What are the main features of the constitution of each type of corporate vehicle used to invest in real estate?
A local company may take two forms:
Both are limited liability companies and may be 100% owned by foreign shareholders.
The main features of a LDA can be described as follows:
The main features of an SA are the following:
A proprietary company is a form of corporation, which must either be:
Most common is a proprietary company that is limited by shares. A proprietary limited company must have at least one shareholder and must have no more than 50 non-employee shareholders and at least one director who must ordinarily reside in Australia.
A public company is similar to a proprietary company as regards the limited liability of its shareholders. However, there is no restriction on the number of shareholders and public companies may raise funds from the public. A public company must have a minimum of three directors, two of which must ordinarily reside in Australia, and a minimum of one company secretary who must also ordinarily reside in Australia. All Australian companies listed on the Australian Securities Exchange are public companies.
It is also possible to incorporate a ‘no liability’ public company (where the company’s sole objects are ‘mining purposes’) or a public company ‘limited by guarantee’. However, in general these types of corporate vehicles are unlikely to be suitable for commercial real estate investment.
A company incorporated or formed outside Australia may carry on business in Australia provided it has registered under the Corporations Act.
Partnerships are not considered separate legal persons. While partnership names are commonly registered, there is no system of registration of general partnerships.
The partners are all jointly and severally liable for the debts of the partnership and have unlimited liability.
In some states, limited liability partnerships can be registered with state regulatory authorities. In such partnerships, special partners are liable only to the extent of their capital contributions but have no participation in the management of the partnership which is carried on by a general partner (which has unlimited liability).
A discretionary trust is a trust under which beneficiaries have no fixed entitlements to the capital or income of the trust, with the trustee having a discretion to choose which beneficiaries are entitled to receive distributions of trust property.
In general, a discretionary trust is used for family investment purposes rather than for public investment purposes. Unit trusts are more commonly used for public investment purposes.
A discretionary trust is not a separate legal entity in the same way as an individual or a company, rather it is a relationship which exists whereby a person (trustee) is authorized to hold property for the benefit of others (beneficiaries), acting in accordance with the powers conferred on the trustee under a deed of settlement.
The requirements for a discretionary trust are:
The trustee is the legal owner of the trust property, although not the beneficial owner. The trustee carries out all transactions of the trust in its own name and signs documents for and on behalf of the trust. The law imposes upon a trustee a duty to act in good faith for the benefit of beneficiaries, and the trustee must administer the trust in accordance with the terms, conditions and powers contained in the trust deed and implied by law. Provided that a trustee acts in accordance with the terms, conditions and powers contained in the trust deed and implied by law, the law will protect it from any liability in respect of those actions or any claim by any beneficiary, despite the result of those actions. It is common for the trustee to be a limited liability company (see above).
The trust fund is all the property of the trust including the settled sum, accumulated income and any other money and property held by the trustee pursuant to the terms of the trust.
The beneficiaries are the people (including entities) for whose benefit the trustee holds the trust property. A discretionary trust usually has a wide range of beneficiaries, including companies and other trusts. The beneficiaries of a discretionary trust do not have an interest in the assets of the trust. They merely have a right to be considered or a mere expectancy until such time as the trustee exercises its discretion to make a distribution.
The trust deed defines the relationship between the trustee and the beneficiaries. The trust deed specifically sets out the duties and powers of investment of the trustee.
A unit trust is also constituted by the execution of a trust deed. However, in a unit trust, entitlement to the benefits of the trust is divided into units similar to shares in a company. The investors hold a number of units according to their investment. Provided that the unit trust is not a ‘managed investment scheme’ (in which case a separate set of regulatory requirements may apply), the relationships between the parties (trustee and unitholder) are otherwise similar to those set out above for discretionary trusts except that the trustee has no discretion as to distributions or entitlements to assets as these are determined by the rights attaching to the units in the trust.
As explained above, the new Belgian Companies and Associations Code entered into force on 1 January 2020. A number of company forms were abolished, such as the limited share partnership (commanditaire vennootschap op aandelen), and a number of company forms were (thoroughly) reformed, such as the public limited company and the private limited company.
The public limited company and the private limited company will continue to be the most commonly used company types for real estate companies.
The private limited company has become a more flexible company form in the new Belgian Companies and Associations Code. The most important change is that the private limited company no longer has a legal capital and that a minimum contribution is no longer required (see below). The closed nature of the company is maintained (ie there are legal restrictions on the transferability of shares in the law), but the law now also allows shareholders to abolish this limited transferability of the shares in the articles of association of the company.
The rules governing the public limited company were less thoroughly reformed and mainly streamlined. Public limited companies still have a legal capital and a minimum contribution and the shares are in principle freely transferable.
One of the most important changes in public limited companies was the introduction of different governance models, ie (i) the one-tier board model (consisting of a board of directors), (ii) the two-tier board model (consisting of a supervisory board and a management board) and (iii) the model where there is only one director (whether or not a natural or legal person) (see below for further elaboration).
Under the old law, a B-REIT could only be set up as a public limited company (Naamloze Vennootschap/Société anonyme) or as a limited partnership on shares (Commanditaire Vennootschap op Aandelen/Société en Commandite par Actions (Comm.VA./SCA)), with the exception of a 'social' B-REIT which needed to be set up as a co-operative partnership with limited liability serving a social purpose (coöperatieve vennootschap met beperkte aansprakelijkheid met sociaal oogmerk (CVBA)/société coopérative à responsabilité limitee avec but social (SCRL). However, as a result of the introduction of the new Belgian Companies and Associations Code, (i) the limited share partnership company form was abolished and (ii) the cooperative company form with limited liability was transformed to the cooperative company (Coöperatieve vennootschap/société coopérative, CV/SC).
The law on B-REITS has not yet been fully aligned with the new Belgian Companies and Associations Code. The Law of 28 April 2020 did, however, make it possible already for the B-REIT to take the form of a public limited company managed by a single director (see below for further elaboration), provided that this director is a public limited company itself with a collegial board of directors. This change has already been implemented to accommodate the B-REITS having the company form of the limited share partnerships (Commanditaire Vennootschap op Aandelen/Société en Commandite par Actions (Comm.VA./SCA)) under the old law. A typical feature of this old company form was the management structure (ie a single director-legal person). Since some of these B-REITS already wanted to amend their articles of association in the light of the new Belgian Companies and Associations Code, this amendment was also already entered into the law of 12 May 2014, as last amended by the law of 28 April 2020.
In addition, a public B-REIT must be listed on the stock exchange (Euronext Brussels). An ‘institutional’ B-REIT is an unlisted joint venture real estate investment fund set up by a public B-REIT, controlling the fund, on the one hand, and by one or more qualified institutional or professional investor(s), or natural persons (provided that the minimum subscription amount is provided for in a Royal Decree) on the other hand. A 'social' B-REIT does not need to be listed as well, set up by non-professional investor(s), complying with certain conditions, on the one hand, and by one or more qualified investor(s) on the other hand.
A B-REIF may be set up as a public limited company (SA/NV) or a partnership (SCS/Comm.V). The shares of such B-REIF do not need to be listed.
As mentioned above, neither the ELTIF Regulation nor Belgian law prescribe any specific corporate form for the incorporation of a Belgian ELTIF. Most commonly, alternative investment funds (AIFs) are structured as limited partnership (commanditaire vennootschap)). This type of company is characterised by the association of two types of partners: on the one hand the general partner(s), who assume(s) unlimited liability for the obligations of the partnership; and on the other hand, the limited partners, who’s liability is limited to their commitment. This company type allows for flexibility and a clear separation of liabilities between the fund manager (as general partner) and the investors (as limited partners).
A limited liability company is a company whose initial capital is divided into shareholdings and is set up by a written agreement signed by the founders. Members of the company are liable for the company's debts up to the level of their shareholding. Shareholdings can vary in size and are proportional to the size of members' contributions to the initial capital. Each founder can acquire only one shareholding. Profits are distributed in proportion to the size of shareholding, unless otherwise agreed.
In the Federation of Bosnia and Herzegovina (FBiH): a limited liability company may be established by one or more owners.
In the Republika Srpska (RS): a limited liability company may be established by between one and 30 people.
A joint-stock company is a company whose share capital is divided into stock. The stock can be transferred without restriction, except in cases determined by the company's articles of association or by law, and carries with it rights to participate in the company's management, profit distribution and distribution of any property that remains following insolvency or liquidation. A joint-stock company is not liable for the liabilities of its stockholders.
In the FBiH and in the RS a joint-stock company can be established by one or more stockholders, either with or without a public offering.
In the FBiH an unlimited partnership is a partnership that has at least two partners with unlimited liability.
In the RS a partnership is established between two or more individuals and/or legal entities with unlimited liability unless otherwise agreed with the relevant creditor.
