3. A Threshold Decision: Choice of Entity and Organization Form For the Acquisition, Development and Holding of Title to Real Estate:

A. Overview:

1. Choices of Entity Form:

The choice of legal entity to acquire, develop, hold and manage real estate is a significant threshold decisions in the real estate transactions.¹ Choices often have to be made regarding the form of legal entity to be used to purchase, develop, hold and manage real estate. One choice is to stay with an existing entity form or create a new entity for the purpose of the transaction in question. In either event, a range of issues require a concise and organized approach to the selection of business or entity form by the individual or legal entity attempting to purchase the real property.²

Issues to be considered include, but are by no means limited to the following general categories:

(1) The formalities and costs of alternative organizational formats;

(2) Choices regarding how title is to be taken, by what entity and how title should be held (estate forms);

(3) Capital structures for the purchase, development, holding and management of the real estate investment;

(4) Debt structure in the transaction including, but not limited to the (a) total amount of debt, (b) debt to equity ratio; (c) nature of security interest in the underlying property; (d) amount of joint and several liability on the debt, if any.

(5) Management and control of the venture between and among the individuals, partners, stockholders, creditors, or other investors;

(6) The degree of liquidity to be structured into the organizational form;

(7) The life expectancy of the business entity form;

(8) The Federal, State and Local regulatory structures invoked by the choice of business form, including, but not limited to Federal Securities Law, State Blue Sky Regulations and the like;

(9) Tax Consequences of organizational form.³

Real property is often purchased by an individual as an individual. In this format, title is to be taken and held by an individual, the capital investment required is to be generated by existing savings, or the sale of other capital assets and the debt incurred will be predicated on the debt to equity ratio of the real estate investment and the ability of the individual borrower to repay the obligation. Where an individual operates under or wants to take title under an assumed name, this generally involves compliance with simple filing requirements. Both management and tax consequences involved with a single proprietorship are reasonable, as they related to the single responsible participant in the real estate transaction.

In the hierarchy of organizational form, the next level involves the simple partnership. In a partnership, the formalities of partnership organization, agreement and filing with the appropriate governmental offices must be carefully complied with.⁴ Most partnerships can be formed quickly with few formalities. The necessary partnership filings can be accomplished in short order. Often, however, partnerships become complex and include extensive cross-insurance plans, buy-sell agreements, allocations of tax and non-tax benefits other than proportionate to the interest of the individuals in the enterprise, and other matters.⁵ In some jurisdictions, the partnership is required to be filed with the State and is subject to State jurisdiction and control.⁶ In others, the arrangements are more informal.

Why would two or more individuals form a partnership? There may be the necessity of generating additional working capital, investment capital, or to generate a listing of substantial assets for purposes of arranging debt financing.

One form of real estate partnership which has emerged has been the limited partnership.⁷ The limited partnership has been conceived as a means of attracting capital for real estate investment. The limited partnership has one or more managing partners and limits the risk of passive investors. The limited partnership has become during the past fifteen years a significant organizational form for real estate investment.⁸ Because of the new tax treatment of limited partnerships, however, this form may decline in popularity.

The next level of complexity of the commercial real estate paradigm involves the decision to create a corporation for the real estate transaction. The corporation as a form of business organization is a complex legal entity. In all states, a corporation is a creature of statute and strict compliance with general corporation legislation is required.⁹ In many jurisdictions significant time is required to form a corporation due to name search and reservation requirements, filing, approvals and other formalities.

A contract to purchase real estate will often precede the formation of the entity intended to take title or be responsible for the long term financing. In this event, provisions must be made in both the purchase contract and in the financing arrangements to accommodate the time necessary for the formation of the entity as well as the changes occasioned by the new entity form. In some instances, a bridge entity might have to be formed with provisions for transfer of the property to the corporation on formation.¹⁰ Provisions will also have to be made to permit promoter acts to be ratified by the corporation after formation.

2. Choice of Estate Form:

Within each of the organizational forms there is also a choice of particular estate form. Where only one party is involved, the real property interest may be taken by that party individually. If there are two or more parties involved, then the estate may be taken in some form of concurrent ownership, such as (a) tenants in common,¹¹ (b ) joint tenants,¹² or, (c) a marital estate with right of survivorship.¹³ In New York, for example, the marital estate is called Tenancy by the Entireties.¹⁴

B. Choice of Entity Form:

1. Individual

a. How title is taken

Title may be taken by an individual using any of the traditional estate forms. In the formation of any particular common law estate, the rules of conveyancing for the formation of that interest must be followed. Thus, in words of limitation must be clearly expressed in order to create a life estate, fee, or other interest.¹⁵

b. Sources of capital

Capital is defined as that amount of money required and available for investment by the purchaser in a real estate transaction exclusive of debt. Most transactions require capital investment in the form of a downpayment. The amount of capital is also referenced in this form when lending institutions consider the "debt to equity ratio" represented by the total purchase commitment. From a lender's vantage, the greater the equity (capital) relative to the debt (loans) the more secure the transaction.

The individual contracting for the purchase of real estate generally has limited capital available for investment in the real estate transaction. The capital of most individuals are those amounts that can be realized from savings, gifts, or liquidation of other assets. The size of the individual's estate thus limits that person's ability to invest capital in the real estate transaction.

c. Debt Financing:

1. In General:

The amount of money required to purchase the real estate beyond the downpayment or other capital contribution of the purchaser is generally raised through borrowing.¹⁶ The amount of borrowing (debt) an individual can incur is dependent on and evaluation of the income stream of the individual, the historical credit practices of the individual, the value of the premises and the debt to equity ratio requirements of the lender.

2. Institutional Loans

The personal ability of an individual to repay obligations is one of the primary factor in institutional loans. Lending institutions do not make loans intending to look to the underlying security for repayment. The time, risks, and expenses associated with "foreclosure" are formidable and not to be considered as routine elements of the credit transaction. Thus, while the value of the security interest offered is generally considered, it is not the primary ingredient in the lending decision. The value of the underlying security interest, however, may be a limitation on the amount of the permissible loan where banks or other institutional lenders cannot lend beyond a percentage of the appraised value of the real estate.

Lending institutions generally require a complete personal finance statement including a list of assets and liabilities. In addition, the profile of the real estate, if the transaction involves rentals or other commercial cash flow, is important to the lending institution.

It should be noted that the individual borrower is ordinarily primarily liable for and at risk for the entire amount of the obligation. An individual borrower is generally required to personally sign a note evidencing the underlying debt.¹⁷

3. Unsecured Credit:

Individuals generally have other sources of credit outside of the real estate which is the subject of the transaction. Thus, individuals can borrow on credit lines or from insurance policies which have paid in cash value. One of the more recent innovations in lending is to establish home equity or other secured lines of credit.

