8.05 Members of Incorporated Association

• Library: South Carolina Community Association Law: Condominiums and Homeowners Associations (SCBar) (2019 Ed.)

8.05 Members of Incorporated Association

A. Definition of "Member"

A member of a nonprofit corporation is defined as a person entitled pursuant to the articles of incorporation or bylaws — without regard to what a person is called in those documents²¹⁶ — to vote on more than one occasion for the election of a director or directors or any other matter that under the terms of the South Carolina Nonprofit Corporation Act requires approval by the members.²¹⁷ A person is not a member by virtue of any rights the person has as a director.²¹⁸

The South Carolina Nonprofit Corporation Act allows for the termination, expulsion, or suspension of membership in an association pursuant to a procedure that is fair and reasonable and carried out in good faith.²¹⁹ A procedure is fair and reasonable when the articles of incorporation or bylaws set forth a procedure that provides not less than 15 days prior written notice of the expulsion, suspension, or termination and the reasons for it and an opportunity for the member to be heard, orally or in writing, not less than five days before the effective date of the expulsion, suspension, or termination by a person or persons authorized to decide that the proposed expulsion, termination, or suspension not take place.²²⁰ A procedure is also acceptable when it is fair and reasonable taking into consideration "all of the relevant facts and circumstances."²²¹ A proceeding that challenges an expulsion, suspension, or termination, including a proceeding in which defective notice is alleged, has to be commenced within one year after the effective date of the expulsion, suspension, or termination.²²² The Act provides that a member who has been expelled or suspended may be liable for dues, assessments, or fees as a result of obligations incurred or commitments made before expulsion or suspension.²²³ Thus, if a person has contracted or agreed to make payments to the association regardless of his or her status as a member, that obligation continues even though the person is suspended or is no longer a member.²²⁴ Additionally, the provision on expulsion, suspension, or termination does not "...raise any inference that one expelled from a corporation loses any economic interest which has vested in the member in conformity with statute."²²⁵

The provision allowing for termination, expulsion, or suspension of membership raises some interesting questions. First, what is the actual effect of termination, expulsion, or suspension? Because member status is defined by the right to vote, it means loss of that right. It does not mean the end of the obligation to pay assessments levied by the association, provided the governing documents make clear that a person who has lost member status retains the obligations associated with ownership of property in the community. Termination, expulsion, or suspension does not mean the association can force the former member to sell his or her property. There is some authority for allowing common interest communities to institute a forced sale in order to remove an incorrigible rule breaker from the community.²²⁶ However, associations that have actually attempted to obtain an order from a court forcing a sale have met with mixed results.²²⁷ Of course, if an association has a lien for assessments, foreclosure of that lien both terminates member status and provides the basis for removing the owner from the community.

B. Liability of Members

The South Carolina Nonprofit Corporation Act states that a "member of a corporation is not, as such, personally liable for the acts, debts, liabilities, or obligations of the corporation."²²⁸ A comment to the Act says the protection it provides to members of a nonprofit corporations lies at the heart of the Act and is intended to give members of nonprofit corporations no less protection than is given to shareholders of business corporations.²²⁹ However, just as in a business corporation, members may incur personal liability if the corporate veil is successfully pierced which, however, is extremely rare,²³⁰ and usually reserved for instance in which the corporate form is misused.

C. Annual Meetings

The South Carolina Nonprofit Corporation Act requires an association to hold an annual meeting of members.²³¹ If an annual meeting has not been held within the earlier of six months after the end of the corporation's fiscal year or 15 months after its last annual meeting there is a statutory mechanism for obtaining a court order directing a meeting to be held.²³²

The bylaws are to state or fix the time and place of the meeting. If no place is stated in or fixed in the bylaws, annual meetings have to be held at the corporation's principal office.²³³ At the annual meeting the president and chief financial officer are required to report on the activities and financial condition of the corporation.²³⁴ Generally, the main activity at an annual meeting is the election of directors to the governing board.²³⁵ The South Carolina Nonprofit Corporation Act provides that all the directors — except the initial ones — have to be elected at the first annual meeting of members, and at each successive annual meeting, unless the articles of incorporation or bylaws provide some other time or method of election.²³⁶

