire Hathaway prepare financial statements that take into account the assets, liabilities, income and expenses of each company? Yup. Does Berkshire Hathaway make its financial statements (accounting for all the companies and stock it owns) available to its shareholders (and the public)? Yup.
JohnC73 (Massachusetts)
Posts: 344
Posted:
Quote:
Posted By ElleN on 12/01/2022 5:32 PM
First you said the HOA corporation bought these three units. Now you have the HOA corporation buying the business. Either way it looks like the HOA corporation owns the three units and the business. Which means by GAAP the business's income and expenses appear on the HOA corporation's books.

The conglomerate Berkshire Hathaway owns a few dozen private companies. Does Berkshire Hathaway prepare financial statements that take into account the assets, liabilities, income and expenses of each company? Yup. Does Berkshire Hathaway make its financial statements (accounting for all the companies and stock it owns) available to its shareholders (and the public)? Yup.

Thanks Ellen,

Does Berkshire Hathaway move money between the private companies freely or do they keep the finances separate and simply report them together? If one company had a bad year do they simply take from another Berkshire company no questions asked, never to be repayed? I wouldn't think so.

I guess what I'm questioning is moving money from the "non-profit" side to the "for-profit" side.

Here are some snippets from the declaration showing that the association is made up of 2 separate businesses.

a New Hampshire not-for-profit association of unit owners, with a place of business.

The Condominium consists of a certain tract of land, with the improvements thereon, located on xxxxx , on which has been created Condominium Units, coupled with an appurtenant undivided fractional interest in the land and certain improvements, containing a total of four hundred fifty-six (456) separate Campsites, plus three (3) Commercial Units, collectively known as "Totem Pole Park, A Condominium Campground"

The owners of the Commercial Units shall maintain separate casualty and liability insurance coverage for the property and business conducted in the Commercial Units.

The three Commercial Units shall continue to be operated as a commercial enterprise. These units shall be operated independently from the recreational units, although they will continue to form a part of The Condominium.


Thanks
John
ElleN (Idaho)
Posts: 4,420
Posted:
John, irrevocable facts: The HOA corporation ended up buying and owning these three units. Obviously the Declaration was not written with this possibility in mind. But here we are, almost 14 years later, with title to the three units being in the corporation's name. Now the board gets to make up, as best it can and as consistent with the Declaration as it can, how to proceed.

I don't see any law that supersedes the reality that the HOA corporation owns the buildings and has assumed responsibility for the business that the Declaration requires.

You keep speaking of a nonprofit side. When the HOA bought these buildings and the business, the HOA corporation being a nonprofit went at least partly out the window. This just the way it is: Your HOA is now a two-headed hydra of a corporation with fly-by-the-seat-of-its-pants, somewhat indeterminate obligations.

You want things paid for by using a certain way. The board says, 'Nope, the board decides how the corporation will be run. If you don't like it, kick us off at the next election. Now, the Declaration says the stores are to be run as a business, and the camper-members here want these stores. If they did not, they would have said so. The board has decided that the HOA will pay for the stores' 2022 shortfall from the reserve account. Maybe you would prefer a special assessment? This's not the board's preference. What you should notice is that you're going to pay for this shortfall, one way or another. Cuz you and all the other members own a portion of these three buildings and the business run out of these three buildings. When the HOA has debt, we all pay.'

BH's various companies are all corporations unto themselves. The three unit country store operation is not a corporation until itself, is it? There are some differences from your HOA (and its little side-business, which should raise an eyebrow of any competent accountant who does books for HOAs) and BH's conglomerate set-up. However, BH's books still reflect the operations of its subsidiaries in detail. BH is not separate from its various subsidiaries. Nor is your HOA corporation separate from the three units and the business run out of the three units.

Either let it go, or make it into a campaign issue for the next election.
JohnC73 (Massachusetts)
Posts: 344
Posted:
Quote:
Posted By ElleN on 12/01/2022 8:01 PM
J

You keep speaking of a nonprofit side. When the HOA bought these buildings and the business, the HOA corporation being a nonprofit went at least partly out the window. This just the way it is: Your HOA is now a two-headed hydra of a corporation with fly-by-the-seat-of-its-pants, somewhat indeterminate obligations.

You want things paid for by using a certain way. The board says, 'Nope, the board decides how the corporation will be run. If you don't like it, kick us off at the next election. Now, the Declaration says the stores are to be run as a business, and the camper-members here want these stores. If they did not, they would have said so. The board has decided that the HOA will pay for the stores' 2022 shortfall from the reserve account. Maybe you would prefer a special assessment? This's not the board's preference. What you should notice is that you're going to pay for this shortfall, one way or another. Cuz you and all the other members own a portion of these three buildings and the business run out of these three buildings. When the HOA has debt, we all pay.'


Thanks Ellen,

First, I'm not accusing the BOD of anything, nor have I asked them to change the accounting in a manner which I prefer. They have not said "NOPE" to anything. I also totally understand that I will be paying for it either way and this "MAY" be just a book keeping exercise.

With that said, if the process of shifting money between the two entities is improper I think that the process should stop. At this point I don't know if it is improper. I need to find out more about the type of acquisition that took place.