4. Seller financing:

The seller in a transaction may agree to extend credit for all or a part of the purchase price of the real estate.¹⁸ This is a true "purchase money" situation.¹⁹ The buyer and the seller may contractually determine the amount, the interest rate, the rate of amortization, the term, and the other elements of a secured loan. In many states, the seller and buyer are free of constraints regarding interest limitations because the courts view the extension of credit by the seller as a part of the negotiated purchase price.²⁰ Likewise, it should be noted that the purchase money mortgage is given a first priority over other mortgages unless the interest of the seller in the mortgage is subordinated to third party financing for the transaction.²¹

5. Limitations on Borrowing:

Many states have different usury rates for loans made to individuals, particularly where the loan is for a residential unit.²² Where the loan is for business purposes, if the loan is taken by an individual, as distinguished from a business entity, a cap may be imposed on the maximum interest that can be charged.²³ The imposition of maximum interest rates by states may be reflected in a shortage of loan funds being available in that state, or, a compensating increase in up front costs, including service charges and points charged for the initiation of the loan.

d. Management:

Management of the real estate venture with a single individual owner generally remains within the control of that individual. There may be instances, however, where the discretion of the individual has been bargained or contracted away for the purpose of securing a loan or raising capital. The general management of the enterprise, however, is that of the individual without having the secure the advise or consent of another person in the guise of a partner, co-tenant, or stockholder.

e. Legal requirements of business form:

In most jurisdictions there are few, if any, requirements to initiate a real estate business to be carried forth as an individual. If the business is not to be operated in the name of the individual, an assumed name certificate or Dba certificate may be required to be filed. There may, depending on the jurisdiction, be additional requirements, such as name searches with the state or local government for approval to use the assumed name. Even if the business is conducted under an assumed name, however, title will generally be in the name of the individual proprietor.

f. Personal Liability:

The decision to take title and hold title in the name of an individual, generally means that the named individual will be liable for all contractual obligations, as well as for liabilities incurred because tortuous and other acts in the course of business. Thus, the individual will be liable for the broker's commission if selling or using a broker to purchase the real estate. The individual will be liable as the party signing the purchase contract. The purchasing individual will be liable on the debt incurred to consummate the transaction.

The individual purchaser should ensure there is adequate insurance for comprehensive coverage of all improvements on the property. Likewise, there must be adequate liability insurance to cover the possibility of claims arising from torts related to the real estate venture. In addition, because there will most likely be personal liability by the borrower on the debt, consideration should be given to life insurance adequate to cover the balance of the mortgage and other personal obligations arising from the purchase, development and management of the real estate.

g. Continuity of Life of Entity:

An individual taking title to and holding real property has but a temporal existence. There is no artificially created entity which has a life independent of the primary participant in the transaction. If the venture operates under an assumed name, the assumed name may be conveyed along with the premises, but the entity which has legally contracted for the purchase, development and management of the property will terminate with the demise of the individual.

2. Corporation:

a. How title is taken:

Title may be taken in most jurisdiction in the name of a corporation.²⁴ There may be limitations on the amount of land a corporation can hold if charitable or non-resident, but in most states there is little to prevent a domestic corporation from taking title to, holding and developing real estate.²⁵

Where title is taken by a corporation, words of inheritance do not necessarily have to be used. A corporation cannot as a general rule be a joint tenant or a tenant by the entireties. A corporation, however, can be a co-tenant.²⁶ A corporation cannot obviously hold a life estate, but it can hold an estate measured by the life of another.

A corporation must be empowered in it's charter to take title to and hold real estate.²⁷ Likewise, a corporation must be authorized by it's board of directors and officers to acquire or convey real property. Corporations may acquire interests in real estate by the purchase of another corporate entity. Conversely, a corporation may affect a transfer of its real property by the sale of the corporate entity to another. While title is not itself conveyed, where another corporation acquires all the outstanding stock of the company holding title, it in effect acquires the assets as well. Another example of this is where Corporation AAA has title to Urban Estate. There are three shareholders. Two of the three can convey their interest in the corporation to the remaining shareholder. The remaining shareholder indirectly has control over the entire interest in the real estate, title to which is held by the corporation.

b. Capital:

Corporations raise capital by the sale of stock,²⁸ as well as by the retention of earnings.²⁹ Stock can be of par value or other method of determining value.³⁰ Stock sales can be preferred as well as ordinary stock.³¹ Likewise, there can be stock issued without voting rights, or with voting rights limited to certain instances necessary to protect the interests of the particular class of stockholders.³²

A small closed or privately held corporation often resembles a small proprietorship or partnership. The number of shareholders is limited and often directly related to the amount of capital necessary to begin the venture and acquire the title to the real estate. If the corporation is to develop and manage the venture after acquisition of the real estate, additional capital may have to be generated as required for this aspect of the transaction.

Corporation raise capital by stock offerings, by the liquidation of other assets, or by accumulation of earnings.³³ A corporation must always contend with the accumulated earnings tax provisions of the Internal Revenue Code.³⁴ The burden of proof is on the taxpayer to show that the accumulation is a proper corporate purpose.

c. Debt Financing:

Corporations have similar sources of conventional debt financing to those available to individuals. Corporations can use banks, mortgage brokers, insurance and pension trust funds. A primary distinction between individuals and corporations is that the corporate entity is the borrower and is primarily liable on the debt.³⁵ Corporate debt will generally be evidenced by notes authorized by the board of directors of the corporation and signed by the proper officers. If properly executed, the corporation acts as a shield for the individual stockholders and there the stockholders and officers do not incur any personal liability on the notes.³⁶ In some instances, however, the officers or stockholders may personally guarantee the loan, or fractional part thereof that represents their interest in the company. If an officer or stockholder personally guarantees the note, then such officer or stockholder will be liable therefore.³⁷ Personal guarantees are often required for small or closely held corporations where individuals may be required to (a) personally guarantee (b) pledge additional assets (c) pledge their stock or give such other assurances as the lending institution may require.³⁸

Interest rates are ordinarily not restrained by states below usury limits for conventional business ventures.³⁹ Thus, while there may be a limitation on the interest rate that can be charged to a private individual for the purchase of real property which is less than the state usury limit, there will generally be no such limitation regarding business entities.⁴⁰ In some jurisdictions, lenders have required borrowers to incorporate in order to circumvent these interest and fee limitations as a condition to placing the loan.⁴¹

As with individuals and other entity forms, lending institutions look to the income stream of the borrower to retire the debt.⁴² A corporation must demonstrate it has the ability to repay the obligation. In order to satisfy lending institution requirements, a corporation often will have to produce its records over a period of two to three years. Thus, lending institutions may require a corporation to provide for their review its past three years tax returns and accountant's certification of their books and records. If a corporation is newly formed for the purpose of taking title to the real estate involved in the transaction, it may not be able to meet these requirements. In these instances, the lending institutions may require additional information on the stockholders and other principles and further assurances in the form of personal guarantees and security.

e. Management:

1. Authorization to purchase:

A corporation must authorize it's officers to buy or sell real estate, unless the purchase and sale of real estate is in the ordinary course of business, such as where the corporation has been formed specifically for this purpose.⁴³ The authorization must come in the proper form after a meeting of the board of directors, generally memorialized by an appropriate corporate resolution authorizing the purchase of the real estate.

