REALWorld Law

Corporate vehicles

Constitution of vehicles

What are the main features of the constitution of each type of corporate vehicle used to invest in real estate?

United States

United States

US limited partnership

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.

US limited liability company

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.

US general partnership

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.