After reviewing some of the responses I need to do more research on the type of acquisition. I do not believe this was a "merger" and that the two businesses are still separate entities, with a 'non-profit' and a "for-profit" side. I just spoke to a former treasure and they told me that are in fact 2 separate entities for tax purposes. Also the NH Secretary of State's website still has them listed as separate businesses.

As far as ownership of the store goes, that isn't really relevant, but the owners voted for the purchased based on the false premise that it would be self sufficient and make money and it hasn't.

I'm thinking this question may be outside of the scope of this forum.

Thanks
John
ElleN (Idaho)
Posts: 4,420
Posted:
Does the Secretary of State's web site say they are both corporations? Does the web site say that both corporations are in good standing with the state? What kind of corporations or companies does the web site say the two entities are? Your confirmation that the association is filing separate tax forms for each is significant. More to come.
JohnC73 (Massachusetts)
Posts: 344
Posted:
Quote:
Posted By ElleN on 12/02/2022 7:24 AM
Does the Secretary of State's web site say they are both corporations? Does the web site say that both corporations are in good standing with the state? What kind of corporations or companies does the web site say the two entities are? Your confirmation that the association is filing separate tax forms for each is significant. More to come.

Thanks Ellen,

The Secretary of State's website isn't a wealth of information. It simply shows two unique business ID's and that the two are linked in some fashion. What that means? No clue, there really isn't that much to go on.

I think the key is whether or not the two businesses have a separate Federal Tax Id or if they have a single tax id. The prior treasurer did tell me today that taxes are separate, so I'm interpretting that to mean they have two separate tax id's. Unforfunately there is no way to lookup Fed Tax ID.

I will probably email the BOD and treasurer to ask them if the businesses merged or are still separated. The 5 person BOD is relatively new, so they might not know all the history themselves. I think the longest standing BOD member has just over 2 years experience and certainly wasn't around when the association aquired the store.

Again, I'm not against the store and think it most likely adds value to our individual units. I just would like to see them raise the prices a bit to reduce or eliminate the loses. The park does have it's share of renters and these renters get to purchased food items at below costs and at the end of the year the owners have to make up the difference. I'm not a huge fan of subsidizing the meals of renters. They are paying $6 for a hamburger that really should cost $10. I have to pick up the $4 when the loses come in at the end of the year.

Thanks again
John
ElleN (Idaho)
Posts: 4,420
Posted:
John, I agree you should continue with your fact-finding. You asked about the law, and in this regard, what's important here is the legal structure of the two entities. With this new information (two different secretary of state registrations; the three-unit store submitting its own tax forms separate from the HOA), now I'd say you members might have a legal basis for expecting a certain degree of separateness in operations. Key word being "might." For now I am going to call the three unit store/company/business a "subsidiary" of the HOA corporation.

I agree about checking on the tax id's and trying to confirm whether the fed and state governments legally view these businesses (the HOA and what I will call its subsidiary for now).

I would see if the Secretary of State has articles of agreement on file for the subsidiary, looking for what these articles say about the subsidiary's board (if anything) and other nuggets.

With the hard evidence you now have of separateness, I have doubts that "merger" is the right way to describe what happened here. Non-profit corporations can own for-profit corporations, and this happens a lot. The for-profit corporation would be a subsidiary of the HOA corporation. Certain practices are urged for the parent company (corporation) and the subsidiary company, like not commingling funds. Like having separate boards. Like having a board meeting for the HOA and a separate meeting for the subsidiary. Get your google introduction here:
https://nonprofitlawblog.com/parent-subsidiary-structures-part-i/
https://www.nonprofitissues.com/to-the-point/can-nonprofit-have-profit-subsidiary
https://learning.candid.org/resources/knowledge-base/subsidiaries/
https://www.irs.gov/pub/irs-tege/eotopice86.pdf
https://sos.nh.gov/media/fjdjydub/nonprofit.pdf

I do not know that the HOA and store/business are doing anything wrong. I think it's possible that the board has a better grasp of the legalities here than you do. But now that you know about the two different registrations with the state and two sets of tax forms (one for the HOA corporation; one for the subsidiary), you can maybe ask about how the payment by the parent to its subsidiary is reflected in the the parent's tax forms and the subsidiary's tax forms.

Per the first web site above, the parent paying debt of the subsidiary argues for the two entities //not// being separate in practice, and the state and federal government do not like this, as a general legal matter. From the first web site:

"Issues with respect to separateness commonly arise when the entities fail to respect corporate formalities through actions such as:

Using shared marketing materials, such as a website and letterhead;
Having a joint bank account or otherwise commingling monies;
Preparing and filing consolidated financial statements and tax returns;
Failing to hold and/or document separate board meetings;
Failing to negotiate business transactions between the parent and subsidiary at arm’s length;
Entering into business transactions favorable to the parent;
Undercapitalizing the subsidiary; and
Agreeing to payment by the parent of the subsidiary’s debts."
JohnC73 (Massachusetts)
Posts: 344
Posted:
Quote:
Posted By ElleN on 12/02/2022 8:17 AM
John, I agree you should continue with your fact-finding. You asked about the law, and in this regard, what's important here is the legal structure of the two entities. With this new information (two different secretary of state registrations; the three-unit store submitting its own tax forms separate from the HOA), now I'd say you members might have a legal basis for expecting a certain degree of separateness in operations. Key word being "might." For now I am going to call the three unit store/company/business a "subsidiary" of the HOA corporation.