If the sale is not in the ordinary course of business, there must be authorization from the board of directors and shareholder ratification. The record of the transaction should reflect the authorization and where local recording statutes permit, a copy of the written authorization should be recorded.

The voting requirements of a corporation become important in the sale or purchase of real estate. In most instances, real estate transactions are out of the ordinary course of business. Real estate transactions, therefore, may require more than a simple majority vote of the shareholders and or the board of directors. There may be an additional period of time required for a second vote, or there may be a ratification requirement imposed under state law.

2. Management Decisions:

Decisions regarding the development and management of the real property reside with the officers and directors of the corporation.⁴⁴ This is a classic example of shared management. The corporate entity represents a formal structure of officers, directors, and shareholders each having a role to play in policy formulation and day to day management. An individual who acts without proper corporate authorization can be liable to the corporation for unauthorized actions or be chargeable with either misprision or malfeasance.⁴⁵ Likewise, the unauthorized action's liability may extend to creditors of the corporation.

One positive element of the multiparty business entity lies in the sharing of responsibility and the exchange of ideas. Where, however, there are multiple parties, problems often arise at the point of disagreement. Use of the corporate form for real estate transactions requires that some mechanism for dispute resolution be included from the outset. One must be careful to distinguish between closed and publicly held corporations. Where a small closely held corporation is used for the real estate venture with only one or two active participants, the model in practice is that they will not observe the corporate formalities required of them, unless prodded to do so. Creditors or others may challenge these neglected formalities as the basis for the imposition of liability on the shareholders or officers. Further, the lack of proper observance of all required formalities may cause a problem in the transfer or purchase of the real property interest itself.

f. Legal Requirements of Business Form:

A corporation is a creature of the State and legislature.⁴⁶ A corporation can only exist with and pursuant to express legislative authority.⁴⁷ Corporations can only exercise those powers included within the certificate of incorporation.⁴⁸ All formalities required of incorporation must be complied with.⁴⁹

In many jurisdictions an application for a corporate name must be made in advance of actual incorporation.⁵⁰ A name search often requires planning ahead, or, in some cases, having reserved corporate names on file with the appropriate offices. If the corporation is being formed for the purpose of taking title to the real estate in the transaction under consideration, sufficient time must be provided for the name search and the actual formation of the corporation. There are costs associated with the formation of the corporation. These costs include filing fees, search fees, acquisition of corporate books, attorney fees, meeting costs and in some instances, there may be publication and notice costs.⁵¹ In addition, state annual fees or franchise taxes which have to be paid for the use of the corporate form.

The corporation can only act through its agents, officers and directors. As such, there are formalities which must be considered relative to federal social security taxes, state unemployment taxes, health insurance and similar business concerns.

g. Liability:

The use of the corporate form usually connotes limited liability for the participants in the real estate transaction.⁵² If title is taken in the corporate name the corporation, it's assets, it's income stream, and the real estate which is the subject of the transaction will be looked to for repayment of the obligation and to secure its satisfaction. If the corporation is new and there has not been an income stream from the corporation representing that necessary to repay the obligation, the lending institution may require personal guarantees from the officers, directors or shareholders. In this situation, the required guarantors contractually agree to assume liability for all or a part of the corporate debt.⁵³

If there is impropriety in the authorization by the corporation to borrow, or any misrepresentation of the financial ability of the corporation or its assets, the individual officers or stockholders can be held liable on the underlying obligation.⁵⁴ On the other hand, if all the required formalities have been followed and if there have been no personal guarantees, then generally there will be limited liability on the part of the officers, directors, and stockholders.⁵⁵

Since the corporation can only act through agents, the individual actors for the corporation may be liable for torts committed even though within the scope of their employment.⁵⁶ While the corporation would be primarily liable if the acts were within the scope of general or specific authority, if the situation is such that the officer or director could be challenged as the active tortfeasor, they may not be able to avoid liability.⁵⁷ If the actions were taken by an employee of the corporation, however, the stockholders would be insulated from personal liability.

h. Continuity of Life of Entity:

The corporate entity does not usually have a finite life expectancy.⁵⁸ It will continue beyond and is not dependent on the life of its officers, directors or stockholders.⁵⁹ This is important in real estate transactions where acquired real estate interests are expected to be held and developed over a substantial period of time.

Individual stockholder can sell their stock in the corporation thereby giving rise to new stockholders. The sale of stock in the corporation can also be used as a device to change the beneficial ownership of the real estate held by the corporation without effecting a transfer of the real estate itself. Sometimes, after the sale of all the stock in a corporation, the corporation is dissolved and the assets of the corporation are distributed to the shareholders.⁶⁰ Or, through the purchase of stock, one company is merged into another. By this device, title to real estate held by a corporation is often transferred.⁶¹

3. Partnership:

Partnerships are often formed for the express purpose of acquiring, developing and transferring real estate. Partnerships are relatively easy to form. A partnership requires agreement, express or implied.⁶² The general rule is that you cannot have a partnership without some form of express agreement.⁶³

a. Title:

Title can be taken in the name of the partners individually, as tenants in common, or, as joint tenants. Title can also, as permitted under the Uniform Partnership Act and applicable state law, be taken in the name of the partnership.⁶⁴ Certainly, in order for title to be taken in the name of the partnership, the partnership must be properly formed and registered with the appropriate offices. Likewise, if title is to be taken in the name of the partnership, the initial contract for purchase or sale must have made provision for title to be taken by or conveyed to the partnership.⁶⁵ The partners must authorize the purchase and entity to take title.

b. Capital.

One of the primary reasons for forming a partnership is to increase the amount of capital available for the real estate transaction. The addition capital is generated from contributions by the partners.⁶⁶ Capital contributions ordinarily are reflected in the percentage share of the partnership each of the partners has in the transaction.⁶⁷ Permitting or soliciting additional partners is one mechanism used to generate investment capital in an enterprise. The partnership formed may be for multiple transactions, or a new partnership may be formed for each venture.⁶⁸ Each of the individual partners brings to the partnership capital in the same manner they would have available and invest as individuals.

c. Debt.