In the FBiH, a limited partnership is a partnership which has one partner with unlimited liability and at least one partner with limited liability.
In the Republika Srpska, a limited partnership has one individual partner (the general partner, GP), with unlimited liability and at least one other partner (the limited partner, LP) whose liability is limited to the amount of the agreed deposit.
Sociedades Limitadas and Sociedades Anônimas are corporate vehicles usually adopted for the establishment of special purpose companies (SPEs), with the specific purpose of developing a real estate project.
Sociedades Limitadas are regulated by Law 10,406/02 (Brazilian Civil Code) and residually, whenever set forth in their articles of organization, by Law 6,404/76 (Corporations Act), as amended, which regulates Brazilian corporations. A Sociedade Limitada may have one or more shareholders and it is simple to incorporate and operate as very few formalities are required for its organization and management.
The Sociedade Limitada is managed by the officers/managers, who run the day-to-day operations of the company. It may also have a board of directors, which, if appointed, will be responsible for making major business decisions and overseeing the general affairs of the company. The officers must be individuals appointed by the board of directors or by the shareholders’ meeting, if the company does not have a board of directors, while the directors are elected by the company’s shareholders. The management structure of a Sociedade Limitada is established in the company’s articles of association.
The Sociedade Anônima is usually designed for more sophisticated corporate structures, including management and shareholders' relations, corporate governance structures, decision-making processes, transparency and disclosure obligations, public distribution of securities, and conflict resolution procedures. Non-listed companies are simple to incorporate and operate, but more formalities are required for its organization and management when compared to the Sociedade Limitada. One example is the mandatory publication of certain corporate acts.
The Sociedade Anônima is managed by the officers, who run the day-to-day operations of the company, and, in certain cases, by a board of directors, which is responsible for making major business decisions and overseeing the general affairs of the corporation. The officers must be individuals appointed by the board of directors or by the shareholders’ meeting, if the corporation does not have a board of directors, whilst the directors are elected by the corporation’s shareholders. The management structure of a Sociedade Anônima is established in the corporation’s bylaws and certain corporations, such as the publicly held corporations, have to appoint a board of directors.
Another type of vehicle used for real estate investment are FIIs, which are closed-end funds without corporate identity, regulated and supervised by the Brazilian Securities and Exchange Commission (CVM). They’re created to combine resources raised through the securities distribution system for application in large real estate developments by a group of investors that proceed with subscription of FII’s shares. Once the shares are subscribed and paid, they can only be negotiated in a secondary market, on the fundraising period or in eventual new investment phases/rounds.
FIIs must have a fiduciary administrator that must be an entity authorized by CVM, such as commercial and investment banks, real estate credit companies and securities distribution companies. The fiduciary administrator is primarily responsible for the fund and is subject to the terms and conditions set forth in the bylaws, also being responsible for the engagement and supervision of any of the fund’s service providers, such as the portfolio manager, custodian and distributor, as applicable.
FIIs may also have investment or technical committees or boards, composed by members appointed by the administrator, investment manager or shareholders
Public or Private Corporations have share capital and liability is limited to the share capital.
ULC or Unlimited Liability Corporations have articles that provide that the shareholders are jointly and severally liable for the debts and liability of the company.
Partnerships are not taxpayers and income or losses are allocated to the partners.
Limited Partnerships are a statutory creation and are created by filing in the appropriate province. The limited partners are not liable for the debts or obligations of the partnership unless they participate in the management of the business. For this reason, Limited Partnerships normally have a corporation which acts as the general partner to manage the business.
An LLP allows the Limited Partners to participate in management of the business without losing the limited liability except for the negligent or wrongful act or omission of a Limited Partner. Originally, these were only available to professional partnerships such as lawyers or accountants but their use is now generally available in some Provinces such as British Columbia.
A JV is an independent legal entity. A JV typically takes the form of a limited liability company. The JV partners contribute registered capital to the JV and, unless otherwise agreed, enjoy rights in proportion to the percentage of its paid-in capital divided by the total paid-in registered capital of such JV. Capital contributions may be in cash or in-kind (eg land use rights, buildings, intangible assets or equipment). It is a legal requirement that the in-kind contributions undergo a valuation so that the parties’ respective equity contributions may be determined. The JV contract must also set out a schedule for contributions of registered capital, which may be in one lump sum or in instalments.
Currently the most frequently used foreign investment vehicle in the PRC is the WFOE. A WFOE typically takes the form of a limited liability company, though other corporate forms. The equity interest in a WFOE is entirely owned by its foreign investor or investors.
The main features to incorporate a SPV in Colombia are the following:
A limited liability company is a company where the capital contribution is divided into shares. The shareholders have limited liability in relation to the company's activities and debts. This is the most common form of business enterprise in Croatia.
A public limited liability company is a company where the share capital is divided into stock. Stock is issued by the company in return for each contribution, and shareholders are free to transfer their ownership interests at any time by selling their stockholding. The shareholders have limited liability for the company's actions and debts.
A public partnership is a company established by two or more partners for the purposes of carrying on a permanent business activity under a single trading name. Each member of the partnership has unlimited joint and several liability to creditors to the full extent of their assets.
A limited partnership (komanditno društvo – kd) is a company established by two or more partners for the purposes of carrying on a permanent business activity under a single trading name. At least one member of the partnership has unlimited joint and several liability to creditors of the partnership to the full extent of their assets (a 'general partner'), and at least one partner is liable only up to the amount of its contribution to the partnership (a 'limited partner').
A closed-end real estate investment fund is a public limited liability company which may only be set up and governed by a fund management company, which may be either a limited liability company or a public limited liability company.
A limited liability company is one of the most common types of company in the Czech Republic. Its registered capital consists of contributions by shareholders. The shareholders are liable for the debts of the company up to the amount equals the sum of their unpaid contributions to the registered capital. Once the registered capital is paid in full, the shareholders are not liable for any of the debts of the company. The limited liability company is liable for its debts to the full extent of its assets.
The company may have one or more managing directors appointed by general meeting. The main decision-making and governing body is the shareholders' general meeting. A supervisory board may also be established.
A joint stock company is a company whose registered capital consists of shares with a certain nominal value. It is liable for its debts to the full extent of its assets.
A joint stock company can be established by the adoption of articles of association for the company by its founder(s). However, this form of establishment is effective only after at least part of the statutorily defined minimum registered capital has been paid.
The governance system of a joint stock company may be two-tier with a board of directors (představenstvo) and supervisory board (dozorčí rada) or single-tier, with an administrative board and a statutory director. Irrespective of the governance system, the main governing and decision-making body is the shareholders' general meeting.
In contrast to many other jurisdictions, the Czech Republic recognises unlimited partnerships as companies with their own legal identity.
An unlimited partnership is a company in which at least two partners run their business under a common business name and are liable for all the partnership's debts to the full extent of their assets. Partners can either be individuals or legal entities.
Each partner has a right to manage the partnership within the guidelines agreed by the partners. One or more partners may, however, be entrusted with management responsibilities. An unlimited partnership does not have a general meeting and all decisions are made by all the partners jointly, unless the memorandum of association stipulates that a majority vote is sufficient.
A limited partnership is a company in which one or more of the partners are liable for the debts of the company to the full extent of their assets (unlimited partners), and one or more partners are liable for the debts of the company up to the amount of their unpaid capital contributions (limited partners). A limited partner must contribute to the registered capital of the company by the amount provided for in the partnership contract.
In contrast to many other jurisdictions, the Czech Republic recognises limited partnerships as companies with their own legal identity.
A partnership comprises partners who are either individuals or companies. Each partner has unlimited joint and several liability for the activities of the partnership. A partnership is not governed by the Danish Companies Act. However, certain provisions of the Act on Certain Commercial Undertakings, law no. 249 of 2 January 2021 (Lov om erhvervsdrivende virksomheder) apply, for instance regarding the partnership’s name. The partnership is tax transparent.
Partnerships where at least one partner is not a limited company must be registered with the Danish Business Authority in accordance with the registration rules regarding sole trader businesses.
However if all partners are limited companies the partnership must be registered with the Danish Business Authority in accordance with the rules applicable to public limited companies, where the articles of association and the partnership's annual report will be available to the public.
In a public limited company, the capital contributed by the shareholders is divided into shares. The shares of a public limited company may be offered to the public through a listing on a stock exchange.
The shareholders' liability for the activities of the public limited company is limited to their respective capital contributions. A public limited company is governed by the Danish Companies Act.
In a private limited company, the capital contributed by the shareholders is divided into shares. The private limited company has traditionally been used for businesses with only a few shareholders who do not seek to raise capital from a wide circle of investors. A private limited company cannot have its shares listed on a stock exchange.
The shareholders' liability for the activities of the private limited company is limited to their respective capital contributions. A private limited company is governed by the Danish Companies Act.
