Chapter 6 - § 6.2 • INCORPORATING THE ASSOCIATION
| Jurisdiction | Colorado |
§ 6.2.1—Generally
When the law of community associations was first developing, many associations were unincorporated and there was some debate over whether they should be incorporated, although generally commentaries favored it.25 Two reasons were usually offered in support of incorporating common interest associations: limiting the tort liability for individual unit owners,26 and acquiring the application of a state's body of corporate law to provide guidance for operating the association.27
The CCIOA has put the debate to rest by requiring that associations be organized as limited liability companies or as nonprofit, not-for-profit, or for-profit corporations under the laws of Colorado.28 Failure, however, to incorporate or organize as a limited liability company will not adversely affect either the existence of the common interest community for purposes of the CCIOA or the rights of anyone acting in reliance on an association's existence.29 Almost all common interest communities will be organized under the Nonprofit Corporation Act.30
§ 6.2.2—Timing of Incorporation
The CCIOA says that an association has to be organized no later than the date the first unit in the community is conveyed to a purchaser.31 Despite that clear statutory language, one court found no violation of the statute when a condominium association was not incorporated until almost two decades after the first unit was sold.32 The court said the CCIOA indicates a preference for formation of associations,33 and that the statute addresses the relationship between the initial developer and original owners. An owner can incorporate an association where the initial developer failed to do so, said the court, when the intent of the developer is clear and, especially where the declaration states that the covenants are to run with the land as the right to form the association then also runs with the land and the owners are on notice that an association can be formed, even after a delay, by another homeowner.
§ 6.2.3—Articles of Incorporation
A nonprofit corporation is incorporated when its articles of incorporation are filed by the secretary of state,34 and the filing of those articles is conclusive that all conditions precedent to incorporation have been met.35 Corporate powers are not conferred until an entity is incorporated, and that does not occur until the articles of incorporation are filed with the secretary of state, and because Colorado does not recognize de facto corporations or corporations by estoppel, no corporate action may be taken by an entity before it is incorporated.36
The CCIOA says little about articles of incorporation,37 and it says virtually nothing about their contents other that a prohibition regarding the fining authority of associations38 and a mandate for master associations.39 The Nonprofit Corporation Act requires the articles to state: (1) the domestic entity name for the corporation; (2) the registered agent name and registered agent address of the initial registered agent; (3) the principal office address of the initial principal office; (4) the true name and mailing address of each incorporator; (5) whether the nonprofit corporation will have voting members; and (6) any provisions not inconsistent with the law regarding distribution of assets on dissolution.40
After incorporation, an organizational meeting must be held.41 If the articles do not name the initial directors,42 then the incorporators43 must hold a meeting to elect a board of directors and, if desired, to adopt initial bylaws.44 If the articles do name the initial directors, then they must hold a meeting to appoint officers, to carry on any other business, and to adopt bylaws, if desired.45
§ 6.2.4—Corporate Name
The Nonprofit Corporation Act requires the articles of incorporation to state the domestic entity name for the corporation,46 while the CCIOA requires the declaration to contain the name of the association.47 Sometimes the association's name in the declaration will differ from the name stated in the articles of incorporation. The discrepancy should not affect the association's ability to bring a lien foreclosure action. In one Colorado case,48 the name discrepancy was not discovered until trial. The trial court denied a motion to amend the complaint so that the caption would reflect both the corporate name and the name described in the declaration. It also denied a motion to dismiss based on the name discrepancy. The trial court found that the association named in the declaration was an unincorporated one that did not exist and that the declaration covenants obligating owners to pay assessments did not apply. Nonetheless, it decided there was an implied contract between the parties for payment of assessment fees and ordered the defendant unit owners to pay the total amount claimed by the association, but denied foreclosure and attorney fees. The appellate court reversed to the extent the lower court denied the claims for attorney fees and foreclosure. The appellate court agreed with the association that the association was not precluded from enforcing the declaration and foreclosing on the lien simply because its corporate name differed slightly from the name in the declaration. A misnomer of a corporation in a written document, said the court, is not material if the identity of the intended corporation is clear or can be ascertained by proof.49
Under the Nonprofit Corporation Act, the domestic entity name of a nonprofit corporation must comply with certain statutory requirements.50 The entity name may not include any term that would violate any Colorado statute.51 Generally, an entity name must be distinguishable on the records of the secretary of state from every other entity name and from a name reserved52 with the secretary of state.53 In a nonprofit corporation, the entity name may, but need not, contain the term or abbreviation "Corporation," "Incorporated," "Company," "Limited," "Corp.," "Inc.," "Co.," or "Ltd."54 A name need not be in English if written in English letters or arabic or roman numerals.55 Some special restrictions apply to cooperatives.56
An association's name may be protected under the federal laws prohibiting trademark infringement.57
§ 6.2.5—Amendments to Articles of Incorporation
The CCIOA makes no mention of amendments to the articles of incorporation. The Nonprofit Corporation Act, on the other hand, has several statutes addressing amendments. It allows a nonprofit corporation to amend its articles at any time to add or change a provision that is required or permitted.58 The Act sets forth amendments that may be made by the board of directors59 and those that may be made by the shareholder/members, but the articles may restrict the board's right to make amendments without shareholder approval.60 Although in some circumstances third parties may play a role in amending the articles,61 generally the Act allows the board, or members who represent at least 10 percent of all of the votes entitled to be cast on an amendment, to propose the amendment for...
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