Partnerships borrow from the same sources as individuals or corporations. Unless otherwise specified, the Uniform Partnership Act, as adopted in many jurisdictions, provides that the partners are liable only to the extent of their interest in the partnership.⁶⁹ Specific lending institutions may, however, require the individual partners to become jointly and severally liable for the entire obligation.⁷⁰ If an additional guarantee is required, it may be limited to the partners interest in the real estate transaction, or it may be liability for the entire amount of the debt.

d. Limitations on Interest and Charges:

In some jurisdictions, there may be limitations on the amount of interest, points and other fees which may be charged to an individual. Whether this limitation affects the partnership entity is an important question. In some jurisdictions, the use of the partnership form may allow any amount, short of usury rates, to be charged for loans made in the transaction.

e. Management:

All active partners are entitled to a share in management decisions.⁷¹ This can be modified by the partners, but absent such an agreement, the partners will ordinarily have equal votes, or votes proportionate to their interest in the partnership. Partners can vary their control and voting rights to allow one or more to make management decisions.⁷² The partners can provide for simple majority votes, or for other percentages, including, unanimous votes to bind the partnership.⁷³

f. Legal Requirements of Business Form:

A valid partnership requires that the partners have entered into a partnership agreement.⁷⁴ There is no requirement that this agreement be in writing, although it usually will be reduced to written form.⁷⁵ The partnership agreement can be as simple as a filing for a partnership certificate. Likewise, it could be a filing for an assumed name certificate, a dba, or a filing of both the partnership form and authorization to do business under the assumed name of the partnership.

In some jurisdictions a partnership must be registered with the state.⁷⁶ Likewise, in some jurisdictions the partnership will have to conduct a name search prior to the filing or use of the partnership name. In some jurisdictions the partnership will have to pay a franchise or other fee in order to do business in the state. Further, the partnership may have to consent to service of process and file for doing business in the state.

g. Liability:

General partners are not insulated from liability either with regard to contractual obligations or tort actions.⁷⁷ They are each jointly and severally liable for the acts of other partners within the scope of their authority.⁷⁸ Individual partners are generally liable under the purchase contract as individuals if the contract did not specify that the partnership was the contracting party and was to take title to the premises. The partnership could, however, be specified as the contracting party and one or more of the partners sign for the partnership. Such signatures must be clearly designated to bind the partnership and not bind the individuals who sign as partners. If the partners signed as partners, they will generally be liable under the contract only to the extent of their interest in the partnership.⁷⁹ If the partners sign as individuals, they can be held liable jointly and severally for the entire amount of the purchase contract.

h. Continuity of life:

A partnership can continue after the death or removal of one or more of the partners.⁸⁰ This, of course, depends upon the adoption of the provisions of the Uniform Partnership Act or other legislation in any particular jurisdiction.⁸¹ Likewise, the interests of individual partners in the partnership can be conveyed. The conveyance of the individual partner's interest in the partnership carries with it the partnership interest or title to any real property where title was taken in the name of the partnership.

Unless modified, or restricted by agreement among the partners, the interests of each of the partners in the partnership is freely alienable. The partners, however, may modify their rights by contracting for the partnership, or any of the individual partners and provide for a right of first refusal. The partners can also provide that the partnership or any of the individual partners be accorded an option to purchase real estate held by the partners as individuals or by the partnership.⁸² Often partners make a provision for the transfer of either partnership interests, or real property held by the partnership, or the real property held by the individual partners through buy- sell agreements, funded or non-funded.

4. Limited Partnership:

A limited partnership is a partnership with one or more active partners, and one or more passive partners.⁸³ Active partners contribute both equity and management to the venture. Passive or limited partners contribute capital to the venture, but do not participate in the management of the enterprise. If the limited partners participate in management they endanger their limited partnership status.⁸⁴

Limited partnerships are often formed pursuant to the provisions of the Uniform Limited Partnership Act as enacted in the several states. The attraction of the limited partnership historically has been the limitation on liability for non-active or general partners⁸⁵ and the pass through of all gains, expenses, deductions and losses to the partners for tax purposes.⁸⁶ The limited partnership is a creature of both the tax laws and legislation in the states which accords the partners limited liability.⁸⁷ It must also be noted that many individuals do not want the responsibility of management and are more than willing to participate in a real estate venture where management and liability obligations are limited by law and agreement.

The attraction of the limited partnership to the general partner is also multiple. First, the general partner is able to secure necessary the capital contribution by the sale of interests in the limited partnership to investors. Second, the general partner is able to maintain control of management because limited partners do not actively participate in management of the venture.⁸⁸ The fewer the number of active partners, the more likely disputes over management decisions will be avoided. Third, the general partner often is compensated in the form of management fees for operation of the partnership venture.⁸⁹ In exchange for these considerable benefits,⁹⁰ the general partners assume unlimited liability for the venture.⁹¹ Where general partners charge the partnership for their entrepenureal skills in putting together the deal or for subsequent management of the partnership, there must be full and complete disclosure to all the partners, limited and active.⁹²

Problems arise in the use of the limited partnership form where the only general partner is a corporation.⁹³ The general partner must have sufficient net worth to be considered generally liable. If the corporate general partner does not have sufficient net worth, or is considered a dummy, the limited partners will have unlimited liability. There must be a partner with general liability in order to accord the limited partners limited liability.

5. Massachusetts, Common Law or Illinois Trust:

a. Trusts (In General):

The use of a trust device in real estate transactions involves a division of legal and equitable title. The trustee takes and holds legal title for the benefit of those parties named in the trust instrument as beneficiaries.⁹⁴ This device allows a group of individuals to purchase real property without active involvement in the transaction and by limiting their liability to their capital contribution and the assets of the trust.⁹⁵ Where there are multiple parties, the trustee is able to manage their assets without having to get their consent to perform routine acts.⁹⁶ This device also allows the trustee to purchase and manage the real property without having to disclose the identity of the beneficiaries to the transaction.

The use of a trust device for the purchase and management of real estate can be treated as an association under the internal revenue code and taxed according to the general principals governing the treatment of corporations.⁹⁷ The determining factor for subjecting the trust to corporate taxation is whether or not it was formed for the purpose of doing business for profit or income.⁹⁸ Since, by its very nature a real estate investment trust is created for the purpose of engaging in business for profit, it can be construed as an association and taxed as a corporation.⁹⁹

The trust device may also be used to allow business entities not licensed to do business in the state where the real property is situated to acquire an equitable interest in the premises. The trustee satisfies the in personam jurisdictional requirements and the property the in rem.