In a limited partnership, the general partner is personally liable for the liabilities of the limited partnership. Consequently, the general partner is often a private limited company or a public limited company. The limited partners are only liable up to the extent of the capital they have contributed. A limited partnership is tax transparent.
A limited partnership is not governed by the Danish Companies Act. However, certain provisions of the Act on Certain Commercial Undertakings, law no. 659 of 1 July 2019 (Lov om erhvervsdrivende virksomheder) apply, for instance regarding the limited partnership’s name, power of procuration and the requirement for administrative and financial powers of the general partner.
Partnerships where the general partner is not a limited company must be registered with the Danish Business Authority in accordance with the registration rules regarding sole trader businesses.
However, a limited partnership must be registered with the Danish Business Authority, in accordance with the registration rules for public limited companies, if the general partner is a public limited company or a private limited company. The articles of association and the limited partnership's annual report will be available to the public.
A limited partnership company is a public limited company, in which the limited partners (shareholders) have contributed a certain amount of capital which is divided into shares. However, like a limited partnership a limited partnership company includes a general partner with unlimited liability. A limited partnership company is considered transparent for tax purposes.
A limited partnership company is governed by the Danish Companies Act with necessary adjustments.
An SCI (société civile immobilière) is a real estate civil company whose purpose is to acquire and hold properties. Vis-à-vis third parties, the shareholders are liable indefinitely for the debts of the company in proportion to the shares they hold in the share capital.
An SNC (société en nom collectif) is a commercial partnership. The partners shall all be deemed to be businessmen (commerçant) and are jointly and severally liable for the debts of the partnership.
An SARL (société à responsabilité limitée) is a limited liability company in which the shareholders' liability is limited to the amount of their investment in the company.
An SA (société anonyme) is a stock corporation where the capital is divided into stock. The shareholders' liability is limited to the amount of their investment in the company. The management of the company is undertaken by either a board of directors (Conseil d'Administration) and a general manager (Directeur Général) or by an executive board (Directoire) and a supervisory board (Conseil de Surveillance).
An SAS (société par actions simplifiée) is a simplified stock corporation and may be formed by a private individual or a corporation as a sole shareholder. There is freedom in relation to the adoption of by-laws since the by-laws may freely organize the way an SAS is managed or controlled. As with an SA, the liability of the shareholders is limited to the amount of their investment.
An SCPI (société civile de placement immobilier) is a real estate civil investment company, whose purpose is to acquire and hold rental property. These companies are entitled to sell their shares to the public as soon as:
At least 15% of the share capital must have been issued to the public within one year of the first public offering.
An SIIC (société d’investissement immobilier cotée) is a listed real estate investment company. Special tax-exemption arrangements are available to stock corporations listed on a regulated French stock market, with a minimum share capital of €15,000,000, whose main purpose is the acquisition or construction of property for rental purposes, or which has direct or indirect ownership of stakes in legal entities with identical corporate purposes legally classified as partnerships or subject to corporate income tax.
The SIIC will be either an SA or a limited partnership by shares (an SCA – société en commandite par actions – company mixing shareholders with a liability limited to their contributions and others with an unlimited liability).
Unless otherwise provided by law, 60% or more of the share capital or voting rights of an SIIC must not be held, directly or indirectly, by one or more persons acting in concert and 15% of the share capital and voting rights of an SIIC must be held by persons who hold less than 2% of the share capital or voting rights on the first day of application of the regime.
In a Gesellschaft mit beschränkter Haftung (GmbH) each shareholder's liability vis-à-vis the GmbH is limited to his/her full capital contribution to the GmbH. The shareholders are not liable vis-à-vis third parties for the obligations of the GmbH. A GmbH is characterized by a one-tier corporate governance system and, therefore, compared to a stock corporation (Aktiengesellschaft) less complex in its day-to-day management.
In an Aktiengesellschaft (AG), a German stock corporation, the shareholders are liable vis-à-vis the company only for the capital contribution to be made. The shareholders are not liable vis-à-vis third parties for the obligations of the AG. An AG is characterized by a two-tier corporate governance system (a board of directors and a supervisory board) whereby the members of the board of directors are appointed by the supervisory board members and independent, ie not bound by the instructions of the shareholder(s).
A REIT is a special type of German listed stock corporation. The objectives of the corporation are limited to the acquisition, administration and sale of real estate. REITs are fairly new to Germany (having been introduced on 1 January 2007).
An Immobilien Sondervermögen (a real estate fund), can only be set up and managed by a German asset management company (Kapitalanlagegesellschaft (KAG)).
A Kommanditgesellschaft (KG), is a limited partnership with at least one general partner who has unlimited liability. It is the only partnership under German law which offers partners limited liability vis-à-vis third parties.
Companies can be incorporated in Hong Kong under the Companies Ordinance (Cap. 622 of the Laws of Hong Kong). Only five types of companies can be formed under the Companies Ordinance:
Private and public companies are similar in many respects although the articles of association of a private company will:
Private companies are also restricted from raising funds from the public (for example, by issuing shares or debentures in the company).
Most of the companies in Hong Kong are private companies limited by shares. Companies are considered separate legal persons, therefore, the liability of the members/shareholders of these companies is limited to their initial investment (in acquiring or subscribing for their shares) in the company.
A company which is incorporated outside Hong Kong may conduct business and hold real estate in Hong Kong by establishing a ‘place of business’ in Hong Kong. The Companies Ordinance requires a non-Hong Kong company to register its place of business in Hong Kong and register itself as a ‘non-Hong Kong registered company’ under the Companies Ordinance. The company must also obtain a business registration certificate from the Inland Revenue Department within one month of the establishment of its place of business in Hong Kong.
To register, a prescribed form (which contains information relating to the non-Hong Kong company, such as its name, place of incorporation and particulars of its directors, together with the date of establishment of the place of business in Hong Kong) must be completed and submitted to the Hong Kong Companies Registry. The constitution, latest published accounts and certified copy of the certificate of incorporation of the non-Hong Kong company must also be submitted as supporting documents to the Companies Registry for registration purposes.
Unlike companies, partnerships are not considered separate legal persons. This means that the partners are all jointly and severally liable for the debts and/or liabilities of the firm.
The relationship between the partners is usually set out in a partnership agreement, which will typically have clauses relating to matters such as the capital contributions required from each partner, drawings, partners' duties and powers (and any restrictions on such powers), and procedural matters relating to partner meetings and voting rights etc.
As partnerships are not considered separate legal persons, to avoid unlimited liability for all partners involved, a partnership may be structured as a limited partnership with at least one general partner (whose liability is unlimited) and the rest as limited partners (whose liability is limited to the amount of their unpaid share capital). A limited partnership must be registered as such at the Companies Registry, if not then it will be deemed to be a general partnership and all limited partners will be deemed to be general partners.
A fund set up in the form of a limited partnership (which is registered under the Limited Partnerships Ordinance (Cap. 37)) can be registered as a limited partnership fund under the Limited Partnership Fund Ordinance (Cap. 637) (LP), which came into effect on 31 August 2020. The limited partnership fund scheme is an opt-in registration scheme administered by the Registrar of Companies.
A limited partnership fund is a private fund that is used for the purpose of managing investments for the benefit of its investors. Partners of a limited partnership fund have freedom of contract in respect of the operation of the fund and the Limited Partnership Fund Ordinance expressly permits limited partners to negotiate the terms of certain contractual arrangements commonly seen in private equity funds, including admission and withdrawal of partners, management structure and governance, capital contributions, distribution, clawback obligations and dissolution procedures.
Normally, a trust is constituted by the payment to the trustee of an amount (the settled sum) which the trustee agrees to hold on trust, together with any other money paid or property transferred to it. The trustee is the legal owner of the trust property and holds/invests such property. The capital sum and any income derived from such invested property will be held by the trustee on trust for the beneficiaries under the trust. The manner in which the trust is constituted is usually set out in a trust deed, which will define the relationship between the trustee and the beneficiaries and set out other matters such as the duties and powers of investment of the trustee.
As a real estate investment vehicle a trust can take various forms. For instance, it may take the form of a discretionary trust under which beneficiaries have no fixed entitlements to the capital or income of the trust, with the trustee having a discretion to choose beneficiaries for these purposes. A discretionary trust is more commonly used for family investment purposes.
For public investment purposes, fixed trusts (for example, property unit trusts) are more commonly used. In a unit trust, entitlement to the benefits of the trust is divided into units similar to shares in a company. The investors/unit holders (beneficiaries of the trust) hold a number of units according to their investment. Unlike discretionary trusts, entitlements are fixed and the trustee has no discretion as to distributions or entitlements to assets as these are determined by the rights attaching to the units in the trust. Unit trusts may require authorization by the Securities and Futures Commission (SFC) as well (especially if they target the general public and not just professional investors as unit holders).