I agree about checking on the tax id's and trying to confirm whether the fed and state governments legally view these businesses (the HOA and what I will call its subsidiary for now).

I would see if the Secretary of State has articles of agreement on file for the subsidiary, looking for what these articles say about the subsidiary's board (if anything) and other nuggets.

With the hard evidence you now have of separateness, I have doubts that "merger" is the right way to describe what happened here. Non-profit corporations can own for-profit corporations, and this happens a lot. The for-profit corporation would be a subsidiary of the HOA corporation. Certain practices are urged for the parent company (corporation) and the subsidiary company, like not commingling funds. Like having separate boards. Like having a board meeting for the HOA and a separate meeting for the subsidiary. Get your google introduction here:
https://nonprofitlawblog.com/parent-subsidiary-structures-part-i/
https://www.nonprofitissues.com/to-the-point/can-nonprofit-have-profit-subsidiary
https://learning.candid.org/resources/knowledge-base/subsidiaries/
https://www.irs.gov/pub/irs-tege/eotopice86.pdf
https://sos.nh.gov/media/fjdjydub/nonprofit.pdf

I do not know that the HOA and store/business are doing anything wrong. I think it's possible that the board has a better grasp of the legalities here than you do. But now that you know about the two different registrations with the state and two sets of tax forms (one for the HOA corporation; one for the subsidiary), you can maybe ask about how the payment by the parent to its subsidiary is reflected in the the parent's tax forms and the subsidiary's tax forms.

Per the first web site above, the parent paying debt of the subsidiary argues for the two entities //not// being separate in practice, and the state and federal government do not like this, as a general legal matter. From the first web site:

"Issues with respect to separateness commonly arise when the entities fail to respect corporate formalities through actions such as:

Using shared marketing materials, such as a website and letterhead;
Having a joint bank account or otherwise commingling monies;
Preparing and filing consolidated financial statements and tax returns;
Failing to hold and/or document separate board meetings;
Failing to negotiate business transactions between the parent and subsidiary at arm’s length;
Entering into business transactions favorable to the parent;
Undercapitalizing the subsidiary; and
Agreeing to payment by the parent of the subsidiary’s debts."

5
Wow! Thanks Ellen,

Lots of information to process here. I'm slowly(very slowly) piecing the puzzle together and will use this information!

The prior BOD's absolutely have a better grasp of this than I do, but not sure about the current BOD. Four of the 5 BOD members have 1 yr or less experience and the other has 2 yrs. And the Treasurer has less than 1 year also.

The management of the commercial business has been outsourced or contracted to our management company to run. The BOD is hands off and doesn't pay much attention to the commercial business side. In fact, at the BOD meeting last month the BOD was shocked to hear about the $58K loss.

I actually had a new by-law article to create a separate BOD to oversee the commercial business, but unfortunately not enough owners(or proxies) attended our annual meeting in Sept, so we didn't have the minimum(304) number of votes to pass any by-law.

Thanks for the help
John

ElleN (Idaho)
Posts: 4,420
Posted:
John, I am going to continue to refer to the 3-unit store/company/business as a subsidiary until you find something that says it's wrong to do so. About a board for the subsidiary: If the subsidiary has its own articles of agreement, I would expect these articles of agreement to indicate whether the subsidiary has to have a board. Or if it turns out the subsidiary is incorporated or an LLC or __, then NH statutes might require a board for the subsidiary distinct, at least on paper, from the HOA board. If the subsidiary's articles of agreement do not exist or are silent, then with all that's been posted here so far, your proposal certainly seems to be on the right track, but with legal caveats about how this proposed subsidiary board is to be run. The caveats would involve the legal structure mandated by statutes, including federal and state tax laws.

This is an interesting discussion of a parent company paying for expenses of a subsidiary: https://www.thetaxadviser.com/issues/2010/feb/parent-spaymentonbehalfofsubsidiary.html
It's mostly over my head but it seems to make the point that the the payment itself is not necessarily illegal. It's the way the payment is reported on taxes where issues may arise. Overall the maneuvers being discussed seem to be maneuvers only sophisticated companies would use. For board members to make decisions about whether to use the parent corporation to pay the expenses of the subsidiary, especially from the HOA reserves, seems like asking a lot of volunteers. And you say the management company has been contracted separately to run the subsidiary, with the board being, practically speaking, hands off? Is the contract with the management company a simple monthly fee to manage the subsidiary? My first blush impression is that the situation, as we so far understand it, is ripe for abuse. Which maybe is why you landed at this forum and are trying to understand what is going on here in the first place.
JohnC73 (Massachusetts)
Posts: 344
Posted:
Quote:
Posted By ElleN on 12/02/2022 10:37 AM
John, I am going to continue to refer to the 3-unit store/company/business as a subsidiary until you find something that says it's wrong to do so. About a board for the subsidiary: If the subsidiary has its own articles of agreement, I would expect these articles of agreement to indicate whether the subsidiary has to have a board. Or if it turns out the subsidiary is incorporated or an LLC or __, then NH statutes might require a board for the subsidiary distinct, at least on paper, from the HOA board. If the subsidiary's articles of agreement do not exist or are silent, then with all that's been posted here so far, your proposal certainly seems to be on the right track, but with legal caveats about how this proposed subsidiary board is to be run. The caveats would involve the legal structure mandated by statutes, including federal and state tax laws.

