Partnerships
A partnership is an association of two or more persons who carry on a business for profit as co-owners.
General Partnership
All the partners participate in the operation and management of the business. Each General Partner is solely responsible for the entire debt of the Partnership. General partnerships are dissolved and must be reorganized if one partner dies, withdraws, or goes bankrupt.
Limited Partnership
Organization consists of one or more general partners and a rather large number of limited partners.
General Partners
- Manage the Limited Partnership (fee)
- Assume all risk for debt
- Contribute little capital
- Take a minor share of the profits
Limited Partners
- No management role in Limited Partnership
- Liability limited to capital contribution
- Contribute most of the capital
- Take a major share of the profits
The limited partners are not legally permitted to participate in the management of the Limited Partnership. If they do, they are considered General Partners and assume liability for all of the risk.
The limited partnership is a popular method of organizing investors because it permits investors with small amounts of capital to participate in large real estate projects with a minimum of personal risk.
Illinois has adopted the federal Uniform Partnership Act (UPA), which permits real estate to be held in the partnership name. Profits and losses are passed through the partnership to each partner, whose individual tax situation determines the tax consequences (Single Taxation).
Corporations
A corporation is a legal entity (an artificial person) created under the authority of the laws of the state from which it receives its charter.
- A corporation is managed and operated by its board of directors.
- The charter sets forth the powers of the corporation, including its right to buy and sell real estate (based on a resolution by the board of directors).
- Because the corporation is a legal entity, it can own real estate in severalty or as a tenant in common. It cannot hold property in a Life Estate because a corporation can exist indefinitely.
- Some corporations are permitted by their charters to purchase real estate for any purpose, others are limited to purchasing only the land necessary to fulfill the entities’ corporate purposes.
The creation and regulation of corporations in Illinois are governed by the Illinois Business Corporation Act.
As a legal entity, a corporation continues to exist until it is formally dissolved. The death of one of the officers or directors does not affect title to property owned by the corporation.
One of the main disadvantages of corporate ownership of income property is that the profits are subject to double taxation. As a legal entity, a corporation must file an income tax return and pay tax on its profits. The portion of the remaining profits distributed to shareholders as dividends is taxed again as part of the shareholders’ individual incomes.
Subchapter S Corporations- Single Taxation
An alternative form of business ownership that provides the benefit of a corporation as a legal entity but avoids double taxation is known as an S corporation. Only the shares of the profits that are passed to the shareholders are taxed. The profits of the S corporation are not taxed.
Though there is no limitation on the amount of corporate income for an S corporation, the shareholders are limited to 100.
Limited Liability Companies — Single Taxation
The limited liability company (LLC) combines the most attractive features of limited partnerships and corporations. The members of an LLC enjoy the limited liability offered by a corporate form of ownership and the tax advantages of a partnership. In addition, the LLC offers flexible management structures without the complicated requirements of S corporations or the restrictions of limited partnerships.
With passage of the Illinois Limited Liability Company Act in 1994, Illinois joined the majority of states that recognize limited liability companies as legitimate business organizations.
Syndicates and Joint Ventures
Generally speaking, a syndicate is two or more people or firms joined together to make and operate a real estate investment. A syndicate is not in itself a legal entity, however, it may be organized into a number of ownership forms, including co-ownership (tenancy in common, joint tenancy), partnership, trust, or corporation.
A joint venture is a form of partnership in which two or more people or firms carry out a single business project. The joint venture is characterized by a time limitation resulting from the fact that the joint venturerers do not intend to establish a permanent relationship.