The trust device may be a method of financing where the lender wants to avoid formal foreclosure requirements if resort to the security interest is required. Thus, title can be conveyed to the trustee for the benefit of the borrower, but if payment not made then for the benefit of the lender. Likewise, where the trust is used as a financing device, it can be used as security for a larger parcel with portions thereof released as needed for sale or development.

b. Illinois Trust

The so called Illinois or Florida Trust is a variation on the common law trust arrangement. The trustee takes title the real property and acts as title holder for the investor- beneficiaries.¹⁰⁰ The trust instrument contains a reference to or the agreement by which the parties thereto are to be governed, including, but not limited to, voting, management, alienability of shares, liquidation and sale of assets.¹⁰¹

The formalities of the trust agreement allow centralized management of the investment. Likewise, because the trust has an independent existence from the individual beneficiaries, the trust can have continuity of life beyond the membership of any one beneficiary in the group.¹⁰² The trustees can be replaced pursuant to the terms of the trust.¹⁰³ The beneficial interests in the trust can be alienable,¹⁰⁴ with or without restriction on rights of first refusal or options to purchase.

c. Massachusetts Business Trust:

These are trust formed and having a place of business in the state of Massachusetts. The beneficial interests or shares in the trust are generally transferable.¹⁰⁵ The documents forming the trust clearly set forth the management of the trust, usually centralized, and the voting rights, if any, of the beneficiaries.¹⁰⁶ Likewise, The alienability of the shares of the beneficiaries, liquidation and sale of assets of the trust will be governed by the documents creating the trust.¹⁰⁷

The Massachusetts Business Trust operates as a business device similar to other forms of business organization such as limited partnerships and corporations.¹⁰⁸ Where the beneficiaries or shareholders are not actively engaged in the management of the enterprise, they may be accorded limited liability much in the same manner as shareholders in a corporation.¹⁰⁹ Their liability would be limited to their equity in the enterprise.

d. Real Estate Investment Trusts:

The Real Estate Investment Trust is a creature of the Internal Revenue Code.¹¹⁰ The primary objective of the legislation is to make available to small or fractional investors in real estate the same tax treatment as if they held their interests directly.¹¹¹

In order to qualify for treatment as a Real Estate Investment Trust, the income generated must be primarily passive. Passive income is of two basic kinds: (a) rents and (b) mortgages. In order to qualify for tax treatment as a Real Estate Investment Trust, the association must adhere to all the requirements of the legislation affecting centralization of management in the trustee who must have the power to manage the trust and dispose of the property.¹¹²

The trust must pay its beneficiaries at least ninety percent of the income for the taxable year.¹¹³ In the event that the trust fails to meet requirements noted above, the trust will be taxed as a corporation leading to the consequence of double taxation on earned income.

7. Real Estate Syndication:

The concept of the real estate syndicate is a generic reference for the multiple of different business forms used by developers to aggregate investment capital for the purpose of acquiring and developing real estate.¹¹⁴ The promoter or syndicator can use a limited partnership, corporation, general partnership or any combination of the above.¹¹⁵ The primary elements of the syndicate inhere in the concept that a promoter or developer secures real estate for a development venture and sells interests to others who generally rely on the expertise and judgment of the promoter.¹¹⁶

The promoter generates capital for the venture by the sale of shares. In addition, the promoter can make a profit on the venture by marking up the land after contracting for its purchase or actual acquisition, taking real estate commissions related to the purchase of the land by the seller, legal fees if the promoter is a lawyer, and management fees if the promoter makes provision for these in the agreement. In addition, the promoter may also be a developer and make a profit for site preparation and construction of any improvements or rehabilitation of any structures already existing on the premises. The promoter has a wide range of opportunities to make a profit on the typical syndicated transaction.

The investors are generally willing to participate in the transaction because they want to secure the advantages of the real estate transaction.¹¹⁷ These advantages include the tax consequences of real estate investment, the possibility of an income stream generated by rental or other income for the use of the premises, sheltered appreciation in the value of the investment, and finally, a profit on the sale of the investment at the appreciated value.¹¹⁸ While the revisions of the tax law in 1986 have dramatically altered the investment characteristics of real estate investment, if the venture is economically sound and designed to produce a positive cash flow it will continue to attract investors.¹¹⁹

The investor in a syndicate, such as a trust, limited partnership, or corporation, has little if any control over the actual investment and its management.¹²⁰ To the extent that the absence of control is related to securing limited liability, such as in the limited partnership or REIT, this is a deliberate decision made by the investor.¹²¹ On the other hand, it is this lack of control and participation in the investment which makes the syndication risky to the investor. This passive investment character often meets the criteria set forth for treatment of the interests as a security warranting compliance with the federal Securities laws and State security registration requirements.¹²²

C. Government Regulation:

1. Federal Securities

A security is defined under the Securities and Exchange Act of 1934 as:

Any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest in or participation of any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security ... or, in general, any interest or instrument commonly known as a "security," or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing." ¹²³

When then is an interest in real estate a security?¹²⁴ At least one test indicates that the interest will be a security when it meets the criteria set forth in SEC v. W.J. Howey Co.,¹²⁵ as follows:

"a contract, transaction, or scheme whereby a person invests his money in (1) a common enterprise and is led to (2) expect profits (3) solely from the efforts of the promoter or a third party, it being immaterial whether the shares in the enterprise are evidence by formal certificates or by nominal interests in the physical assets employed in the enterprise."

An alternative test for the determination of a security within the meaning of both Federal and State laws is the "Risk Capital Test."¹²⁶ If the investment capital contributed to the venture is at "risk" based on the profitability of the enterprise, the interest will be deemed a security.¹²⁷

At first blush, the lack of a singular, concise and readily understood definition of "security" under either Federal or State regulations may appear the antithesis of effective regulation. The reason, however, may be a belief that by not defining the term security with precision makes it less likely that the regulations will be circumvented by those who would otherwise find loopholes in a fixed definition.¹²⁸ From an real estate investors point of view the lack of a clear definition potentially taints any transaction falling within one of the definitions set forth above. Thus, any time money is invested in a common enterprise for the purpose of securing profits and the profits are to be derive solely from the efforts of a promoter or another, there is a chance that it will be deemed a security.¹²⁹

There are clear exceptions relevant to the typical real estate transaction which would prevent the generation of capital by the formation of a partnership or other joint venture from being considered a security.¹³⁰ Thus, if the common enterprise is not a public offering, but rather construed as a private venture, it will be exempt from SEC registration requirements.¹³¹ The critical question is when the venture will meet the requirements of the private offering exemption to SEC coverage. The general distinction made is that the offering is private where the group is small¹³² and all the investors have full and complete access to knowledge of the venture.¹³³ In this context, it is generally assumed that the parties are knowledgeable and do not need the protection of the SEC.¹³⁴ The burden of proof demonstrating these factors is one the parties to the venture.¹³⁵ While in most instances small groups are some indication of the fact that the venture was a private offering, this is not necessarily binding on the SEC.¹³⁶ However, the SEC has issued a ruling that if the group is under twenty-five in number, the offering will be presumed to be private.¹³⁷

The second element of the Howey test involves the sharing of profits generated by the venture.¹³⁸ Thus, where there is profit in the form of income from rentals, management of the enterprise, holding or sale of income producing properties, the venture will be considered to produce profits subjecting the venture to regulation as a security.¹³⁹ It should thus be noted that to the extent that the investor is expected to and does in fact participate, the interest will generally note be treated as a security. Likewise, if the purpose of the investment is to secure a real estate interest for the investors own use, the interest will not be deemed a security.¹⁴⁰