This is an interesting discussion of a parent company paying for expenses of a subsidiary: https://www.thetaxadviser.com/issues/2010/feb/parent-spaymentonbehalfofsubsidiary.html
It's mostly over my head but it seems to make the point that the the payment itself is not necessarily illegal. It's the way the payment is reported on taxes where issues may arise. Overall the maneuvers being discussed seem to be maneuvers only sophisticated companies would use. For board members to make decisions about whether to use the parent corporation to pay the expenses of the subsidiary, especially from the HOA reserves, seems like asking a lot of volunteers. And you say the management company has been contracted separately to run the subsidiary, with the board being, practically speaking, hands off? Is the contract with the management company a simple monthly fee to manage the subsidiary? My first blush impression is that the situation, as we so far understand it, is ripe for abuse. Which maybe is why you landed at this forum and are trying to understand what is going on here in the first place.

Thanks Ellen!

This entire conversation is over my head - lol. This is why I come to this site to learn.

I will check out the link and other info you posted. I did politely email the BOD with some questions.

This conversation has me wondering something else also.

Is the commercial business(subsidiary) governed by the NH Condo Act and the association bylaws? I'm not sure, but think it probably isn't. The NH Condo Act makes "rejecting" a budget nearly impossible as it requires 2/3 NO vote of ALL owners to reject a budget. We rarely have the minimum(304) voters required to reject a budget.

Now I'm wondering if the budget for the subsidiary should only require a majority vote(50%+1) to pass/fail.

Thanks
John
ElleN (Idaho)
Posts: 4,420
Posted:
For now I am going to assume that the subsidiary does not have governing documents of its own. I am also going to assume that there is nothing that says the subsidiary, by itself, is governed directly by the Condo Act. What you and I can say is that the NH Condo Act and the Bylaws govern the condo corporation as a whole. Since the condo corporation owns the subsidiary, the NH Condo Act and Bylaws only very indirectly dictate the terms for operating the subsidiary.

The Condo Act requires that the Board present a budget for the condo corporation as a whole. Under the Condo Act and Bylaws, I do not see how the owners have the right to reject only the subsidiary's budget while leaving the rest of the condo corporation's proposed budget intact. If you members do not like the proposed budget for the subsidiary, I think you'd have to get together at least 2/3rds of the members to reject the entire proposed condo corporation budget.

Did you get in touch with the NH Secretary of State office to see if the Sec of State has any governing documents for the subsidiary?
JohnC73 (Massachusetts)
Posts: 344
Posted:
Quote:
Posted By ElleN on 12/02/2022 1:13 PM
For now I am going to assume that the subsidiary does not have governing documents of its own. I am also going to assume that there is nothing that says the subsidiary, by itself, is governed directly by the Condo Act. What you and I can say is that the NH Condo Act and the Bylaws govern the condo corporation as a whole. Since the condo corporation owns the subsidiary, the NH Condo Act and Bylaws only very indirectly dictate the terms for operating the subsidiary.

The Condo Act requires that the Board present a budget for the condo corporation as a whole. Under the Condo Act and Bylaws, I do not see how the owners have the right to reject only the subsidiary's budget while leaving the rest of the condo corporation's proposed budget intact. If you members do not like the proposed budget for the subsidiary, I think you'd have to get together at least 2/3rds of the members to reject the entire proposed condo corporation budget.

Did you get in touch with the NH Secretary of State office to see if the Sec of State has any governing documents for the subsidiary?

Thanks Ellen,

I'm probably splitting hairs over the budget and whether or not the subsidiary governed by the NH Condo Act. I'll shelf that discussion until I hear back from the BOD.

I did email the BOD with a list of questions similar to what is being discussed here and the President responded saying she said will get answers to the questions, but it might take some time. I included the question on whether or not the subsidiary/commercial business is governed by the NH Condo Act and our by-laws. I'm hoping she runs these questions by the association attorney.

I haven't yet contacted the Secretary of states office, but will first thing monday. I'm still trying to process all the information you provided me - lol. I greatly appreciated it, but there is a lot here for a novice like me. The Articles of Agreement for the Condo Association are on the NH Registry of Deeds, but nothing in this document related to the commercial business.

Thanks again
John

JohnC46 (South Carolina)
Posts: 14,265
Posted:
JohnC73

You touched on the answer as in raise prices to cover expenses. This is the answer otherwise keep "subsidizing" them as you are presently doing.
JohnC73 (Massachusetts)
Posts: 344
Posted:
Quote:
Posted By JohnC46 on 12/02/2022 5:50 PM
JohnC73

You touched on the answer as in raise prices to cover expenses. This is the answer otherwise keep "subsidizing" them as you are presently doing.

Thanks John,

This is exactly what many owners would like to do.

