The Difference Between an Officer and a Director: Selection, Removal and Eligibility Restrictions

In most Michigan condominium associations, the same individuals serve as both directors and officers of the nonprofit corporation in charge of the condominium.  Often times, there is confusion or misunderstanding about the difference between a “director” and an “officer.”  Thus, co-owners routinely ask our office to explain the difference and why the Condominium Bylaws[1] differentiate between directors and officers.  The answer to this question resides in the Michigan Nonprofit Corporation Act, MCL 450.2101, et seq. (the “Act”).  Directors and officers are distinct roles and serve different legal purposes.  Importantly, directors and officers are not synonymous terms.

The Difference Between a Director and an Officer

Directors

Under most circumstances, the directors—not officers—of the condominium association are elected at an annual meeting by the membership of the condominium association through a vote of the eligible co-owners.[2]  There are a few exceptions to this rule pursuant to MCL 450.2402 of the Act, which allows for actions by written consent or by ballot, but most Michigan condominium associations elect new directors each annual meeting.  The Act, specifically MCL 450.2106(4), broadly defines “Director” as:

An individual who is a member of the board of a corporation. The term is synonymous with “trustee” of a corporation or other similar designation.

Under typical Condominium Bylaws, there are certain circumstances when a director may be selected as a director without a vote of the membership.  Some examples include when a director 1) resigns, 2) becomes incapacitated, 3) dies or 4) otherwise becomes ineligible to be a director such as by moving out of the condominium.  Under such circumstances, most Condominium Bylaws permit the Board of Directors to select a new director without a vote of the membership.

MCL 450.2505 of the Act requires that there must be a minimum of at least three (3) directors to comprise the Board of Directors.  In our experience, the vast majority of condominium associations in Michigan have either 3 or 5 directors depending on the size of the condominium association, the general interest in the community and other individual factors for each specific condominium association.  The Board of Directors is responsible for enforcing the governing documents of the condominium.  Thus, the Board of Directors is tasked with assessing and collecting assessments and enforcing the Condominium Bylaws including any and all restrictions, such as pet restrictions, lease restrictions, vehicle restrictions, etc.  In addition, directors have voting rights to make decisions on behalf of their condominium.  Therefore, the Board of Directors handles the vast majority of the condominium association’s business.

Directors have a fiduciary obligation to their condominium members to act in the best interest of the condominium association and its members.  Directors should not use their position of authority to obtain individual pecuniary gain.  However, there are times when a director should be removed as a director for any of a variety of reasons.  Pursuant to MCL 450.2511 and MCL 450.2514 of the Act, directors may be removed by a vote of the members or by the circuit court.  In most instances, removing a director is handled by calling a special meeting of the members pursuant to MCL 450.2403 of the Act and obtaining sufficient votes of the membership to remove the director.

Officers

In most Michigan condominium associations, the officers are the president, vice president, secretary and treasurer.  However, these officer positions are not required and one person may serve in multiple officer roles, such as a single person being the secretary/treasurer.  In contrast to directors, officers are appointed by the Board of Directors and serve solely at the pleasure of the Board of Directors.  While the Act broadly defines the term “director,” the Act does not contain a definition for the term “officer.”  Interestingly, however, the Act does make repeated references to ‘officers’ throughout the Act even though the term is not defined.

In most Michigan condominium associations, after each annual meeting the directors will hold a Board Meeting.  At that Board Meeting, the directors vote on who will be the officers of the condominium association.  Thus, when a co-owner says “I want to run for president of the association” this is not correct because the president, vice president, treasurer and secretary are typically not elected by the members, but instead are elected or appointed by the Board of Directors. [3]  Officers do not have voting rights in their capacity as officers; only directors have voting rights.

Officers may be removed by the Board of Directors in the Board’s discretion.  As indicated above, removal of an officer is normally done by a vote of the Board of Directors.  The Board then selects a new person to fulfill that officer role.  In most Michigan condominium associations, if a member wants to remove an officer, the member will either have to 1) convince the Board of Directors to remove the officer or 2) replace enough directors with enough supporters of the member’s position to then have the new directors vote to remove the officer.

Can Associations Impose Eligibility Requirements on Directors and Officers?

Some Condominium Bylaws require that all or some of the officers also be directors of the association.  However, current Michigan law does not require that officers be directors or even that officers be members or residents of the condominium association at all.[4]  In practice, most directors in condominium associations also serve as the officers.  Many condominium associations want to implement bylaw provisions that restrict who is eligible to be officers or directors.  Examples of such restrictions include, but are not limited to, the following:

  • Directors and officers must be members of the Association. (i.e. not renters)
  • Directors and officers must be residents in the condominium. (i.e. not landlords living elsewhere)
  • Directors and officers must be in good standing with the Association. (i.e. not delinquent in any association assessments)
  • Directors and officers cannot be felons or have a criminal background of dishonesty or theft.
  • Directors and officers must be of a certain age.
  • Directors must have lived in the condominium for some specified time period before becoming eligible to run as a director for the Board of Directors.

Whether to impose some or all of these restrictions is condominium specific and we recommend that each community review the needs of the membership before implementing any such restrictions.  If you have any questions regarding selecting or removing directors and officers or in implementing eligibility requirements for directors and officers, please contact our office.

 

Joe Wloszek is an attorney with the law firm of Cummings, McClorey, Davis & Acho, P.L.C. where he focuses his practice on dispute avoidance, condominium law, commercial litigation, commercial real estate, large contractual disputes, and title litigation. He has extensive litigation and trial experience in state and federal courts involving commercial litigation issues and real estate matters. He can be reached at (734) 261-2400 or jwloszek@cmda-law.com.

 

[1] Historically, Michigan condominiums had two sets of bylaws: 1) a set of Condominium Bylaws attached as Exhibit A to the Master Deed of the condominium, which dealt with the condominium itself and 2) a set of Association Bylaws (sometimes called Corporate Bylaws), which typically addressed how the Association as a corporate entity was designed to function.  To avoid confusion, modern drafters of condominium documents routinely combine the Condominium Bylaws and Association Bylaws into one document labeled the Condominium Bylaws.  Thus, while the difference between directors and officers was historically contained in the Association Bylaws, this article utilizes the more modern approach whereby the difference between a director and an officer is now contained in the Condominium Bylaws.

[2] This article focuses on the typical circumstances for most condominium associations in Michigan.  Thus, this article is focused on the majority of Michigan condominium associations, but a thorough review by an experienced attorney of your associations governing documents may be the exception to the general rule.

[3] In extremely rare circumstances, officers may be elected directly by the members and removed directly by the members in compliance with MCL 450.2535.  For the vast majority of Michigan condominium associations, officers are not elected or removed by the members.

[4] See our recent article regarding House Bill 4861 which could impose residency restrictions for the Board of Directors.