Establishing HOAs

Formation and Governing Organization

Homeowners associations take multiple forms, including non-profit corporations, unincorporated associations and limited liability companies. The selection of the organizational form for the association is frequently set forth in the subdivision indenture or condominium declaration. While trusteeships and unincorporated associations are sometimes used, non-profit corporations offer advantages such as insulating members and officers from association liabilities.

If the subdivision or condominium association is a non-profit corporation (and such form of entity is the overwhelming choice of associations), the association is governed by three distinct sources:

1. The subdivision indenture or condominium declaration;
2. The homeowners’ association’s articles of incorporation and by-laws; and
3. Missouri Revised Statute Chapter 355.

Whenever questions arise with the association or property within the jurisdiction of the association, these three sources should be reviewed in detail to inform the property owner and governing board of their respective rights.

Establishing Financial Controls

The Board of the HOA has a fiduciary duty to the association to maintain the financial documents of the organization, typically including the association’s budget and results of annual independent audits. The fiduciary duty of the Board also protects the association from fraudulent acts committed by individuals.

The Board is required to maintain appropriate accounting records, including a balance sheet or statement of account accompanied by either a certified public accountant’s report or, if the accounting records were not prepared by a certified public accountant, a statement of the president or other person responsible for the corporation’s financial accounting records, stating:

• Their responsible belief as to whether the statement was prepared on the basis of generally accepted accounting principles and, if not, describing the basis of preparation; and
• Any respects in which the statements were not prepared on the basis of accounting consistent with the statements prepared for the preceding year.

Restrictive Covenants

• Outside of the pool and other common areas, property owners are also typically interested in restrictions placed on the use of their own property. These restrictions are typically outlined in the subdivision indenture or condominium declaration as “restrictive covenants.” Restrictive covenants are imposed upon the owners’ property to limit usage with the intended purpose of preserving property values and fostering harmony among neighbors within the subdivision or condominium. These restrictive covenants should be clear in order to facilitate the homeowners’ understanding of how the property can be used and what limits are placed on that use.