I do think having a store is an added attraction for renters and is a benefit and convenience for owners, but everyone should be paying extra for that convenience, especially the renters that get all the benefits and don't have to contribute to the losses each year.

I think in order to change policy at the store/snack bar the first thing needed is to determine the governing documents. Prior to the purchase of the business in 2009 the business was NOT governed by the NH Condo Act or our by-laws and my hope that the business is still not governed by them, but that is what I'm trying to find out.

If the store isn't governed by the NH Condo Act and our by-laws then owners should be able to pass articles/changes by a simple majority vote as opposed to the 2/3 ownership vote for a bylaw.

Thanks
John
JohnC73 (Massachusetts)
Posts: 344
Posted:

For those following.

I did reach out to an attorney for clarification if the commercial business is governed by the NH Condo Act and our by-laws or not.

John
JeffK14 (New Hampshire)
Posts: 19
Posted:
I have been like a canary in a coal mine telling the owners about the huge amount of money being spent to cover the yearly losses of the store and the snack bar. Since 2013 they have lost $225,000. There is nothing in the budget that covers these losses but some how they are. Yet every time something comes up the board says we don’t have the funding do they do a special assessment.
ElleN (Idaho)
Posts: 4,420
Posted:
John, I think it's helpful to think about how master associations and sub-associations are structured. The master is one corporation registered with the state. Each of the subs is also a corporation, also registered with the state. Each corporation has its own declaration, articles of agreement, and bylaws. The master and subs have different sets of dues paying for different services. Unlike what your association seems to have, the master association never has title to (ownership of) lots or units of the subs (or if it did, this would be unusual), and the master's control of the subs is only to the extent the governing documents allow. So far it looks like what your condo association has is not a master/sub arrangement. If you locate governing documents for the subsidiary that say the subsidiary is to have its own board and bylaws, all this changes.
ElleN (Idaho)
Posts: 4,420
Posted:
Jeff, the reason the parent doesn't have the funding is because it has been bailing out the subsidiary, right? This thread makes it sound like a shell game. But it might be a legal shell game, especially if the association accountant is completing the tax forms for the parent and subsidiary correctly.
JeffK14 (New Hampshire)
Posts: 19
Posted:
The commercial properties and the units they are attached to were owned privately by the developer who also wrote the declaration. He sold them to his operations manager who was awarded the management contract when the developer left. The second owner sold them when he left to a private owner. The association bought it from him in 2009. The association owns the buildings and the condo units associated with them. Association condo fees are paid to the association by the association. When the push to the owners to buy was made we were told that the association would have nothing to do with the operation of the store/ sb it was to be rented or leased to a third party who would operate it on there own, no losses would affect the association. That was done 1 year.
ElleN (Idaho)
Posts: 4,420
Posted:
Jeff, so I guess some think the members were deceived. I think it's more accurate to say the members did not perform due diligence. For instance they could have demanded amending the bylaws or declaration to prohibit the association from undertaking operation of the business. Yes, regarding the association paying the dues for the three buildings right back to the association. It's ridiculous. Condos are not set up for such arrangements. But time and again, often in housing market downturns, some unschooled board thinks they see an investment opportunity and buys a unit. Sometimes they even overlook provisions in the declaration that say the association cannot buy real estate without a membership vote. Regardless, for years now your association has owned the buildings and operated a business out of them. Not enough owners stood up to protest or get on the board and stop this. I think it's the price of choosing to have your several dozen neighbors (of questionable expertise) as business partners. For anyone with a business mind, I'd say condo associations are often awful.
JohnC73 (Massachusetts)
Posts: 344
Posted:
Ellen,

. I think you hit the nail on the head. We have an apparent shell game going on here, it may be legal, but seems fishy to me.

So, after spending much time researching today I think I have some more clarification on what appears to me to be a shell game of sorts.

. First to clarify. The association purchased the commercial units, not the commercial business.

It appears that the association is running the a business by using a shell game of sorts known as the "management contract".

. The management company registered what appears to be a straw or shell business or perhaps a false front. They didn't file an "articles of incorporation" with the Secretary of State. And we included in the management contract details of the manager running the business.
. The management company is responsible for running the THEIR business, but all expenses are reimbursed as part of the association management contract that I posted below.

J. The Manager is responsible for the operation of the Store, Snack Bar, Arcade, and Laundromat,
this operation shall include:

1. Obtaining all licenses required for the operation of the Store and Snack Bar;
2. Providing a Store Manager to run the Store and Snack Bar;
3. Providing to the Board of Directors no later than May 01 a schedule for the hours and days that
the Store and Snack Bar are to be open;
4. Hiring and training qualified personnel to staff the Store, Snack Bar, Arcade, and Laundromat;
5. Management Company will oversee all sub-contractors to ensure equipment will be operational in the
Store, Snack Bar, Arcade, and Laundromat.

Management operations will include:
Securing vendors and controlling inventory
Securing all necessary State of New Hampshire licensing
Securing necessary equipment or repairs
Hiring and training of staff
Facilitating payroll operations and maintaining payroll records
Setting up procedures and policies for store/snack bar operation
Setting up procedures and policies for all aspects cash control systems
Advertising, promotions, and promotional materials such as menus, flyers, bulletin boards, etc.
Providing staff uniforms

Working with Association bookkeeping firm to facilitate timely payment to vendors/contractors, t
axes, licensing, and forwarding of receipts and deposits for Association accounting
Day to day management of operations

All costs incurred by Manager for equipment, inventory, licensing, taxes, cleaning, supplies, repairs, payroll
costs, uniforms, utilities and all other costs related to the above stated store / snack bar operations will be
reimbursed to the Manager by the Association.

