4.4 Ownership by Business Entities

Ownership by Business Entities

Business entities can hold ownership in real estate, just like individuals. The most common types are corporations, partnerships, and limited liability companies (LLCs).

• Corporation: A legal entity owned by stockholders and overseen by a board of directors. Officers and managers handle daily operations. Officers and directors can be fully liable for actions, but shareholders are only liable up to the value of their shares. Corporations may own real estate in severalty or as tenants in common.
• Partnership: Two or more people agree to share profits and operate a business together. In a general partnership, all partners are fully liable for debts and obligations. In a limited partnership, general partners run the business and are fully liable, while limited partners are only liable up to their investment. Both types can own real estate.
• Limited Liability Company (LLC): Combines features of corporations and limited partnerships. Members have limited liability like a corporation, but profits and losses pass directly to members and are taxed as personal income. Management is flexible, and LLCs may own real estate.

Check-In Questions

• Which type of business entity provides shareholders liability only up to the value of their shares?
  General partnership
  Corporation
  Limited partnership
  Sole proprietorship
  Show Answer

  Correct Answer: Corporation
  Shareholders in a corporation are only liable up to their investment.
• What is a primary advantage of a limited liability company (LLC)?
  Only corporations can own real estate
  Members have limited liability and direct tax benefits
  All partners are fully liable for debts
  Only individuals can be members
  Show Answer

  Correct Answer: Members have limited liability and direct tax benefits
  LLCs provide limited liability plus tax advantages for members.