Real Estate Principles Ch. 2.5: Business Organizations

Limited liability company (LLC) (Business Organization #4)

Combines the flexible structure of a partnership with the limited liability of a corporation. The owners of an LLC (members) have limited liability regardless of their participation in management of the company

Quiz: A business entity that has potentially Perpetual existence and is subject to double taxation

Corporation

This type of business entity may never take title to property as a joint tenant

Corporation

What is the main advantage of a limited liability company (LLC) in comparison to a corporation?

Corporations have double taxation. Open earnings are first taxes corporate income. Then, when the earnings are distributed to stockholders, they are taxed again, as the personal income of the stockholders. The earnings of an LLC are taxed only as the personal income of the members.

A general partnership is characterized by: A.limited liability and double taxation B.limited liability and single taxation C.unlimited liability and double taxation D.unlimited liability and single taxation

D. A general partner has unlimited liability -- in other words, she can be held personally liable for the partnership's debts. A general partnership's profits are taxed only once. Each partner will owe income tax on the share of the partnership's profits that he or she receives, but the profits aren't also taxed as the income of the partnership. (By contrast, corporate profits are taxed first as corporate income, then taxed again as the personal income of shareholders.)

T/F: A partner (of a partnership property) can transfer the property to someone else.

False. A partner is not an owner of the property, thus they do have transferable interest rights. However, they own interest in the partnership, thus they can transfer that to another.

T/F: partnership agreement is required to be in writing

False. It's not required to be in writing, but that would be a good idea.

T/F: A formality is required to create a joint venture?

False. Nothing is needed.

Quiz: A business entity that is engaged in an ongoing Enterprise and that may be formed by either a written or Unwritten contract.

General Partnership A general partnership does not have to have a written partnership agreement, but it should

Limited partnership (Business Organization #2)

Is more structured and regulated in general Partnerships. There is one General partner, and one or more limited partners. Only the general partner has personal liability. The limited partners have limited liability

In this type of business entity, a member has a limited liability even if he participates in the management of the company

Limited liability company

What are the responsabilities of a limited partner?

Limited partners don't get involved in the management or control of the partnership property. They act more as an investor.

Limited liability

Limited partners have limited liability, meaning they are not personally liable for the partnership debts

Quiz: with this type of business entity, and owner has limited liability, at least if she does not participate in the management of the company

Limited partnership

Corporation (Business Organization #3)

Made up of stockholders, a board of directors, and pumps. The corporation raises funds by selling shares of common stock

What is the major benefit of a corporation?

The stockholder's limited liability. They're not liable for its debts or illegal actions.

Board of directors

They have control over the business

Officers

They manage the business daily

How can an REIT avoid double taxation?

They must have at least a hundred investors and distribute 90% of its income to those investors. Then the trust pays taxes only on the earnings that are left.

T/F: Interest in (REIT) are freely transferable and are securities, so their sale is subject to the supervision of Securities and Exchange Commission

True.

T/F: Corporations can own property with another party as tenants-in-common. In contrast, they can never be in joint tenancy.

True. They cannot be in joint tenancy because corporations have potentially Perpetual existence. Therefore there cannot be a right of survivorship, which is required in a joint tenancy.

In an REIT who owns the property?

Trustees

Shareholders elect the ______. The board supervises the ____ of the corporation. It's just me don't be scared cat did I do something scary hi yes thanks no they're not here yet yeah okay bye bye

board of directors; officers

Since a corporation is a artificial person, what are its responsibilities?

- enter into contracts or own property - get into debt and be sued - bring suit against someone else

What are the two types of Partnerships

1. General 2. Limited

How is a property identified as a partnership property?

1. The property was acquired in the partnership's name 2. Or it was acquired in the names of one or more individual partners and the deed makes reference to the partnership

Real Estate Investment Trust (REIT)

A Business Association, or trust, that invests primarily in real estate

What is the advantage of a partnership? Disadvantages?