A limited liability company is the most common vehicle used for business activities in Hungary and has a distinct legal personality. It has unlimited liability to its creditors to the full extent of its assets, but the members of the company, as a rule, are not liable for the company’s obligations.
A company limited by shares is a business entity with a distinct legal personality and the shareholders, as a rule, are not liable for the company’s obligations. A company limited by shares may either operate as a private (zrt) or public (nyrt) company.
Subject to certain requirements (eg stock market presence, minor shareholder requirements, scope of activities restrictions, dividend distribution requirements, restrictions on executive officers or asset portfolio restrictions) any public company limited by shares (nyrt) may qualify as a REIT (a real estate investment trust) if it has an initial capital (including subscribed capital, capital reserve and profit reserve) of at least HUF5 billion and has been registered as REIT by the tax authorities.
A limited partnership requires at least one member (the ‘general partner’) to have unlimited liability in relation to the obligations of the company that are not covered by its assets. At least one other member (a ‘limited member’) is only liable up to the extent of the equity contribution that member makes as specified in the articles of association.
An unlimited partnership’s members have unlimited liability for obligations that are not covered by the partnership’s assets.
A real estate investment fund consists of assets and liabilities only, and is managed and represented by an investment fund manager.
A company can be incorporated under the laws of Ireland and may be a private company limited by shares or by guarantee, an unlimited company, a public company or a designated activity company.
A collective investment scheme (CIS) is an arrangement which pools money from different investors and invests the proceeds. A regulated CIS can invest in property or property-related assets and is regulated by the Central Bank of Ireland. The CIS may be structured as an Irish collective asset-management vehicle (ICAV), a variable capital investment company (VCC), a unit trust, a common contractual fund (CCF) or an investment limited partnership. ICAVs, VCCs, unit trusts and CCFs can be established as stand-alone funds or umbrella funds. In a stand-alone fund, investors subscribe for shares/units in the fund which has a single set of investment objectives and policies. An umbrella fund is one in which the fund structure accommodates one or more sub-funds each with a distinct investment strategy. An investor’s investment is represented by shares/units in the specific sub-fund selected.
As unit trusts and CCFs are unincorporated bodies without a separate legal personality, a management company is required. Management companies are often also used for ICAVs and VCCs, although they are not strictly necessary.
A limited partnership is often used by property investment firms and has both limited partners and general partners. Limited partners have their liability limited to the amount of their capital contribution, while the general partners have unlimited liability for the debts of the partnership. Limited partnerships must be registered with the CRO. In order to preserve its status as a limited partner and the limited liability associated with that status, a limited partner must not take part in the management of the partnership business.
The Real Estate Investment Trust (REIT) was introduced pursuant to the Finance Act 2013, providing for listed companies to be used to hold rental investment properties with the aim of achieving an after-tax return for investors, similar to that of direct investment in property. In summary, a REIT must be an Irish incorporated and tax resident company, the shares of which must be listed on the main market of a recognized stock exchange in the European Union. At least 75 percent of the income of the REIT must derive from its property rental business and it must distribute at least 85 percent of its property income annually. The REIT must maintain a property financing cost ratio of 1.25:1 and total debt must not exceed 50 percent of the market value of the assets of the business. Dividends from REITs will be subject to dividend withholding tax at 20 percent, however, non-resident investors may be entitled to tax relief. Subject to meeting the conditions and to certain maximum shareholding thresholds, REITs will be exempt from tax on income and chargeable gains. Non-Irish resident investors will not be liable to Irish capital gains tax on disposal of shares in the REIT.
Each of these entities is a limited liability company whose corporate capital is divided into quotas rather than shares.
An SpA is a limited liability company whose corporate capital is divided into shares with the same face value.
A TMK is a statutory vehicle under the Act on Securitization of Assets. A TMK needs to file with the relevant local finance bureau a business commencement report, including without limitation, an asset liquidation plan (ALP). An amendment to an ALP requires strict procedures, eg obtaining consent from all the interested parties, and for such amendment (other than a minor amendment) filing with the local finance bureau is again required. ATMK acquires real property itself or trust beneficial interest (TBI) representing real property raising funds as specified equity, preferred equity, specified bond, specified loan, and the like, manage them and repay debts and distribute to equity holders from cash flows derived from the real property or TBI.
Godo kaisha (GK) is a company under the Companies Act in which members (equity holders) and managements are not separated unlike a joint stock corporation (kabushiki-kaisha) . A GK is a vehicle to acquire TBI representing real property with silent partnership (tokumei-kumiai, TK) investment from TK investor(s) and loan(s) from lenders. If a GK acquires real property itself instead of TBI representing real property, a license or notification with the authority under the Real Estate Specified Joint Enterprise Act is generally required, which will be discussed in ‘Real Estate Specified Joint Enterprise using TK-GK’ below.
Under a TK-GK structure, if a GK acquires real property itself (not TBI representing real property) in order to distribute profits from the real property to TK investor(s), a GK generally needs to obtain a real estate specified joint enterprise operator license, requirements for which is strict and difficult to be met by a special purpose company.
As an exemption, if a GK entrusts certain business activities relating to real estate transactions and solicitation of TK investment to licensed real estate specified joint enterprise operators (and in the case where the GK performs the land development or certain types of construction work exceeding a certain amount, TK investor(s) need to be the Special Investors (as defined in the Real Estate Specified Joint Enterprise Act) who are deemed to have knowledge about investment), the license is not required subject to a filing of a Special Enterprise (tokurei-jigyo) with the authority.
In addition, in the 2017 amendments, two more exemptions where the license is not required (a filing is required) were added which are:
(1) Small Real Estate Specified Joint Enterprise (shokibo-fudosantokutei-kyodo-jigyo) - where (i) the investment amount of each investor does not exceed JPY1 million and (ii) the total amount invested by all the investors does not exceed JPY100 million; and
(2) Enterprise for Qualified Special Investors (tekikaku-tokureitoshika-gentei-jigyo) - where all the investors involved are those specified in the ministerial ordinance as persons who “especially” have professional knowledge and experience in relation to real estate investment. The Qualified Special Investors (as defined in the Real Estate Specified Joint Enterprise Act) are different from the Special Investors.
J-REIT is a statutory vehicle in a form of an investment trust or investment corporation under the Act on Investment Trusts and Investment Corporations, the latter of which is usually used in Japan. Investment equity of an investment corporation may be listed. An investment corporation acquires real property itself or TBI representing real property.
The B.V. is company with its capital is divided into shares, which are privately registered. It is the most commonly used form of legal entity in the Netherlands. A B.V. is a private limited liability company, meaning that the shareholders are not liable for the company’s debts. The shareholders in general have no liability beyond the payment obligation relating to their shares, unless the by-laws specifically provide such obligations. A B.V. is not required to include a transfer restriction clause in its articles of association; the articles may thus provide that the shares either are or are not freely transferable. The BV’s freely transferable shares can be traded on the public stock market, although traditionally only shares in public limited companies are traded on the public stock market.
An N.V. is also a company with its capital divided into shares. The company's shares can be traded on the public stock market. An N.V. is a limited liability company, meaning that the shareholders are not liable for the company’s debts. The shareholders in general have no liability beyond the payment obligation relating to their shares.
The Co-operative (Coöperatieve U.A.) is a form of association with members. Generally, there is no personal liability of the members (which is indicated by use of ‘U.A.’ in the name of the co-operative). Please note there can also be co-operatives in the Netherlands with a different level of liability for its members to contribute to a deficit upon liquidation, such as the co-operative B.A. (with limited liability of its members to contribute to a deficit) and the co-operative W.A. (with statutory liability for its members ). This overview is limited to the (most commonly used) co-operative U.A. (with exclusion of liability for its members).
This is a method for investing in Dutch real estate using a Dutch-resident entity that qualifies as a fiscal investment vehicle (Fiscale Beleggings Instelling). Under Dutch civil law a fiscal investment vehicle can be either a limited liability company (B.V.) or a public limited liability company (N.V.), but a special tax regime applies. There are certain shareholder and financing criteria that must be met in order to qualify as a fiscal investment vehicle. The Dutch government intends to prohibit the direct investment in Dutch real estate assets by fiscal investment vehicles as per 1 January 2025.
A limited partnership (Commanditaire Vennootschap) is a partnership which distinguishes between its general partners (beherende vennoten) and its limited partners (commanditaire vennoten). The Limited Partnership does not have legal personality (rechtspersoonlijkheid) and as such cannot hold assets in its own name. Usually assets are held in economic terms by the Limited Partnership and are legally held by the general partner acting for and on behalf of the Limited Partnership. The limited partners are simply (silent) financiers of the partnership. Each general partner of the partnership is fully liable for any debts, but the limited partners are liable only to the extent of their partner’s contribution to the limited partnership.
