Lately, we have seen several associations who have had their corporate status suspended by the California Secretary of State. We reached out to Alex Sohal, Esq. from Adams|Stirling Professional Law Corporation for answers to some questions about corporate status.

1. Is it important for common interest developments to be incorporated?

Yes! It is important for an unincorporated common interest development (CID) to incorporate. Although an unincorporated CID has a legal existence separate from its membership and may exercise all of the powers of incorporated CID as listed in Civil Code 7140, there are some additional benefits to incorporating. One benefit is being subject to procedural guidelines provided in the Corporations Code and case law. Arguably the most important benefit of incorporating is the protection it offers to members against liability for lawsuits. Failing to incorporate a CID could lead to liability for all of the individual members, whereas incorporating the CID creates a legal entity that is named in the lawsuit and prevents individuals from being held liable in most cases. Furthermore, banks are generally more willing to extend loans and vendors are more willing to open accounts with incorporated CIDs. Of course, the level of formality increases with incorporating a CID, but the benefits should be considered carefully.

2. What are the reasons corporate status can be suspended or revoked?

It is important to point out that a CID’s corporate status may be suspended or revoked, but that by itself does not terminate the CID’s status as a corporation. CIDs can have their corporate status suspended for the following reasons:

• Failure to file tax returns
• Failure to pay taxes
• Failure to file a “Statement of Information” form (Form SI-100) with the Secretary of State
• Failure to file a “Statement by Common Interest Development Association” form (Form SI-CID) with the Secretary of State

Some of these requirements are yearly and others are every other year, so a CID should carefully review these requirements to avoid suspension of the CID’s corporate status. Check your status HERE.

3. What are the repercussions of having your corporate status suspended?

The following is a list of repercussions as a result of corporate status suspension:

• The CID could lose its corporate name if the name is reserved by another party during the suspension period.
• The CID would not be able to initiate or defend itself against lawsuits while the corporate status is suspended. If the CID is in litigation while the suspension occurs, it could prove problematic until the corporate status is revived.
• The CID would lose the right to enforce contracts while its corporate status is suspended.
• The CID loses the right to obtain an extension to file tax returns.
• If a CID has a suspended status for at least 48 months, the Secretary of State can administratively dissolve the corporation, which could have a significant impact on the CID.

Alex Sohal, Esq. serves as corporate counsel to common interest developments, including, residential, commercial, mixed-use developments and condominiums of all sizes throughout California. Alex’s experience and dynamic personality are indispensable to the ADAMS | STIRLING team.

Terri Guest, CIRMS, CMCA is the Northern California Sales & Marketing Representative for Berg Insurance Agency and can be reached at Terri@berginsurance.com. Have an insurance question? Ask Terri and your question may be the subject of next month’s edition of Coverage Corner! If your question is picked, you will win a gift card!