The association has to give notice consistent with its bylaws of meetings of members in a fair and reasonable manner.²³⁷ Notice is fair and reasonable if it notifies the members of the association of the place, date, and time of the annual meeting no fewer than ten, or if notice is mailed by other than first-class or registered mail, 30 days nor more than 60 days before the meeting date and includes a description of any matter that by statute has to be approved by the members.²³⁸ A member of the association may waive notice in writing,²³⁹ or by attending²⁴⁰ the meeting and failing to object to the lack of, or defective, notice.²⁴¹ If there is no matter that by statute has to be approved by the members, the notice need not include a description of the purpose for which the meeting is called unless the articles of incorporation or bylaws require otherwise.²⁴² However, notice of a matter a member intends to raise at the meeting must be given if there is a request in writing from an appropriate person or persons that notice be given and the request is received by the secretary or president at least ten days before the association gives notice of the meeting.²⁴³ Unless the bylaws require otherwise, if the meeting is adjourned to a different date, time, or place, notice need not be given of the new date, time, or place, if the new date, time, or place is announced at the meeting before adjournment.²⁴⁴

After fixing a record date for a notice of a meeting, the association has to prepare an alphabetical list of the names of all its members who are entitled to notice of the meeting and the list has to show the address and number of votes each member is entitled to vote at the meeting.²⁴⁵ The list has to be available for inspection by any member for the purpose of communication with other members about the meeting, beginning the day after notice is given of the meeting for which the list was prepared and continuing through the meeting.²⁴⁶ The list also has to be available for inspection by any member, a member's agent, or member's attorney at any time during the meeting or any adjournment.²⁴⁷ However, a member may inspect and copy the membership list only if his or her demand is made in good faith and for a proper purpose, he or she describes with reasonable particularity that purpose, and the list is directly connected with that purpose.²⁴⁸ If the association refuses to allow a member, a member's agent, or member's attorney to inspect the list before or at the meeting, or copy the list as permitted, a court of common pleas may, on application of the member, summarily order the inspection or copying at the expense of the association and postpone the meeting for which the list was prepared until the inspection or copying is complete.²⁴⁹ Unless a written demand to inspect and copy a membership list has been properly made before the membership meeting and an association improperly refuses to comply with that demand, refusal or failure to comply with the inspection requirement does not affect the validity of action taken at the meeting.²⁵⁰

A quorum at an annual meeting is 10% of the votes entitled to be cast on a matter, unless the articles of incorporation or bylaws provide for a higher or lower quorum.²⁵¹ A bylaw amendment to change the quorum for a member action may be approved by the members,²⁵² however, an amendment to the articles of incorporation or bylaws that adds, changes, or deletes a greater quorum has to be adopted under the quorum then in effect or proposed to be adopted, whichever is greater.²⁵³ The phrase "approved by the members" is specifically defined. It means "...approved or ratified by the members entitled to vote on the issue through either...the affirmative vote of a majority of the votes of the members represented and voting at a duly held meeting at which a quorum is present.. .or.. .a written ballot or written consent in conformity with..." the South Carolina Nonprofit Corporation Act.²⁵⁴ A bylaw that provided that "joinder" of a member in the action of a meeting by signing and concurring in the minutes of that meeting would constitute the presence of the member for the purpose of determining a quorum was found to meet the requirement for a written consent.²⁵⁵

"Attendance" at a meeting involves presence of a member in person or by proxy²⁵⁶ The votes held by the proxy count toward establishment of a quorum. Unless the articles of incorporation or bylaws prohibit or limit proxy voting, a member may appoint a proxy to vote or otherwise act for him or her by signing an appointment form either personally or by an attorney-in-fact.²⁵⁷ In a homeowners association, the directors are also members of the association for statutory purposes, however...