Income alone does not taint the investment if the income is used to offset other expenses of the common areas.¹⁴¹ If the income reduces the expenses of the investors in their own residential units, however, this may be construed as a investment income.¹⁴² If there are no "investment inducements" the SEC will not treat it as a security interest.¹⁴³

A major exception to federal registration lies in the co- operative housing provisions relating to the offering for sale and sale of units intended for residential use.¹⁴⁴ Thus, where a co-operative corporation is formed for the purpose of acquiring title to real estate and selling shares which entitle the shareholders to residential leases in the structure so purchased, such shares are exempt from SEC regulation.¹⁴⁵

Interests in corporations, trusts,¹⁴⁶ limited partnership,¹⁴⁷ partnerships, and other hybrid ventures¹⁴⁸ can qualify as securities where the elements noted above are present: (1) an investment (2) expectation of profit (3) control of the venture and profits to be generated by the management of another than the investor.

2. State Blue Sky Laws

The real estate venture becomes further complicated by the fact that most states require either that interests defined as securities be registered or that they be registered and approved for offering.¹⁴⁹ Slightly over one half the states have enacted the Uniform Securities Act which was approved by both the Commissioners on Uniform Laws and the American Bar Association in 1956.¹⁵⁰ The original securities regulations by the states were directed at preventing promotional schemes designed to defraud investors by withholding information or misrepresenting the nature of the investment.¹⁵¹ They derive their name from the oftquoted reference that these investments "have no more basis than so many feet of blue sky."¹⁵² The purpose of the Martin Act in New York typifies that of most jurisdictions and is specifically states to provide for registration and full disclosure to prevent the citizens of the state from investing in fraudulent companies.¹⁵³

Congress by enacting the Securities Act of 1933 did not intend to pre-empt the field and preclude state regulation. The Securities Act specifically makes reference to the states regulation of securities within their jurisdiction.¹⁵⁴ It has been held that the states may regulate securities within their states so long as they do not conflict with the federal Securities Act and regulation.¹⁵⁵

Most states define securities in a similar manner to that of the Securities and Exchange Commission.¹⁵⁶ A security can be defined as any form of capital investment where there is an expectation of profit by way of revenue or appreciation in the real estate from the venture.¹⁵⁷ Likewise, a security has been defined as a capital investment which is at "risk."¹⁵⁸ Under either test, the profit or loss must come solely from the management of the venture by the work of a another person.¹⁵⁹

A limited partnership with the free alienability of shares has been held to be a security.¹⁶⁰ Partnership contracts where the partners do not all share in the general management of the enterprise may be deemed a security.¹⁶¹ A trust where the trustee manages the property to the exclusion of the beneficiaries or investors can be construed as a security.¹⁶² Moreover, a corporation,¹⁶³ and any other arrangement where there is a pooling of resources for profit with management in the hands of one other than the investor can be regulated by State Securities law.¹⁶⁴

Clearly, the form of organization is subject to the substance of the transaction and if the substance of the transaction indicates that the investors are acting for the purpose of securing a profit from the venture and are relying on the management of the project by the promoter or general partner, the transaction can be construed as a security.¹⁶⁵ Thus, any form of real estate venture which does not provide for or limits the management of the venture by the participants can come within this classification.¹⁶⁶ The easiest way to avoid the classification is to make sure that all the partners are active, each have a role in the management of the enterprise and all have access to the information concerning the investment.¹⁶⁷

One major variation between federal and state securities regulation lies in the area of sales or contracts for interests in condominiums and co-operatives. Sales or contracts for sales of interests in co-operative or condominium housing units have been held not to be securities under the laws of some states.¹⁶⁸ However, in New York, the offering of a condominium interest, even if the purpose of the offering is for primarily residential use, is still considered to be a security and there must be registration with the Attorney General of the offering.¹⁶⁹

¹Nelson and Whitman, Real Estate Finance and Development at 590 - Choosing a Business Entity for the Subdivider.

²Schlenger & Embry, Capital Gains Through Real Estate, 27 Md. L. Rev. 19 (1967).

³Tigner, Organizational Forms for Real Estate Ventures: Selected Tax Considerations, 2 Memp. St. L. Rev. 259 (1972).

⁴For a detailed discussion of the rules governign the formation of a partnership and the subsequent acquisition of real estate by this entity see generally the Uniform Partnership Act.

⁵Illinois: Brook v. Oberlander, 49 Ill. App.2d 312, 199 N.E.2d 613 (1964); Indiana: Albany Land Co. v. Rickel, 162 Ind. 222, 70 N.E. 158 (1904); Minnesota: Egner v. States Realty Co., 223 Minn. 305, 26 N.W.2d 464 (1947); Missouri: McKinney v. Truck Ino. Exchange (Mo. App.) 324 S.W.2d 773 (1959); Oklahoma: Houston v. McCrory, 140 Okla. 21, 282 P. 149 (1929); Virginia: Hobbs v. Virginia Nat. Bank, 147 Va. 802, 128 S.E. 46 (1925).

⁶Maine: Lipman v. Thomas, 143 Me. 270, 61 A.2d 130 (1948).

New York: Weinstein v. Walden, 160 App. Div. 554, 145 N.Y.S. 772, aff'd 220 N.Y. 693, 116 N.E. 1082 (1917).

⁷Federal: Chick v. Robinson (CA6) 95 F. 619 (1899); Iowa: Hanson v. Bermingham (D.C. Iowa) 92 F. Supp. 32 App. dismd 190 F.2d 106 (1951); Maryland: Gilman Paint & Vanish Co. v. Legum, 197 Md. 665, 80 A.2d 906, 29 A.l.R.2d 286 (1951).

⁸Ruzicka v. Rager, 305 N.Y. 191, 111 N.E.2d 878, reh den 305 N.Y. 798, 113 N.E.2d 306 (1953).

⁹Federal: In gernal, for corporate concepts, see Dartmouth College v. Woodward, 17 U.S. 518, 4 Wheat. 518, 4 L. Ed. 629 (1819); United States v. State Tax Comm. (CA5 Miss.) 505 F.2d 633, reh den (CA5 Miss.) 535 F.2d 300 and reh den (CA5 Miss.) 541 F.2d 469 (1976); Wooddate, Inc. v. Fidelity & Deposit Co. (CA8 Iowa) 378 F.2d 627 (1967); Alabama: Key v. Robert M. Duke Ins. Agency (Ala.) 340 So.2D 781 (1976); Connecticut: Blue Cross & Blue Shield Inc. v. Mike, 184 Conn. 352, 439 A.2d 1026; New Hampshire: State v. Luv Pharmacy Inc., 118 N.H. 398, 388 A.2d 190, 16 A.L.R. 4th 1304 (1978); Ohio: Thompson v. Horvath, 10 Ohio St. 2d 247, 39 Ohio Ops 2d 404, 227 N.E.2d 225 (1967); Oklahoma: East Cent. Oklahoma Electric Cooperation Inc. v. Oklahoma Gas & Electric Co. (Okla.) 505 P.2d 1324 (1973).