Manager will handle all payroll costs to be reimbursed at the set payroll rate, which includes, payroll fees,
social security, state and federal taxes, worker’s compensation insurance and liability insurance. Payment
and reimbursement of payroll costs will be made within two weeks of request for such. Audits of payroll
timecards may be conducted by the Board of Directors upon request.

6. Management Company will be reimbursed for store and snack bar employees at current liability
insurance and workman’s compensation rates.

Thanks
John
JohnC73 (Massachusetts)
Posts: 344
Posted:
Ellen,

So, it appears to me that our non-profit association is running a for-profit business under a ficticuous name created by the management company and operating costs are hidden in the details of the management contract.

Now what I'm wondering is who gets to claim and write off the $58K business loss? Technically the business is owned by the management company, so I would think that they might be able to write off the business loss even though the didn't really incure a loss.

Thanks
John
JohnC73 (Massachusetts)
Posts: 344
Posted:
Ellen,

So, it appears to me that our non-profit association is running a for-profit business under a ficticuous name created by the management company and operating costs are hidden in the details of the management contract.

Now what I'm wondering is who gets to claim and write off the $58K business loss? Technically the business is owned by the management company, so I would think that they might be able to write off the business loss even though the didn't really incure a loss.

Thanks
John
JohnC73 (Massachusetts)
Posts: 344
Posted:
Ellen,

Here are the details regarding the 'execution' of the management contract that to me appear illegal, but what do I know.

J. The Manager is responsible for the operation of the Store, Snack Bar, Arcade, and Laundromat,
this operation shall include:
>b>
• What is not mentioned in the management contract is “Who is the owner of the store”. One would reason that since the association is contracting the manager to run the business that the association would be the owner, but that isn't the case. According to all the liquor license and Secretary of state the management company created a shell company under the parent company name and this shell company is the registered owner of the business.

1. Obtaining all licenses required for the operation of the Store and Snack Bar;


• The manager put all these licenses in the name of a shell company owned by an out of state parent company. This is totally not the intent of this agreement.

Thanks
John
ElleN (Idaho)
Posts: 4,420
Posted:
John, you say, "the management company created a shell company under the parent company name and this shell company is the registered owner of the business." You say the parent company is out of state. Can you clarify: Is the management company a subsidiary of this out-of-state parent company?

Is it still clear that the condo association pays for and completes the tax returns for this shell company? Can you do a records request for the federal tax forms that were filed for both the condo association and this shell company? You might get turned down for the latter (and maybe for good reason), but you might get lucky and the association will provide the tax returns. I am keeping in mind that shell companies are not always illegal. It's only when they are used for criminal purposes (or to violate a contract's terms?) that they become a problem.
JohnC73 (Massachusetts)
Posts: 344
Posted:
Quote:
Posted By ElleN on 12/04/2022 7:53 AM
John, you say, "the management company created a shell company under the parent company name and this shell company is the registered owner of the business." You say the parent company is out of state. Can you clarify: Is the management company a subsidiary of this out-of-state parent company?

Is it still clear that the condo association pays for and completes the tax returns for this shell company? Can you do a records request for the federal tax forms that were filed for both the condo association and this shell company? You might get turned down for the latter (and maybe for good reason), but you might get lucky and the association will provide the tax returns. I am keeping in mind that shell companies are not always illegal. It's only when they are used for criminal purposes (or to violate a contract's terms?) that they become a problem.

Thanks Ellen,

I could be using incorrect terminology, I'm learing as I go thanks to your help. And I think I've stumbled into something that I really wasn't supposed to uncover. Intentional or unintentional, I'm wondering if this is a serious case of fraud and really a legal issue at this point. Seems like we are HIDING the fact that we own and operate a business by a shell game taking place in the management contract. All the commercial business expenses are being paid through the ruse of a management fee that is apparently dynamic and not a fixed cost. I need the tax records, but doubt I can get them. The management company could be double dipping here. Getting paid for the store loss via a management fee and since the management company owns the business and therefore the taxes could also be taking a $58K business loss right off? That is pure speculation on my park, but if they are keeping the books for the business, why not write off the loss.

The management company that manages our association is the "out of state" parent company. We hired this out of state property management company from maine. I think this part is on the up and up. For the sake of argument I will label them Parent_XYZ and the Subsidiary_Country_Store.

What I'm referring to is the shell company I assume is a subsidiary or it could be just a resigistered trade name of the parent company from maine. I'm not sure of the difference. And I might be using the incorrect terms here, sorry, I'm a novice. The Subsidiary_Country_Store is/was a "registered trade name" on the Secretary of State Website and the Parent_XYZ is the Corporration that owns the registred trade mark. Both of these companys were AT ONE TIME legally registered with the Secretary of State of NH, but both have been expired since 2019. The parent comany(Parent_XYZ) is listed as a "foreign business". I assume that is because they are an out of state business.

