The Secretary of State and Your HOA: How to Remain in Good Standing
Nearly all states require that HOAs organized as non-profit corporations file an annual report to the Secretary of State. Failure to do so can result in an association losing certain rights. Knowing what to file, when to file it, and whose responsibility it is to file are all vital to ensuring the association remains in good standing with the state.
Why Most States Require an Annual Report
The purpose of an annual report to the Secretary of State is to maintain state files regarding your HOA. The data collected includes important, updated information such as:
- The names of the registered agent and officers for the association
- That all taxes and fees have been paid
- That the organization is in "good standing" to do business in the state
While some states may only require an annual report every two years, submitting one annually is good practice. The duty of submitting the report typically belongs to the board secretary, however, all board members have a responsibility for ensuring the task is done.
When Good Standing Goes Bad
Letting your annual report lapse has serious consequences. Depending upon the circumstances and your particular state, your association may face one or more of the following actions:
- Tax liens, fines, and/or penalties
- Loss of court access and the ability to bring litigation against others
- Difficulty in securing funding for projects
- Loss of naming rights
In some states, board members can face personal liability if they make decisions for an organization with a "revoked" status. Protecting HOA board members from liability is among the most important reasons for submitting the annual report.
It is possible to regain a good standing status with your state. Submitting a report and paying any associated back fees certainly helps. Not letting it lapse, to begin with, however, can save you a world of trouble and aggravation later. More severe cases may require extra effort in terms of reclaiming your business name and may require the services of an association's legal counsel.
A proactive approach to submitting an annual report to the Secretary of State is the best way to remain in good standing. Most states allow for reports to be submitted online and accept online payments. Deadlines for submissions depend upon the state so be sure to check your state's deadline. Make a note of the date either on the board calendar and/or personal calendars so it doesn't pass you by.
As a non-profit corporation, losing good standing status at the state level can result in a negative reputation for your community. Members may move and the new residents may appear hesitant to move into an HOA with a revoked state status.
Perhaps the most important reason for being proactive with your annual report is the board members themselves. The risk of personal liability for board members who are volunteers is too high and may result in board resignations.
Remaining in good standing is important for not only the association's relationship with the state but also its board and membership. It maintains the credibility of the HOA as a viable organization to conduct business with and as a reputable place to live.
As a property management company, we understand the complex challenges HOA board members face. It is easy to forget to submit an annual report to the state when dealing with other board matters, your career, and family issues. Let RealManage provide peace-of-mind for your association by providing professional guidance. To learn more about how we can help your association to thrive, contact us today.