HOA "Fundraisers" - OK to Mix with HOA business?

Started by SusanW1 • 5 replies • 3259 views

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SusanW1 (Michigan)
Posts: 5,202

Posted:

I just attended our Annual Membership Meeting. The newly renovated community center restrooms were shown and everyone seemed real pleased, A total of $20,000 was spend on two bathrooms, moving a wall, new wet bar area, painting, etc. etc. Many people donatated sweat equity to the project, including granite counters and licensed electrician services, but the project was paid for with Reserve and Captial Improvement funds.

Now the lady who coordinated the entire project wants to re-do the kitchen. She and another lady are starting "projects" to get money to do this and some other programs meant to increase community spirit. The thing is that they are now selling pizza kits and taking in contributions from residents who just want to donate to the renovation of the kitchen.

I am thinking that a Ladies Auxiliary or Friends of XYZ Homeowners Association should be formed, and they can do their own thing, and then approach the board with ideas and money in hand to do their kitchen project and other things.

I just have trouble with the idea of mixing "fundraisers and donations" in with our HOA membership dues (our only revenue)and expenditures in the bookkeeping aspect.

Your comments and experiences, please. Am I off base, here?

PS. There was a Quorum at beginning of meeting, but by the time the elections came, half the people left. Our bylaws say that business, including elections, can take place even without a quorum at the annual meeting. About 18 people (out of 250 potential voters) elected the new Board!!!

BruceF1 (Connecticut)
Posts: 2,535

Posted:

Susan,

I would be careful of the tax implications here. As I'm sure you are aware, you have to be careful of where your income comes from and what it gets spent on in order to maintain your tax status as an HOA (remeber the 80/20 and 90/10 rules?).

Also, does your state have sales tax? You may be required to collect and pay sales tax.

Although you are a non-profit or not-for-profit (whatever) corporation, you are not a tax-exempt organization according to the IRS (like a charity).

Also, what does your corporation charter say? I'll bet it doesn't say you are in the business of whatever it is you want to do.

We've been wrestling with some of the same things ourselves. I think it's best to keep such activities separate from the HOA and not under the control of the BOD.

BruceF1 (Connecticut)
Posts: 2,535

Posted:

Susan,

I other words, I guess I agree with you. Don't mix it.

SusanW1 (Michigan)
Posts: 5,202

Posted:

Those are my thoughts exactly. I know that not-for-profits can have side businesses i.e. running a food service at the clubhouse, but with the size and scope of our HOA, I'd just not as soon have to deal with it. It has something to do with our mission of having the community center, but I don't like the idea of co-mingling the funds.

GlenL (Ohio)
Posts: 5,491

Posted:

Susan our articles of incorporation and the by-laws would IMO prohibit such an undertaking by the Association there may be similar clauses in yours. Besides the tax problems noted above what happens if the venture loses money instead of makes it?

By-Law Section 4.5. No Active Business to be Conducted for Profit. Nothing herein contained shall be construed to give the Association authority to conduct an active business for profit on behalf of all the owners or any of them.

AIC: Nothing in these Articles of Incorporation or in the By-Laws shall authorize the corporation to, and the corporation shall not, enter into any transaction, carry on any activity, or engage in any business for pecuniary profit.

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BruceF1 (Connecticut)
Posts: 2,535

Posted:

Susan,

In my earlier post I mentioned the tax implications. I negleted to mention liability.

I doubt that your HOA insurance would cover the association for any liability that might occur while conducting a fund raising "business". I know from experience that individual homeowners policies won't cover a homeowner for any side business activity.

Even with separate business liability insurance you have to be careful because of the issue of product liability. When I had my business, I wasn't allowed to manufacture or make anything unless I also purchased product liability insurance. I couldn't even buy something in bulk that was already made and repackage it in smaller quantities as a "house" brand because of the implied liability that would result.

Also, if whatever you do involves food, then you probably need permits from the local health department.

It gets very complicated.

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