The store Liquor license lists the Parent_XYZ is the OWNING business, but they are "Doing Business As(DBA)" Subsidiary_Country_Store. I don't really know all the implicatoins of what a DBA is. Is it just a different method to reference the parent company or is this a separate company?

As far as the state of NH and the IRS is concerned I believe the management company owns the business and they would be required to file the taxes. I was wrong about something I previously stated. Hard to put this all together.

As far as taxes go. I had another discussion with a former treasurer today. The condo association is filing only 1 tax return for the non-profit association. The association IS NOT filing a tax return for the business as via the shell game, the association doesn't technically own the BUSINESS. We do own the business units, but that is separate from the occupying business.

I assume, that since the management company is the owner of record of the business that it is the management companies responsibility to file taxes for the business.

I did notify the NEW Board that something appears off with the running of our commercial business and they should consult our NEW attorney to see of this is all legal. Doesn't seem to be to me.

Thanks
John
JohnC73 (Massachusetts)
Posts: 344
Posted:
Ellen,

I did just ask the Board who files takes for the "subsidiary_Country Store" . I would love for this to be public information on an IRS site. Not expecting an immediate response, but they have said they are looking into this entire matter.

Thanks
John
ElleN (Idaho)
Posts: 4,420
Posted:
I am now trying to always carefully distinguish between the owner of the three units and the owner of the business run out of the three units. The condo association owns the commercial units. From what you quoted from the Declaration, the condo association must therefore pay all liability insurance for the "property and business" conducted in these commercial units. (To repeat, obviously the Declaration was written in the belief that a wholly separate and distinct company would own the units and business simultaneously.) With the condo association owning the three units, the Declaration's requirement to pay all the insurance for the business seems to be quite the benefit to the business. Though this assumes the business is making money, and you say the business has been running losses. Meanwhile the management company makes money, guaranteed, by way of the management contract for the business. Like Jeff and you have been saying, where's the accountability (of the management company)?

I am not qualified to say that the commingling here is ill-advised or maybe even illegal. But it seems like the commingling makes any thievery or embezzlement going on a lot harder to detect. It's not like a group of volunteer directors have the time or skills to figure out what's legal and GAAP-approved here. Yet the condo association's directors are the only "parents in the room" to make sure all is legitimate and the members are protected.

When is the last time any kind of audit was done of the condo association's books? If the condo association for some reason also prepares the taxes for the shell company (owned by an out-of-state parent company), when was the last time an independent professional looked at the shell company's tax returns? Does the Declaration require an audit of the books every so often? I wonder if getting the books and taxes formally examined by an independent CPA might be the key to giving people assurance that things are above board here. Is the condo association protected, liability-wise, from mistakes or negligence by the shell company? If the members really want the store run out of the three units, then they had better make sure the books and tax returns are being done correctly.

You could try this site for identifying the federal tax id: https://www.upcounsel.com/federal-tax-id-lookup

ElleN (Idaho)
Posts: 4,420
Posted:
John, you posted, "The management company could be double dipping here. Getting paid for the store loss via a management fee and since the management company owns the business and therefore the taxes could also be taking a $58K business loss right off? That is pure speculation on my park, but if they are keeping the books for the business, why not write off the loss." If I were a director, I would have this concern as well. Maybe no thievery is going on. It seems like most of the time, what members of associations think is inappropriate or even thievery turns out to be legitimate. Even so, today's arrangement between your association and the business run out of the three units seem to defeat the original design the authors of the Declaration likely had in mind. This odd, un-envisioned arrangement and the commingling going on (per the Declaration's and contract's requirements) make deciphering the books of all parties concerned rather thoroughly opaque (so it seems to me).

I think "foreign" means "non-domestic." Non-domestic means outside the United States.
JohnC73 (Massachusetts)
Posts: 344
Posted:
Quote:
Posted By ElleN on 12/04/2022 9:15 AM
I am now trying to always carefully distinguish between the owner of the three units and the owner of the business run out of the three units. The condo association owns the commercial units. From what you quoted from the Declaration, the condo association must therefore pay all liability insurance for the "property and business" conducted in these commercial units. (To repeat, obviously the Declaration was written in the belief that a wholly separate and distinct company would own the units and business simultaneously.) With the condo association owning the three units, the Declaration's requirement to pay all the insurance for the business seems to be quite the benefit to the business. Though this assumes the business is making money, and you say the business has been running losses. Meanwhile the management company makes money, guaranteed, by way of the management contract for the business. Like Jeff and you have been saying, where's the accountability (of the management company)?

I am not qualified to say that the commingling here is ill-advised or maybe even illegal. But it seems like the commingling makes any thievery or embezzlement going on a lot harder to detect. It's not like a group of volunteer directors have the time or skills to figure out what's legal and GAAP-approved here. Yet the condo association's directors are the only "parents in the room" to make sure all is legitimate and the members are protected.