¹⁰Grant Isle Campsites, Inc. v. Check (La. App. 1st Cir.) 249 So.2d 268 aff'd 262 LA5, 262 So.2d 350 (1972) - an attorney assigned his option to purchase property to the corporation.

¹¹ Montana: Re Perry's Estate, 121 Mont. 280, 192 P.2d 532 (1948); Oklahome: Haught v. Continental Oil Co., 192 Okla. 345, 136 P.2d 691 (1942).

¹²Illinois: Deslauriers v. Senesac, 331 Ill. 437, 163 N.E. 327, 62 ALR 511 (1928); Indiana: Case v. Owen, 139 Ind. 22, 38 N.E. 395 (1894); Thornburg v. Wiggins, 135 Ind. 178, N.E. (1893); Oklahoma: Wisel v. Terhune, 201 Okla. 231, 204 P.2d 286 (1949); Wisconsin: Bassler v. Rowodlinski, 130 Wis. 26, 109 N.W. 1032 (1906); Farr v. Grand Lodge, A.O.U.W., 83 Wis. 446, 53 N.W. 738 (1892).

¹³Federal: Hunt v. Blackburn, 128 U.S. 464, 32 L. Ed. 488, S. Ct. 125 (1888); Cullom v. Kearns (CA4) 8 F.2d 437, cert den. 269 U.S. 587, 70 L. Ed. 426 46 S. Ct. 203; Florida: Matthews v. McCain, 125 Fla. 840, 170 So. 323 (1936); Maryland: Lang v. Wilmer, 131 Md. 215, 101 A. 706 (1917); New York: Hiles v. Fisher, 144 N.Y. 306, 39 N.E. 337 (1895); Pennsylvania: Bramberry's Esate, 156 Pa. 628, 27 A. 405 (1893); Rhode Island: Bloomfield v. Brown, 67 R.I. 452, 25 A.2d 354 (1942); Virginia: Vasilion v. Vasilion, 192 Va. 735, 66 S.E.2d 599 (1951).

¹⁴New York: Bant & Trust Co. v. Rickard, 57 A.D.2d 156, 393 N.Y.S.2d 801 (1977 3d Dept.); Re Blumenthal's Estate, 236 N.Y. 448, 141 N.E. 911 (1923); Re Albrecht's Estate, 136 N.Y. 91, 32 N.E. 632 (1892).

¹⁵ Words of limitation were necessary at common law. See e.g., Restatement of Property { 27. Federal: Hays' Estate v. Commissioner, 185 F2d 169 (5th Cir 1949); Delaware: Penienskice v. Short, 38 Del 526, 194 A 409 (1937); Florida: Bronstein v. Bronstein, 83 So2d 699 (1955); Illinois: Prall v. Burckhartt, 229 Ill 19, 132 NE2d 280 (1921); Indiana: Foundation County Coal & Mining Co. v. Beckleheimer, 102 Ind 76, 1 NE 202 (1885); Iowa: Baker v. Kenney, 145 Iowa 638, 124 NW 901 (1910); Massachusetts: Claffin v. Boston & Albany R. Co., 157 Mass 489, 32 NE 659 (____); Michigan: Sanbern v. Loud, 150 Mich 154, 113 NW 309 (1907); Missouri: Rector v. Waugh, 17 Mo 13 (1852); New Jersey: Melick v. Pidrock, 44 NJ Eq 525 (1888); Ohio: Embleton v. McMechen, 110 Ohio St 18, 143 NE 177 (1924); Pennsylvania: Leman v. Graham, 131 Pa 447, 19 A 48 (1890).

This rule has been modified by statute in many jurisdictions. See e.g., Restatement of Property {{ 27 and 39 and Special Notes.

¹⁶In the United States the principal sources of mortgage credit for house purchases are savings and loan associations, life insurance companies, mutual savings banks and commercial banks. Klaman, The Postwar Residential Mortgage Market (1961), Urban Mortgage Lending (1956).

¹⁷Garon v. Becker, 120 N.j.L. 30, 197 A.892, aff 121 N.J.L. 73, 1 A.2d 376 (1938).

¹⁸Federal: United States v. New Orleans & O.R. Co. 12 Wall (U.S.) 362, 20 L. Ed. 434 (1870); Iowa: Ely Sav. Bank v. Graham, 201 Iowa 840, 208 N.W. 312 (1926); Kansas: Emporia Wholesale Coffee Co. v. Rehrig, 173 Kan. 841, 252 P.2d 590 (1953); Missouri: Demeter v. Wilcox, 115 Mo. 634, S.W. (1893____); North Carolina: Weil v. Casey, 125 N.C. 356, 34 S.E. 506 (1899); Oregon: Ladd & Tilton Bank v. Mitchell, 93 Or. 668, 184 P. 282 (1919); Wyoming: Powers v. Pense, 20 Wyo. 327, 123 P. 925 (1912).

¹⁹Alabama: Martin v. First Nat. Bank, 279 Ala. 303, 184 So.2d 815 (1966); California: Montgomery v. Keppel, 75 Cal. 128, 19 P. 178 (1888); Florida: Van Eepoel Real Estate Co. v. Sarasota Milk Co., 100 Fla. 438 129 So. 892; Georgia: Protestant Episcopal Church v. E.E. Lowe Co., 131 Ga. 666, 63 S.E. 136 (1908); New York: Boies v. Benham, 127 N.Y. 620, 28 N.E. 657 (1891); Pennsylvania: Commonwealth Title Ins. & T. Co. v. Ellis, 192 Pa. 321, 43 A. 1034 (1899).

²⁰ Purchase money mortgages have been specifically held not to constitute a "loan or forbearance" within the coverage of the usury laws. As such, interest may be charged in excess of the legal rate. The interest will be construed as a part of the purchase price. Barone v. Frie, 99 AD2d 129, 472 NYS2d 119 (1984). See also, Snow v. Golden Triangle Realty, Inc., 78 Misc2d 483, 357 NYS2d 823 (1974).

²¹Fecteau v. Fries, 253 Mich. 51, 234 N.W. 113 (1913) - for discussion of the purchase-money priority concept generally, with special reference to personal property security, see Gilmore, The Purchase Money Priority, 76 Harv. L. Rev. 1333 (1963) Note, Priority of Purchase-Money Mortgages, 29 Vir. L. Rev. 491 (1943).