A mutual fund (FGR)is a legal relationship between a fund manager (beheerder) and a depositary (bewaarder) governed by terms and conditions of management and custody to which investors may participate. The FGR has no legal personality and is not a partnership. The investments are held by the depositary at the expense and risk of the participants. After deduction of the costs of management and depositary, and any taxes, the investment income accrues to the participants by way of the increase in the value of their participation. It is best practice to separate the depositary function and the management function. In that case, the depositary continuously reviews whether the fund manager acts according to the mutual fund's terms and conditions. In general, the depositary function is exercised by a foundation, which ideally has been set up exclusively for that particular FGR. The fund manager function usually lies with a financial institution or with an independent asset manager.
Companies in New Zealand can consist of one or more shareholders, one or more shares and one or more directors. At least one director must live in New Zealand or an “enforcement country” where they are also a company director. Currently, Australia is the only enforcement country.
A partnership is a firm consisting of two or more owners called partners. In New Zealand law a partnership is not a legal entity in itself. As such, the partners are jointly and severally liable for all the partnership's debts and obligations.
No formal steps need be taken to form a partnership; the partnership agreement need not be in writing (although it is advisable) and need not be publicly registered or notified. There may, however, be formal requirements that arise from the nature of the trade or profession in which the partnership is engaged.
Unlike partnerships, a limited partnerships can be formed only by registering certain documents in a public registry through the Companies Office. A written partnership agreement is also requirement of formation. Once formed, a limited partnership is a legal person, separate from the partners.
Formal steps are not usually required to create a trust. However, three elements need to be present with any valid trust. A declaration of trust by the person who establishes it (the settlor) is required as well as identifiable trust property and identifiable beneficiaries. Where the trust holds land, this declaration must be in writing. Formal trust deeds are often used to outline the settlor, trustees and beneficiaries and their powers rights and obligations.
In a discretionary trust the trustee usually has a discretion in the selection of beneficiaries and the proportion of each beneficiary's interest.
A private limited liability company is the most common type of company in Nigeria. It is a legal entity registered and governed by the Nigerian Companies and Allied Matters Act with a separate and distinct legal personality from its shareholders. A Private Company cannot have more than 50 shareholders and cannot seek public subscriptions for its shares or raise capital from the public. There is no local ownership requirement, and the shares can be wholly foreign owned. Private Companies can have a single director and a single shareholder subject to certain conditions.
The Companies & Allied Matters Act and the Securities and Exchange Commission regulate Public Limited Liability Companies in Nigeria.. There is no restriction on the number of its members and it can raise capital and offer its shares to the public. A public company is required to have a minimum share capital of NGN 2,000,000 and may be listed on the stock exchange subject to listing requirements. There is no limitation on the number of shareholders under this structure.
REITs and REICOs are collective investment schemes that pool funds from the public to invest in and manage real estate assets and portfolio and are regulated by the Nigerian Securities and Exchange Commission (SEC). They may be privately owned or traded publicly on the Nigerian Stock Exchange. They must pay dividends annually on at least 75% of its rental or dividend taxable income and must be approved by the Federal Inland Revenue Services (FIRS) and SEC to enjoy tax exemptions. They can also be structured as equity, mortgage, or hybrid vehicles. A REIT must make a distribution, at least, annually otherwise, it shall cease to be registered as a REIT by the Commission.
A Limited Liability Partnership is a corporate body formed and incorporated under the Companies & Allied Matters Act by at least two persons, separate from its partners and has perpetual succession. There is no limit to the number of partners allowed, and the Partnership is not taxed as a separate entity, but the partners are taxed individually on their share of the profits or losses.
Limited Partnership is formed with not more than 20 persons consisting of one or more persons called general partners who will be liable for all debts and obligations of the firm and one or more persons as limited partner(s) who agree to contribute to the capital or property of the partnership. The liability of the partner is usually limited to their contribution to the partnership.
Other notable differences between the two forms of investment vehicles are as follows:
Real Estate Investment Trust: A REIT is established under a trust deed between a fund manager and the trustees and may offer units to the public only after the trust deed is registered with the SEC. At least 75% of a close-ended REIT’s total assets must be in real estate, while at least 70% of an open-ended REIT’s total assets must be in real estate.
Real Estate Investment Company: A REICO is a corporate entity registered under CAMA with a capital and reserve as prescribed by SEC. It carries on business as a collective investment scheme solely in real property and must comply with rules and regulations issued by SEC. Its shareholders are therefore entitled to voting rights in the company. At least 75% of a listed REICO’s total assets must be in real estate, while at least 70% of an unlisted REICO’s total assets must be in real estate.
Both structures require a minimum of 90% of the revenue to be obtained from rental income.
This is a limited liability corporate vehicle similar to the private limited companies recognized in other jurisdictions.
This is a limited liability corporate vehicle similar to the public limited companies recognized in other jurisdictions.
A kommandittselskap/KS is a limited partnership where at least one of the partners has unlimited liability (often a private limited company). There is no limit to the number of partners with limited liability.
An ansvarlig selskap/ANS and an ansvarlig selskap/DA are both general partnerships. All partners in an ANS have unlimited joint and several liability, while partners in a DA have unlimited pro rata liability.
A limited liability company (Spółka z ograniczoną odpowiedzialnością, sp. z o.o.) can be established for the purpose of conducting business or for any other purpose allowed by law. It can be established by one or more individuals or legal persons, however, it cannot be established solely by another single-member limited liability company. A limited liability company is a separate legal entity liable for its own debts and obligations. Shareholders are in general not liable for the company's debts and obligations.
A joint stock company (Spółka akcyjna, S.A.) can be established to carry out business on a large scale. Capital can be raised through the issue of shares. A joint stock company may be established by one or more persons, but not solely by a single-member limited liability company. The company is fully liable for all of its debts and obligations without limitation. The shareholders are not liable for the company's obligations.
A simple joint stock company (Prosta spółka akcyjna, P.S.A.) is a novelty in Polish legislation. In this type of company, there is no typical share capital – instead, stock capital is created in the minimum amount of PLN 1. A non-cash contribution to cover shares may be any contribution with a material value, in particular the provision of work or services. Electronic communication can be widely used to adopt resolutions or hold meetings (eg videoconferences), which facilitates decision-making processes. A simple joint stock company may be established by one or more persons, but not solely by a single-member limited liability company. The company is fully liable for all of its debts and obligations without limitation. The shareholders are not liable for the company's obligations.
A limited partnership (Spółka komandytowa, sp. k.) consists of at least one partner with unlimited liability (Komplementariusz) and at least one partner with limited liability (Komandytariusz). Partners can be either individuals or legal entities.
The unlimited partnership (Spółka jawna, sp. j.) is a partnership that has at least two partners with unlimited liability.
In Poland, in terms of funds, only closed-end investment funds may invest in perpetual usufruct rights (tradable and mortgageable rights to use real estate) or the ownership/co-ownership of:
A fund may only acquire rights to real estate which have clear legal status, have not been used to provide security for funding, and are not subject to enforcement proceedings conducted by an enforcement officer in order to give effect to a court judgement. The fund is not allowed to acquire a property which is being sold by way of enforcement of security by a third party. A fund may acquire real estate encumbered with third-party rights only if this does not mean there is a risk of losing ownership of the real estate.
A fund can only be set up by a management company (Towarzystwo Funduszy Inwestycyjnych, TFI), which holds and manages the assets of the fund on behalf of the shareholders as a trustee.
Only a joint stock company (Spółka akcyjna, S.A.) with a registered office in the Republic of Poland and authorization from the Polish Financial Supervisory Commission can operate as a management company. A supervisory board is mandatory.
An SQ is a private limited liability company. The registered capital in an SQ is divided between the shareholders by reference to the percentage of the capital of the company they hold. Under Portuguese law a share is a dematerialized form of instrument, not represented by a material document and subject to registration on behalf of its owner with the Registry of Companies, thus allowing public and unrestricted access to the owner's details.
The minimum number of shareholders for an SQ is one, and in such cases the SQ is called a Sociedade Unipessoal por Quotas (SUQ) and shares have a minimum value of €1, meaning that the minimum share capital is €1. However, an SQ may be formed by two or more shareholders, in which case the minimum share capital must be at least equal to the number of shareholders.
A Sociedade Anónima (SA) is a limited liability company with shares either listed or unlisted. The minimum number of shareholders in general is five. However, there can be SAs whose number of shareholders equal to:
An unlimited partnership is a partnership of at least two partners with unlimited liability.
A limited partnership is a partnership of at least one partner with unlimited liability and at least one partner with limited liability.
A joint-stock company is a corporate entity where the shareholders are liable for the obligations of the company up to the amount of their contributions to the company’s subscribed capital. Joint-stock companies may be listed on regulated markets and have a more complex organisation than limited liability companies.
