Originally published on Paddocksblog.com
By Ané de Klerk
All home owners’ associations (“HOAs”) can be split into two categories: common law associations and non-profit companies. While all HOAs share some similarities, their different legal natures also means that they inevitably have some very important differences. What are these differences and how do you know under which one of these categories your HOA falls? Let’s take a closer look…
A company is formed when its memorandum of incorporation is registered by the Companies and Intellectual Property Commission and a certificate of registration is issued by such Commission. On the other hand, there are no formal, legislated requirements for forming a common law association. It is quite simply formed when three or more people adopt a constitution to govern their non-profit association. While this agreement may technically be an oral one, in the context of HOAs it will, and should always be, written down.
If an HOA is registered as a company it will always be a separate and distinct legal person. While it is possible to form an HOA as a common law association without separate legal personality, it should always be formed to have a legal personality separate from its members as this enables the HOA to:
- own its assets, and
- separate its liabilities from its members.
By separating its liabilities from its members, the liabilities become the sole responsibility of the HOA and no one member can be held responsible for them, even if the HOA becomes unable to pay its debts. It therefore protects members from the financial liabilities incurred by the HOA.
When it comes to ownership and management of the HOA, these will always be separated in an association that has been registered as a non-profit company. The company will be owned by the members, but managed by its board of directors. In most cases, the same principle applies to a common law association, but this will depend on the provisions of its constitution. I have often found that constitutions award members of a common law HOA a greater say in the management of their association than that enjoyed by members of an association registered as a non-profit company.
Both companies and common law associations will continue to exist despite any change in their membership and will only cease to exist when they are formally terminated. Companies can only be terminated by de-registration or winding up and dissolution under the Companies Act, 71 of 2008, while a common law HOA can terminate by unanimous agreement of its members or by an order of the High Court.
Should you require any advice on the legal nature of your HOA, or wish to discuss any related matter with a specialist community schemes attorney, contact us at info@theadvisory.co.za for a no-obligation quote.
