Post on 15-Jan-2016
Real Estate Investment Real Estate Investment
Chapter 9Chapter 9
Business OrganizationsBusiness Organizations
© 2011 Cengage Learning
© 2011 Cengage Learning
Key TermsKey Terms
Common stock
Corporation
Joint-stock company
Joint venture
Limited liability company
Limited partnership
Partnership
Preferred stock
S corporation
Sole proprietorship
Syndicate
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Sole Proprietorship
The simplest form of business organization is the sole proprietorship.
No protection against financial losses or claims that may arise from the operation of the business.
Potentially liable for the satisfaction of a judgment or lien.
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Sole Proprietorship
Income Tax Reports for a Sole Proprietorship.Accounting Method Used for a Sole Proprietorship.Disposition of a Sole Proprietorship
Capital assetsDepreciable property used in the businessReal property used in the businessProperty held as inventory or stock in trade
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Partnership
Formation of a PartnershipBy Oral Agreement
By Written Agreement
Partnership OperationsLiabilities
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Partnership
Disadvantages of a PartnershipUnlimited liability
Advantages of a PartnershipCombines capital and expertise
Partnership Income Tax ReportsGuaranteed Payments
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Distributive Items
Ordinary income or loss
Partner’s salary and interest
Gains and losses from property used in trade or business, and from involuntary conversions.
Qualifying dividends
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Distributive Items
Contributions
Net self-employment income
First-year asset expense option
Expense account allowance
Tax preference items
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Limited Partnership
The limited partnership puts a ceiling on the financial liability of each partner.
Disadvantages of a Limited Partnership
Advantages of a Limited Partnership
Limited Partnership Income Tax Reports
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Joint Venture
A JV is distinguished by how the property is owned.
Normally, each party in the venture holds an undivided share in the property.
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Limited Liability Companies
The LLC is a hybrid form of business ownership that incorporates the pass-through provisions of a partnership or Sub-S with the protections against liability of a corporation.
As with any corporation or indirect ownership form, this corporate “veil” is not a guarantee against liability.
Not a corporation
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Limited Liability Companies
Disadvantages of an LLCcompany’s bylaws need to address governance and liability issues, as well as such topics as the sale of member interests Generally more complex than a partnership.The LLC provides no special protection for the members from the debt of the LLC
Income Taxation and Other Advantages of an LLC
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Real Estate Investment Trusts
Types of REITsEquity REIT
Mortgage REIT
Hybrid REIT
Taxation and Regulation of REITs
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Real Estate Syndicate
A consortium of people or institutions that come together to share funding and/or expertise in a particular business endeavor that is often real estate investment or development.Regulations of a Real Estate Syndicate
The sale of a participating interest in real property can be considered a sale of securities. Both federal and state laws control the sale of securities to the general public
Require full disclosure of the facts by sellers of securities
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Corporations
The Corporate EntityThe Corporate StructureCorporations for ProfitNonprofit CorporationsDisadvantages of the Corporation
Double taxation
Advantages of the CorporationCorporate Income Tax Reports
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S Corporations
Like a hybrid between a corporation and a partnership
A normally chartered corporationno more than 35 shareholders Taxed as a partnership
The S corporation files an annual information return allocating its income among the shareholders.Advantages and disadvantages