A partnership limited by shares is a partnership with a corporate structure which is closer to a joint-stock company than to a limited partnership except that the shareholders' liability can be either unlimited or limited.
The limited liability company is a corporate entity where the shareholders are liable for the obligations of the company up to the amount to their contributions to the company’s subscribed capital.
The registered capital is composed of predetermined contributions from shareholders. A limited liability company can also be established by a single person, either a natural person or a legal entity. A limited liability company with one shareholder cannot be the sole shareholder of another limited liability company. A natural person can be the sole shareholder in three limited liability companies at most. A limited liability company is liable for all its obligations. The shareholders are only liable for the company's obligations up to the amount of their unpaid shares registered with the commercial registry.
The registered capital is divided into stock with a certain nominal amount. A joint-stock company is liable for all its obligations. The stockholder is not liable for the obligations of the company.
In an unlimited partnership at least two people conduct business under the same business name and are liable jointly and severally to the extent of all their assets for all the firm's obligations.
In a limited partnership, one or more partners are liable for all of the company's obligations up to the amount of their unpaid shares registered with the commercial registry (komanditista); and in addition, one or more partners are liable for all the company's obligations to the full extent of their assets (komplementár).
The SJSC can be founded by one or more natural or legal persons. The participation in registered capital is reflected by number of shares with a certain nominal value and the aggregate of all the nominal values of issued shares shall be equal to the registered capital of the SJSC. The SJSC is liable for breach of its obligations with all its assets, however the shareholders of the company are not liable for the obligations of the company.
The sociedad de responsabilidad limitada is a mercantile company whose capital is divided into quotas (participaciones sociales). The capital is composed of contributions from the shareholders who are not personally liable for the debts of the company. The company, irrespective of its corporate purpose, will have a commercial character.
The sociedad anónima is a mercantile company, whose capital is divided into shares (acciones). The capital is composed of contributions from the shareholders who are not personally liable for the debts of the company. The company, whatever its purpose, will have a commercial character.
A sociedad en comandita is a partnership which offers partial limited liability to partners. A sociedad comanditaria is formed by general partners and limited liability partners (socios comanditarios). The general partners are jointly and severally liable for the debts of the partnership up to their entire net worth. The liability of the limited liability partners for the obligations of the partnership is limited to the extent of their respective investments but they may not be appointed as managers of the company. These vehicles are rarely used in practice.
A sociedad en comandita por acciones (S.Com. p. A.) is a partnership in which share capital is divided into shares (acciones) and which offers partial limited liability to partners. A sociedad en comandita is formed by general partners and limited liability partners (socios comanditarios). The general partners are jointly and severally liable, up to the whole amount of their net worth, for the debts of the partnership. The liability of the limited liability partners for the obligations of the partnership is limited to the extent of their respective investments but they may not be appointed as managers of the company. These vehicles are rarely used in practice.
A general partnership (sociedad de responsabilidad colectiva) is a partnership with no limitation on partners' liability. All partners, whether or not they are managers, are jointly and severally liable for the debts of the partnership up to the whole amount of their net worth.
A real estate investment fund (fondo de inversión inmobiliario or FII) is managed by a management company (sociedad gestora or SG). This entity manages the assets and handles the administration and representation of the fund. There is also a financial entity (custodian) to hold the fund assets.
A real estate investment company (sociedad de inversión inmobiliaria) (SII) takes the form of a sociedad anónima (SA) (public company). This entity must have an accounting and administrative function. It can appoint a management company for the purposes of administration and representation.
A real estate investment trust – sociedad anónima cotizada de inversión inmobiliaria (SOCIMI) takes the form of a sociedad anónima (SA) (public company) listed on a Spanish or EU regulated stock market or on a multilateral trading system (MAB). The share capital is divided into registered shares represented by means of book entries (anotaciones en cuenta) and no limitations on the transfer of the shares are permitted.
A Swedish limited liability company is a business enterprise in which the liabilities of the shareholders are limited to their capital investment in the company.
There are two types of partnership: trading partnerships (handelsbolag) and limited partnerships (kommanditbolag). A limited partnership offers limited liability but tax regulation is basically the same for both.
Under Thai law, a limited company is an artificial person with rights and obligations, distinct from those of its shareholders. A limited company must have at least 3 shareholders at all times, individuals or legal persons. A shareholder's liability is limited to any paid and unpaid amounts of the share capital of the company. All shares must be paid up to at least 25% of the share par value, whether by way of cash or property.
The Civil and Commercial Code of Thailand stipulates that only shares with a par value of THB 5 or above may be issued. The registered share capital may be increased at any time by special resolution of the shareholders. Companies are incorporated by the adoption of a Memorandum and Articles of Association, which must be registered with the Ministry of Commerce.
A property fund is publicly listed and traded on the Stock Exchange of Thailand (SET) and the 'units' are similar to shares in a company. There is no nationality restriction for investing in property funds. They are established with the objective of mobilizing public funds by issuing unit trusts and then investing the funds in real estate, residential projects or other property-liked securities allowed by law. A property fund focuses purely on investment in property that returns a regular income stream rather than purchasing and developing property for future sale by way of trade.
Property funds are classified into two types:
Nevertheless, both fund types are required to invest at least 75% of their net asset value (NAV) in real estate, or leasehold rights over real estate, which must be located in Thailand and, if under construction, must be at least 80% completed. Furthermore, after acquiring a property, the property fund must hold it for at least one year. The regulations concerning property funds do not, however, allow investment in dormant land.
Property funds are required by regulation to pay dividends at a minimum of 90% of the annual net profit to the unit holders.
REIT is an investment vehicle which is regulated under the Securities Exchange Commission (SEC) and Stock Exchange of Thailand (SET). REITs are not legal persons under Thai law and are distinguishable from Property Funds in that REITs can invest in any type of property that generates rental revenue (except for real property involving immoral or illegal businesses), including overseas property. The prospectus of the REIT will detail the types of property that the REIT may invest in; similarly, the name of the REIT will reflect these property types as well. Up to 35% of the total assets of the REIT may be leveraged, and, if the REIT has obtained an investment-grade credit rating, this is increased to 60%. Other characteristics of a REIT include the option to place its assets as collateral and for up to 10% of the total assets in the REIT to be comprised of projects still in development.
During the establishment of a REIT, there must be a trust settlor who will eventually become the REIT Manager. The REIT Manager is responsible for filing a public offering of trust units with the SEC. In addition, there will be an underwriter, appointed by the REIT, to distribute trust certificates to the general public and trust unit holders will become the REIT's beneficiaries. The public offering process is regulated by the SEC, and once this process is complete, the underwriter will transfer the capital raised from this process to a trustee approved by the SEC. The trustee's responsibilities include monitoring and supervising the performance of the REIT manager and paying out dividends to trust unit holders.
Limited liability company (LLC)
This is a company in which the shareholders are limited in their liability to the amount of their contribution to the share capital. An LLC must have between two and fifty shareholders and UAE nationals (or a company owned by UAE nationals) must currently own at least 51% of the shares. Despite the foregoing rule, one national or body corporate from a GCC country may own the entire shareholding of an LLC without the participation of another shareholder.
Public joint-stock company (PJSC)
A PJSC is a company whose capital is divided into negotiable shares of equal value. The nominal value of each share cannot be less than AED 1 and cannot exceed AED 100. Shareholders are liable only to the value of their shares.
UAE nationals must own at least 51% of the shares in the PJSC and the founding members must subscribe to shares from 30% to 70% of the issued share capital. A PJSC must have at least five founder members.
Private joint-stock company (private JSC)
A private JSC is similar to a PJSC but with the following main differences:
The UAE Companies Law (No. 2 of 2015 as amended) provides that, unless specifically provided to the contrary all provisions that apply to a PJSC apply to a private JSC as well, other than the points noted above.
In the Abu Dhabi Global Market free zone:
This is a company in which the shareholders are limited in their liability to the amount of their contribution to the share capital. An LLC must have at least one shareholder and subject to the discretion of the relevant competent authorities of a given Emirate may be 100% foreign owned. Certain licence activities will require at least one UAE national (or a company owned by UAE nationals) to own at least 51% of the shares. One national or body corporate from a GCC country may own the entire shareholding of an LLC without the participation of another shareholder.
A PJSC is a company whose capital is divided into negotiable shares of equal value. The nominal value of each share cannot be less than AED 1 and cannot exceed AED 100. Shareholders are liable only to the value of their shares.
Subject to the discretion of the relevant competent authorities of a given Emirate, a PJSC may be 100% foreign owned. Certain licence activities will require at least one UAE national (or a company owned by UAE nationals) to own at least 51% of the shares. The founding members must subscribe to shares from 30% to 70% of the issued share capital. A PJSC must have at least five founder members.
