Amending to Take Advantage of the Law
Does it ever feel like the answer to all your legal questions is to amend your governing documents? Sometimes an amendment truly is the only solution to a problem, but other times there may be other avenues to explore.
Nevertheless, the law provides associations with certain protections and rights that can only be utilized if the appropriate verbiage is contained in the governing documents. Below are four examples of rights and protections that associations can take advantage of if the appropriate language is in their governing documents.
- Limit Liability of Director. The Colorado Revised Nonprofit Corporations Act (“Nonprofit Act”) allows associations to eliminate or limit the personal liability of a director to the association or to its members for monetary damages for breach of fiduciary duty as a director, except that any such provision may not eliminate or limit liability of a director for the following: (a) any breach of the director’s duty of loyalty to the association or its members; (b) acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of the law; or (3) any transaction from which the director directly or indirectly derived an improper personal benefit. In order to take advantage of this provision, the limitation must be included in the association’s articles of incorporation.
- Indemnification. The Nonprofit Act includes expanded indemnification (i.e., reimbursement) provisions that should be included in the Bylaws for the Association. While the Act provides that directors’ liability may be limited, this does not mean that a suit cannot be filed. To the extent a lawsuit is filed, the directors, officers, and committee members should be indemnified by the association so they do not have to pay their own legal fees. The association should also maintain directors and officers liability insurance to fund the indemnification obligation.
- Right of Directors to Issue Proxies. Pursuant to the Nonprofit Act, directors may issue proxies for Board meetings only if such authority is set forth in the community’s bylaws. However, even if your bylaws do contain such authority, the proxies may only be issued to other directors on the board and must be directed proxies (i.e. instruct the proxy-holder how to vote).
- Qualifications and Terms of Directors. Unless your bylaws specifically require this, directors do not have to be members of your association or even live in the community. Additionally, if there are no term requirements, each director serves for one year terms, which would not allow the board to have staggering and continuity with its members.
If you do not have these rights and protections in your governing documents, perhaps it’s time to consider amending. For more information on the amendment process and taking advantage of statutory provisions, please contact a HindmanSanchez attorney at 303.432.9999.