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The Michigan legislature recently enacted significant changes to the Michigan Nonprofit Corporation Act.  Since condominium associations and homeowner associations are typically non-profit corporations, several of these changes impact them.

Here are some of these changes, which may affect community associations:

  • A nonprofit corporation must distribute to its members an income statement, year-end balance sheet and statement of source and application of funds.
  • A nonprofit corporation must have an annual meeting to elect directors and conduct other business, unless the members act by written consent or vote for directors by ballot.  Thus, instead of electing directors at an annual meeting, directors can be elected through a written ballot if authorized by the bylaws or articles of incorporation.
  • Unless otherwise restricted by the articles of incorporation or bylaws, a member, or proxy holder. may participate in a meeting of members by a conference telephone or other means of remote communication that permits all persons that participate in the meeting to communicate with all the other participants.  However, there are certain measures that an association must take before a member can participate in the meeting and vote by a means of remote communication. 
  • A member may give their proxy to authorize another person to vote for them for the election of directors. The proxy may be given by a signed writing or electronically (such as an e-mail).  
  • A member may inspect, for any proper purpose, certain books and records of the association (similar to shareholders in a profit corporation). However, the articles of incorporation, bylaws, or a board resolution may provide that the members do not have the right to inspect certain records if the members or directors that approved the limitation make a good faith determination that:
                     Allowing inspection of certain records would impair the rights or privacy of the members.
                     Allowing inspection of certain records would impair the lawful purposes of the corporation.
  • A member may bring an action in court to establish that the acts of the directors or members are illegal, fraudulent, or willfully unfair and oppressive to the corporation, the director, or member.
  • Ten percent of the members can file a circuit court action to remove a director from office if the director was involved in fraudulent, illegal, or dishonest conduct or gross abuse of authority or discretion, and removal is in the best interest of the association.  Typically, the bylaws of an association specify a procedure which requires that a petition for a special meeting, signed by a certain percentage of the members, be submitted to the board and that a special meeting be called for the purpose of removing one or more directors.
  • An association may eliminate a director's or volunteer officer's liability to the corporation, or its members, for any action taken (or the failure to take action) subject to certain exceptions. Previously, the limitation of liability only applied to a breach of the director’s or officer's fiduciary duty.  The new law permits an association to eliminate liability for any action taken.  Notably, a director does not need to be a volunteer in order to have the benefit of this protection.
       
            Due to these changes, community associations would be wise to have their articles of incorporation and bylaws reviewed to see if any amendments are warranted. 

            This author is a member of the Non-Profit Corporations Committee of the Business Law section of the State Bar of Michigan, and commends those members of the committee and others who contributed to the drafting of the changes, for the many, many hours that they dedicated to it.