A private JSC is similar to a PJSC but with the following main differences:
The UAE Companies Law (No. 2 of 2021 as amended) provides that, unless specifically provided to the contrary. all provisions that apply to a PJSC apply to a private JSC as well, other than the points noted above.
A JAFZA offshore company may be wholly owned by foreigners, ie there is no requirement for any shares to be held by a UAE national. The minimum number of shareholders is one.
A limited partnership consists of (usually a single) general partner and one or more limited partners. A limited partner who invests in such a partnership will be liable for the debts and obligations of the partnership only to the extent of his nominal capital contributions and the relationship between the partners is usually governed by a private limited partnership agreement. Limited partners are not permitted to take part in the management of the partnership or its investments. The general partner (which is normally an SPV (single purpose vehicle) controlled by the sponsor of the partnership which manages the partnership's property investments) has unlimited liability for the debts and obligations of the partnership. The general partner does have a right of recourse or indemnity against the commitments of the limited partners as investors to meet partnership obligations unless otherwise agreed.
A limited liability partnership (LLP) is a corporate entity comprised of members who have limited liability. As in a partnership and limited partnership, the relationship between the members is normally set out in a private members' agreement. An LLP which carries on a business is taxed like a partnership so that any income and gains of the members are taxed as if they were partners in a general partnership. The LLP is not a separate taxable entity except on its winding up. An LLP is sometimes used as a property investment vehicle but tends not to be suitable for investment by tax exempt investors (such as pension schemes) for whom the vehicle is not tax transparent.
The liability of members is limited to the amount which they have agreed to contribute to the LLP. Certain creditor protection provisions apply which allow distributions made to members within the two years prior to the onset of the insolvency of the LLP to be recaptured by a liquidator if the members knew, or ought reasonably to have foreseen, that insolvency would occur.
An LLP is more commonly used as a vehicle for the manager of an investment fund due to various tax advantages which are available to the members of the LLP.
Property holding companies (nominee companies) are established and enter into a trust deed. The nominee companies hold legal title to the property on trust for a syndicate of participating investors. Each investor owns a defined share in the property. After the property is sold, the companies are brought to an end to ensure that no residual liabilities arise subsequently. This is also known as a co-ownership trust and is used in circumstances where a group of investors want to take strategic and other important investment decisions but also have tax transparency and minimum regulation.
It is possible to structure an investor syndicate trust so that it is not a collective investment scheme for regulatory purposes, with the result that its operation does not require the appointment of an FCA authorised person. Normally this type of structure is used for co-ownership of a single property investment rather than for a property portfolio.
Property unit trusts are schemes which pool investors' funds into a single fund which invests in property. Individual investors then buy units in the fund. Units are bought or sold through a fund manager and the value of individual units varies in line with the overall value of the fund. Unit trusts divide into those that are authorized by the Financial Conduct Authority, either for retail or institutional investor distribution (the requirements which apply to the terms of the unit trust are stricter for retail investors), and those that are not authorized.
Generally, property unit trusts are set up on a closed-ended basis, ie investors do not have a right of regular redemption of their units. It is possible to have an open-ended Property Unit Trust (where investors have a regular right of redemption of their units by reference to the underlying net asset value of the assets of the trust). These tend to be the largest property funds and require substantial portfolios and additional liquid property-related assets and cash/near cash to be maintained to ensure that there is sufficient liquidity to meet investor demand. Gating provisions will commonly apply so as to permit the manager of the Unit Trust to defer redemptions to ensure fairness between outgoing and remaining investors and to avoid forced sales.
A private limited company is formed and registered under the Companies Acts of the UK (of which England and Wales form part) and has a separate legal personality. With some exceptions for UK corporate investors, including banks in connection with joint ventures, UK-incorporated companies are not widely used for UK property investment due to the absence of tax transparency for either income or capital gains tax.
This is a company formed and registered under the Companies Acts and has a separate legal personality. It must meet certain minimal capital requirements. One specific form of a tax-efficient public limited company is a real estate investment trust ('REIT') (see below).
Qualifying companies and groups of companies have been able to join the UK REIT regime since 1 January 2007. Part of the underlying political motivation for introducing REITs was an attempt to stop investment in UK property continuing to flow offshore. A REIT allows a corporate entity that buys, develops, manages and sells real property to invest (tax efficiently) in a professionally managed portfolio held for long-term benefit. Broadly, REITs benefit from an exemption from tax on the income and capital gains from their property rental business and distributions of income profits and capital are treated as UK property income in the hands of shareholders. A 20% withholding tax is imposed on such distributions (subject to exceptions).
To qualify as a REIT, the company must satisfy a number of conditions and apply to HMRC (the tax authority) for approval as a REIT. Two of those conditions are that the company is not a ‘close company’ (or is simply a close company by virtue of one of the participators being an institutional investor) and that its letting business comprises at least three properties. As a result, ownership of REITs must be widely held and will only be a suitable choice of property holding vehicle if there are a number of investors investing in multiple properties.
Property companies which are tax resident offshore may not join the REIT regime unless they move onshore. The REIT regime is also not as attractive for investments in overseas property. Although REITS may develop property, the REIT regime is not appropriate for developers.
There is no requirement for a PAIF's shares to be listed or traded on a stock exchange, so various listing requirements will not apply. However, PAIFs which are either a fund subject to the European Union's Undertakings for Collective Investment in Transferable Securities Directives (UCITS) or a non-UCITS retail fund are often preferred by retail investors because they are authorised and regulated by the FCA, thereby affording a level of protection for investors.
Much of the EU legislation on UCITS is implemented in the UK through FSMA and secondary legislation made under FSMA. The Government’s intention is that this legislation should be preserved, in other words that it should remain unchanged, after the end of the Brexit transition period (which ends at 11.00pm on 31 December 2020). UK legislation which implements UCITS will only continue to be recognised by the EU as a basis for regulatory cooperation during the Brexit transition period. At the end of the transition period, the UK legislation which implements UCITS will no longer be recognised by the EU as a basis for cooperation.
A limited partnership consists of (usually a single) general partner and one or more limited partners. A limited partner who invests in such a partnership will be liable for the debts and obligations of the partnership only to the extent of their nominal capital contributions and the relationship between the partners is usually governed by a private limited partnership agreement. Limited partners are not permitted to take part in the management of the partnership or its investments. The general partner (which is normally an SPV (special purpose vehicle) controlled by the sponsor of the partnership which manages the partnership’s property investments) has unlimited liability for the debts and obligations of the partnership. The general partner does have a right of recourse or indemnity against the commitments of the limited partners as investors to meet partnership obligations unless otherwise agreed.
A limited liability partnership (LLP) is a corporate entity comprised of members who have limited liability. As in a partnership and limited partnership the relationship between the members is normally set out in a private members’ agreement. An LLP which carries on a business is taxed like a partnership so that any income and gains of the members are taxed as if they were partners in a general partnership. The LLP is not a separate taxable entity except on its winding up. An LLP is sometimes used as a property investment vehicle but tends not to be suitable for investment by tax-exempt investors (such as pension schemes) for whom the vehicle is not tax transparent.
The liability of members is limited to the amount which they have agreed to contribute to the LLP. Certain creditor protection provisions apply which allow distributions made to members within the two years prior to the onset of the insolvency of the LLP to be recaptured by a liquidator if the members knew, or ought reasonably to have foreseen, that insolvency would occur. An LLP is more commonly used as a vehicle for the manager of an investment fund due to various tax advantages which are available to the members of the LLP.
Property holding companies (nominee companies) are established and enter into a trust deed. The nominee companies hold legal title to the property on trust for a syndicate of participating investors. Each investor owns a defined share in the property. After the property is sold, the companies are brought to an end to ensure that no residual liabilities arise subsequently. This is also known as a co ownership trust and is used in circumstances where a group of investors want to take strategic and other important investment decisions but also have tax transparency and minimum regulation. It is possible to structure an investor syndicate trust so that it is not a collective investment scheme for regulatory purposes, with the result that the promotion of interests in the trust (where it invests directly in land) is not regulated by the Financial Conduct Authority (FCA) and its operation does not require the appointment of an FCA authorized person. Normally this type of structure is used for co-ownership of a single property investment rather than for a property portfolio.
Property unit trusts are schemes which pool investors’ funds into a single fund which invests in property. Individual investors then buy units in the fund. Units are bought or sold through a fund manager and the value of individual units varies in line with the overall value of the fund. Unit trusts divide into those that are authorized by the FCA, either for retail or institutional investor distribution (the requirements which apply to the terms of the unit trust are stricter for retail investors), and those that are not authorized.
