Paying Directors
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PAYING DIRECTORS TO MANAGE

QUESTION: I am the president on our board, and we have gone through management companies quite a bit lately. Our treasurer is a CPA. He and I have been thinking of taking over the management and the books to save the HOA money. We would require compensation. We'd get board approval first, of course, but what are the legal implications?

ANSWER: Many small associations self-manage. However, it’s done with volunteers. Paying directors for management services is not illegal provided (i) there is full disclosure, (ii) the fees charged are at or below market, and (iii) the benefited directors recuse themselves from discussion and votes on this and related issues.

Higher Risk. However, many protections are lost if a director becomes a paid director. To maintain their protections, directors cannot receive compensation for their service on the board as a director. In addition to potential conflicts of interest, any time you have a disgruntled owner he/she will go after you and make a myriad of claims involving self-dealing, conflicts of interest, incompetence, over-charging, and so on. It gets very personal. To reduce potential conflicts, you should resign from the board—it reduces the large targets on your backs.

Protections Lost. Another consideration is insurance. Will you be carrying your own insurance? You won’t be covered by the association’s D&O policy for paid services in the event you are sued. If it were me, I would continue using an outside service.

Reimbursement. Directors are allowed to receive reimbursement for expenses incurred on behalf of the association without being deemed a "professional director."

ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.

Adams Stirling PLC