When is the last time any kind of audit was done of the condo association's books? If the condo association for some reason also prepares the taxes for the shell company (owned by an out-of-state parent company), when was the last time an independent professional looked at the shell company's tax returns? Does the Declaration require an audit of the books every so often? I wonder if getting the books and taxes formally examined by an independent CPA might be the key to giving people assurance that things are above board here. Is the condo association protected, liability-wise, from mistakes or negligence by the shell company? If the members really want the store run out of the three units, then they had better make sure the books and tax returns are being done correctly.

You could try this site for identifying the federal tax id: https://www.upcounsel.com/federal-tax-id-lookup


Ellen,

Interesting comments! Are you a secret member of our association - lol

. The management company really has no stake in the game and no accountability. I don't want to accuse them of wrong doing without evidence, but, if they able to claim the loss on the tax return while being paid for that loss through a management fee then there is more of incentive for them to lose money than to make a profit.

. Yes, the co-mingling is making if difficult to unravel all of this.

. The owners voted and approved a new bylaw for an audit 2 years ago and that audit was "attempted" last year. I say attempted! The company doing the audit reported that an audit was not even possible because the books, records and business practices were such a mess that they couldn't be audited. So, instead the audit company gave the association a recommended list of business processes to implement so that an audit could be done in the future. I suspect, but the owners told this that since essentially a "private business" owns the business that the association has no legal standing to look at the books.

Jeff may chime in on the audit. It was his by-law article that requested the audit.

I will check out the website. I'm really dying to see how taxes were paid. I think that is the key to this puzzle.

Thanks for all the help. You have gone above and beyond as many do on this site.

John
JohnC73 (Massachusetts)
Posts: 344
Posted:
Quote:
Posted By ElleN on 12/04/2022 9:33 AM
John, you posted, "

I think "foreign" means "non-domestic." Non-domestic means outside the United States.


The actual wording is "foreign Profit Coorporation" with a home address of Maine. Probably not real important.
JeffK14 (New Hampshire)
Posts: 19
Posted:
BA SERVICES formerly BANGOR ABATEMENT is the company owned by 2 people who were hired to manage the park. It’s a condominium campground. They were managing the store and the snack bar under a separate contract which went on for 8 years. In 2019 when the management contract for the park came up for renewal the contract for the commercial properties was mixed into it. Supposedly 6800 of the $400,000 contract is for management of the store and snack bar in addition they are paid a payroll administrative fee equal to 10% of the total payroll. The management company has zero expenses related to operating the business all expenses are paid or reimbursed to the manager.
JeffK14 (New Hampshire)
Posts: 19
Posted:
BA SERVICES formerly BANGOR ABATEMENT is the company owned by 2 people who were hired to manage the park. It’s a condominium campground. They were managing the store and the snack bar under a separate contract which went on for 8 years. In 2019 when the management contract for the park came up for renewal the contract for the commercial properties was mixed into it. Supposedly 6800 of the $400,000 contract is for management of the store and snack bar in addition they are paid a payroll administrative fee equal to 10% of the total payroll. The management company has zero expenses related to operating the business all expenses are paid or reimbursed to the manager.
JohnC73 (Massachusetts)
Posts: 344
Posted:
Quote:
Posted By JeffK14 on 12/04/2022 10:09 AM
BA SERVICES formerly BANGOR ABATEMENT is the company owned by 2 people who were hired to manage the park. It’s a condominium campground. They were managing the store and the snack bar under a separate contract which went on for 8 years. In 2019 when the management contract for the park came up for renewal the contract for the commercial properties was mixed into it. Supposedly 6800 of the $400,000 contract is for management of the store and snack bar in addition they are paid a payroll administrative fee equal to 10% of the total payroll. The management company has zero expenses related to operating the business all expenses are paid or reimbursed to the manager.

You might want to leave the business names out of these threads. That is why I made up names!
ElleN (Idaho)
Posts: 4,420
Posted:
John posted: "The owners voted and approved a new bylaw for an audit 2 years ago and that audit was "attempted" last year. I say attempted! The company doing the audit reported that an audit was not even possible because the books, records and business practices were such a mess that they couldn't be audited. So, instead the audit company gave the association a recommended list of business processes to implement so that an audit could be done in the future. I suspect, but the owners told this that since essentially a "private business" owns the business that the association has no legal standing to look at the books."

Just curious: Who is preparing the books? Has anyone asked for a new bookkeeper?

I see "foreign profit corporation" has an exact definition on the net. From the definition I saw, I agree it's probably not real important.

Let's call the company Jeff named "company YX." I see Company YX operates campgrounds in various states and has been doing so for some years now. Some of these campgrounds are state-owned. I cannot imagine that the states pay for operating losses incurred by company YX. I can see the states paying for certain insurance, and company YX paying for other insurance.

I think I'd home in on trying to get the condo association's books done right; amending the Declaration so that the HOA can own the units without having to pay insurance for the business operations (clearly delineating what insurance the condo association does and does not pay); and revising the contract so that it's clear company YX has to pay for losses company YX obviously has more control over compared to the board. These are tall orders. It sounds like you have the board's attention, though.
JohnC73 (Massachusetts)
Posts: 344
Posted:
Ellen,

Not I understand the business entity a bit better along with the registred trade name. for instance, Walmart is a registered trade name for WalMart-INC.

So, our store is operated by the management company under the registered tradename of "XXXX Country Store". The name is more appropriate for the business in our association.

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