Generally, property unit trusts are set up on a closed-ended basis, ie investors do not have a right of regular redemption of their units. It is possible to have an open-ended property unit trust (where investors have a regular right of redemption of their units by reference to the underlying net asset value of the assets of the trust). These tend to be the largest property funds and require substantial portfolios and additional liquid property-related assets and cash/near cash to be maintained to ensure that there is sufficient liquidity to meet investor demand.
Gating provisions will commonly apply so as to permit the manager of the unit trust to defer redemptions to ensure fairness between outgoing and remaining investors and to avoid forced sales.
A private limited company is formed and registered under the Companies Acts of the UK (of which Scotland forms part) and has a separate legal personality. With some exceptions for UK corporate investors, including banks in connection with joint ventures, UK-incorporated companies are not widely used for UK property investment due to the absence of tax transparency for either income or capital gains tax.
This is a company formed and registered under the Companies Acts and has a separate legal personality. It can be distinguished from a private lLimited company in a number of ways, but most importantly by the fact that shares in a public limited company (PLC) can be publicly traded, whereas shares in a private limited company cannot. A PLCIt must hold a minimum share capital of £50,000, making them more expensive to set up than private limited companies. One specific form of a tax-efficient public limited company is a real estate investment trust (REIT).
Qualifying companies and groups of companies have been able to join the UK REIT regime since 1 January 2007. Part of the underlying political motivation for introducing REITs was an attempt to stop investment in UK property continuing to flow offshore. A REIT allows a corporate entity that buys, develops, manages and sells real property to invest (tax efficiently) in a professionally managed portfolio held for long-term benefit. Broadly, REITs benefit from an exemption from tax on the income and capital gains from their property rental business and distributions of income profits and capital are treated as UK property income in the hands of shareholders. A 20 percent withholding tax is imposed on such distributions (subject to exceptions).
To qualify as a REIT, the company must satisfy a number of conditions and apply to HMRC (the tax authority) for approval as a REIT. Two of these conditions are that the company is not a “close company” (or is simply a close company by virtue of one of the participators being an institutional investor) and that its letting business comprises at least three properties. However, since 2023, a REIT is capable of investing in a single property if its value is a minimum of £20 million. As a result, ownership of REITs is commonly widely held and will only be a suitable choice of property holding vehicle if there are a number of investors investing in multiple properties or a significant investment in one property.
Property companies which are tax resident offshore may not join the REIT regime unless they move onshore. The REIT regime is also not as attractive for investments in overseas property. Although REITs may develop property, the REIT regime is not appropriate for developers.
Property Authorized Investment Funds (PAIF) are open-ended investment companies that are collective investment schemes authorized and regulated under the terms of FSMA. PAIFs were introduced to attract a wider range of property investors and lessen the tendency for exempt investors (such as charities and registered pension funds) to invest in property through tax-neutral offshore structures such as Jersey property unit trusts.
To qualify as a PAIF, the company must be an open-ended investment company (OEIC) that satisfies six qualifying conditions. One is the genuine diversity of ownership condition, which requires the PAIF to include a statement in the fund documents that its shares will be widely available and marketed and to ensure that its shares are in fact widely marketed. As a result, PAIFs will only be a suitable choice of property holding vehicle if there are a number of investors. Only open-ended investment companies can apply to join the PAIF regime.
A limited liability company has its charter capital divided into participatory shares, as specified in the foundation documents. Participants in a limited liability company are not liable for the company's obligations and bear the risk of losses related to the company's activities only up to the amount of their contributions to the charter capital.
On 6 February 2018 the Ukrainian parliament adopted the Law of Ukraine ‘On Limited Liability and Additional Liability Companies’ (LLC and ALC Law), which became effective on 17 June 2018. This law envisages many important changes with respect to incorporation, operation and governance of limited liability and additional liability companies.
The LLC and ALC Law cancelled some existing restrictions with regard to the limited/additional liability companies:
An additional liability company has its charter capital divided into shares as specified in its foundation documents. Participants are responsible for the company's obligations to the extent of their contributions to the charter capital. However, if these sums are insufficient to cover the company's debts, the participants are liable to the extent of their own assets. The limits to participant's liability are set out in the foundation documents.
A joint-stock company has its charter capital divided into shares of equal nominal value. Shareholders in a joint stock company are not liable for the company's obligations and bear the risk of losses related to the company's activities only up to the value of their shares.
A partnership is an entity where all participants are engaged in a joint entrepreneurial activity and are jointly liable for the partnership's debts up to the extent of their own assets. The partnership is managed in accordance with the foundation agreement. The partnership's activities may be carried out by all the partners, by only one partner or by a group of partners acting on behalf of the partnership under a power of attorney issued by the other partners.
A commandite partnership is an entity in which the one or more partners carrying out business activities on behalf of the partnership are held jointly liable to the extent of their own assets for the partnership's commitments (general partners), while the remaining partners, who are not involved directly in business activities, enjoy limited liability up to the extent of their contributions to the charter capital only (limited partners). Only general partners may manage the partnership and limited partners are not allowed to participate in management decisions. A commandite partnership must terminate its activities if all the general partners withdraw from the business.
A US limited partnership is a partnership in which there are one or more limited partners and one or more general partners. The limited partners generally do not participate in the management of the partnership or its assets, and a limited partner is liable for the debts and obligations of the limited partnership only to the extent of its capital contributions (ie its investment). The general partner manages the limited partnership and its assets and is liable for the obligations of the limited partnership. Thus, the general partner is usually an entity that provides liability protection (such as a corporation or a limited liability company). Operations of a limited partnership are typically funded through the capital contributions of the partners and debt from third-party lenders. Many states have creditor protection laws which, in certain circumstances, allow for the recapture of distributions made within a certain period if the limited partnership is unable to pay its debts.
A limited liability company (often referred to as an LLC) is an entity owned by persons or entities called members, all of whom have limited liability. The governance of the LLC and the economic interest of the members are described in a limited liability company agreement, also often called an operating agreement. An LLC can be managed by its members (similar to the way a general partnership is managed) or it can be managed by a manager or board of managers. It is common to have a manager when there are more than just a few members. Unlike partnerships, an LLC can exist with only one member. A member of an LLC is liable for the debts and obligations of the LLC only to the extent of its capital contributions (ie its investment). An LLC will be governed by the laws of the state in which it is formed. Many states have creditor protection laws which, under certain circumstances, allow for the recapture of distributions made within a certain period if the LLC is unable to pay its debts.
A US general partnership is a partnership in which there are two or more general partners. Partners in a general partnership have no liability protection; each partner is jointly and severally liable for the debts and obligations of the general partnership. Liability protection can be obtained by investing in the general partnership through a liability protection entity such as an LLC. Operations of a general partnership are typically funded through the capital contributions of the partners and debt from third-party lenders.
Depending on the state of formation, some type of certificate may need to be filed in connection with the formation of a general partnership. A general partnership may be governed by a partnership agreement among the partners. The partners in a general partnership may submit all actions to partner vote or the partners may elect a managing partner who is given certain powers to act on behalf of the partnership.
Most local asset management or insurance firms operate unit trust funds which hold property assets. The real estate investment sector is dominated by insurance firms because it is predominately insurance companies that have the capacity and access to build up long-term capital.
The various funds are characterized by different investment strategies and portfolios and these unit trusts are open as an investment vehicle to individuals to companies, trusts or syndicates. In Zimbabwe, in terms of the Collective Investment Schemes (Internal Schemes) (Amendment) Regulations, 2019, Real Estate Investment Trusts (REITS) are considered to be a scheme or property fund registerable in terms of the Collective Investment Schemes Act [Chapter 24:19].
Funds are often structured to suit different investors’ requirements and added flexibility as the unit trusts tend to offer good investment prospects. Property unit trusts in Zimbabwe are registered and licensed under the Collective Investment Schemes Act and its operations are regulated and governed by the Act and the Regulations.
Unit trust schemes in property are restricted to investment in the shares of property-owning companies (fixed-property companies) and in approved securities, pending investment of cash resources into property according to the Zimbabwe stock exchange listing rules.
The Zimbabwe Stock Exchange Listing Rules specifically provide as follows:
The management company must be formed solely for the purpose of establishing, carrying on or managing unit trust schemes in property shares and issuing unit certificates thereunder, and confine its activities solely to those purposes; be registered as a public company under the Act and have a paid-up share capital and non-distributable reserves which together amount to not less than the amount actually employed or immediately available for employment in its unit trust business.
A unit trust scheme in property shares is governed by a trust deed entered into between the management company and the trustee. The trust deed will outline the responsibilities, investment policy and restrictions under which the management company may operate.
A private limited company is formed and registered under the Companies and Other Business Entities Act [Chapter 24:31] (COBE Act) which has a separate legal personality. This is an entity incorporated with one or more members through share subscription.
This is a public company formed and registered under the COBE Act and it has a separate legal personality. Shares are freely tradable and open to the public. It must meet certain minimal capital requirements set from time to time.