Advantage: each partner can using possess the partnership property. They share in obligation and losses. Disadvantage: each partner has personal liability

All of the following are true about partnership property, held by and for the partnership, except: A.creditors can reach a partner's share of the partnership property only in relation to the partnership's debts, not an individual partner's debts B.each partner has an equal right to possess and use all of the partnership property for partnership purposes C.each partner can sign a deed to transfer ownership of the partnership property D.when a partner dies, ownership of his share of the partnership property passes to his heirs

A. A partner doesn't co-own partnership property and has no transferable interest in partnership property. The partner's share in the partnership itself can be transferred, however, but the partnership holds title to the partnership property.

Which of the following is an advantage to structuring a business as a general partnership? A.Each partner has the use of the partnership assets B.The personal assets of a partner may not be reached by a creditor of the partnership C.Passive investors may invest in the partnership without becoming personally liable for the partnership's debts D.Partners may delegate management duties to the partnership's officers

A. Each partner in a general partnership has the right to use and possess partnership property. Each partner has the right to share in the partnership's profits and an obligation to share in its losses.

Which of the following statements about limited partnerships is false? A.A limited partner is personally liable for all of the partnership's debts B.A limited partnership needs at least one limited partner and one general partner C.A limited partnership agreement must be in writing and conform to the state Uniform Limited Partnerships Act D.A limited partner may not be involved in the day-to-day operation of the business

A. Unlike general partners, limited partners are not personally liable for the partnership's debts.

Trust

An arrangement in which one or more trustees manage assets for the benefit of one or more beneficiaries

Who can enter into a contract or conveyance on behalf of a corporation?

An officer authorized by the board of directors

A limited liability corporation: A.is a business entity that has one general partner and multiple limited partners B.is a hybrid business entity that combines elements of a corporation and a limited partnership C.requires at least 100 investors and that 75% of its assets be invested in real estate D.suffers from the problem of double taxation

B. A limited liability company (which you may also see referred to as a limited liability corporation) combines some of the benefits of corporations, such as no personal liability for members, with those of limited partnerships, like no double taxation.

If a business fails, its creditors may reach the personal assets of all of its principals if the business was organized as a: A.corporation B.general partnership C.limited partnership D.limited liability company

B. In a general partnership, each partner is personally liable for the partnership's debts and obligations.

A corporation may not hold title to a property as a joint tenant because: A.no corporation may hold title to real property B.it is prohibited by Securities and Exchange Commission regulations C.only a husband and wife may hold property in joint tenancy D.a corporation has a potentially perpetual existence

D. Corporations may not hold title in joint tenancy. Because a corporation has a potentially perpetual existence, the other co-owner(s) couldn't have a true right of survivorship.

A group of investors wishes to form a real estate investment business that will limit their personal liability for business debts. They may form a: A.real estate investment trust (REIT) B.corporation C.limited partnership D.All of the above

D. REITs, corporations, and limited partnerships all have the advantage of insulating investors from personal liability for the business's debts. Limited liability companies also provide that protection

General partnership

Each person owns interest in the partnership. It can be equal or unequal and they share in profits and losses.

Stockholders (shareholders)

Investors who owns shares in a corporation

Who is liable for the debts and obligations of a general partnership?

Partners. Insurance can help protect partners against this personal liability. E.g. If there are any financial problems, creditors can place a lien (take possession of) on the partner's own property.

A business entity where one or more trustees manage real property on behalf of the beneficiaries

REIT

Syndicate

Refers to any group of individuals who use resources to carry on a business Enterprise

For a partnership property, who is the owner?

The partnership (a business entity) owns the property, not the partners (people involved in the partnership). The partners are not go owners; did you not own transferable interest. But they can use and possess partnership owned property.

Securities

Securities are shares in a corporation. They represent a financial investment without managerial involvement

Contrast corporation from partnership: In a corporation what happens if a stockholder dies? In a partnership what happens if a partner does?

The corporation will continue to exist. The partnership won't.

Joint venture (business organization #5)

When two or more individuals or organizations joined together for one specific project. It's not meant to be an ongoing business endeavor.

Partnership (Business Organization #1)

When two or more people carry on a business as co-owners and divide the profits