²²Usury ceilings represent governments most enduring effort to protect homebuyers from excessive loan terms. See e.g. Uniform Consumer Credit Code (1974).

²³For usury ceiling rates see Uniform Consumer Credit Code (U.C.C.C.) { 2.201 (1974).

²⁴Federal: Jones v. New York Guaranty & Indem. Co., 101 U.S. 622, 25 L. Ed. 1030 (1879); Massachusetts: Hubbard v. Worcester Art Museum, 194 Mass. 280, 80 N.E. 490 (1907); Oklahoma: Colcord v. Granzow, 137 Okla. 194, 278 p. 654, 64 A.L.R. 699 (1928).

²⁵Federal: Calder v. Michigan, 218 U.S. 591, 54 L. Ed. 1163, 31 S. Ct. 122 (1910); New York: People v. O'Brien, 111 N.Y. 1, 18 N.E. 692 (1888); North Carolina: Wilson v. Leary, 120 N.C. 90, 26 S.E. 630 (1897).

²⁶Federal: Silver King Coalition Mines Co. v. Silver King Consol. Min. Co., (CA8) 204 F. 166, cert den. 229 U.S. 624, 57 L.Ed. 1356, 33 S. Ct. 1051 (1913); Oregon: Hackell v. Multnomah R. Co., 12 Or. 124, 6 P. 659 (1885).

²⁷Federal: Jones v. New York Guaranty & Indem. Co., 101 U.S. 622, 25 L. Ed. 1030 (1879); Perrine v. Cheasapeake & Delaware Canal Co. 50 U.S. 172, 13 L. Ed. 92 (1850); Georgia: Kohlruss v. Zachery, 139 Ga. 625, 77 S.E. 812; Kansas: Great-West Life Assur. Co. v. Courier-Journal Job Printing Co. K. 288 S.W.2d 639 (1956); Mississippi: Mississippi College v. May, 241 Miss. 359, 128 So.2d 557 (1961); New York: Crusade for Christ Inv. v. New Lebanou, 50 Misc.2d 774, 271 N.Y.S.2d 886, aff'd (3d Dept) 36 App. Div.2d 247, 320 N.Y.S.2d 164, aff'd 31 N.Y.2d 765, 338 N.Y.S.2d 440, 290 N.E.2d 440 (1972).

²⁸Colorado: Burch v. Exploration Data Consultants, Inc., 33 Colo. App. 155, 518 P.2d 288 (1973); Delaware: Norton v. Digital Applications Inc. (Del. Ch.) 305 A.2d 656 91973); Illinois: Majestic Household Utilities Corp. v. Stratton, 353 Ill. 86, 186 N.E. 522, 89 A.L.R. 852 (1933).

²⁹5 RIA Corporate Capital Transactions Coordinator para. 11,081.

³⁰New York: Gulf Oil Corp. v. State Tax Comm. (3d Dept.) 65 App. Div.2d 157, 411 N.Y.S.2d 698 (1978); South Carolina: Gulf Oil Corp. v. South Carolina Tax Comm., 248 S.C. 267, 149 S.E.2d 642 (1966); North Dakota: Asbury Hospital v. Coss County, 72 N.D. 359, 7 N.W.2d 438 (1943); Texas: Campbell v. Hood (Tex. Com. App.), 35 S.W.2d 93, 85 A.L.R. 266 (1931); Virginia: Rivanna Nav. Co. v. Dawson, 44 Va. 19 (1846).

³¹Maryland: Allstate Ins. Co. v. Oxford Finance Cos. (D.C. Md.) 275 F. Suppp. 54 (1967); Oregon: Feero v. Housley, 205 Or. 404, 288 P.2d 1052 (1955) - holding that there is nothing inherently wrong in the issuance and sale of two or more classes of stock).

³²Colorado: Paulek v. Isgar, 38 Colo. App. 29, 551 P.2d 213 (1976); Illinois: Stroh v. Blackhawk Holding Corp., 48 Ill.2d 471, 272 N.E. 2d 1 (1971); Iowa: Berger v. Amana Soc. 250 Iowa 1060, 95 N.W.2d 909, 70 A.L.R. 880 (1959).

³³5 RIA COrporate Capital Transaction Coordinator para. 11,081.

³⁴I.R.C. { 531.

³⁵Federal: Ramirez v. United States (D.C. Puerto Rico) 514 F. Supp. 759 (1981); Delaware: Japan Petroleum Co. (Nigeria), Ltd. v. Ashland Oil Co. (D.C. Del) 456 F.Supp. 831, 26 F.R. SErv.2d 922 (1978); New Hampshire: Peter R. Previte, Inc. v. McAllister Florist, Inc., 113 N.H. 579, 311 A.2d 121 (1973).

³⁶Federal: United States v. Stanford, 161 U.S> 412, 40 L. Ed. 751, 16 S. Ct. 576 (1896); United States v. Knox, 102 U.S. 422, 26 L.Ed. 216 (1880); Carrol v. Green, 92 U.S. 509, 23 L. Ed. 738 (1875); FMC Finance Corp. v. Murphree (CA5 Miss.) 632 F.2d 413, 30 UCCRS 496 (1980); Iowa: Allis-Chambers Corp. v. Emmet County Council of Governments (Iowa) 355 N.W.2d 586 (1984); Louisiana: American Bank of Welch v. Smith Aviation, Inc. (La. App.3d Cir.) 433 So.2d 750 (1983); New York: Connell v. Hayden (2d Dept.) 83 App.Div.2d 30, 443 N.Y.S.2d 383 (1981); Pennsylvania: Sheetz v. Spagnol, 224 Pa. Super. 85, 302 A.2d 379 (1973); Utah: Parker v. Telegift International, Inc., 29 Utah 2d 87, 505 P.2d 301 (1973).

³⁷Federal: Fourth Nat. Bank v. Franklyn, 120 U.S> 747, 30 L. Ed. 825, 7 S. Ct. 757 (1887); Terry v. Little, 101 U.S. 216, 25 L. Ed. 864 (1879); Idaho: Feehan v. Kendrick, 32 Idaho 220, 179 P. 507 (1919); Washingotn: Meikle v. Wenatchee North Cent. Fruit Distributors, 129 Wash. 619, 225 P. 819 (1924).

³⁸Federal: Re Rolfe (F BC DC Mass.) 25 BER 89, affd (CA1) 710 F.2d 1 (1983); Farmers & Merchants Bank v. Gibson (F BC ND Fla) 7 BR 437 (1980); Kansas: Ramsey v. Adams, 4 Kan. App.2d 184, 603 P.2d 1025 (1979); Louisiana: Calcasieu-Marine Nat. Bank v. Darling (La. App.) 399 So.2d 1245 (1981); Nevada: Homewood Invest Co. v. Wilt, 97 Nev. 378, 632 P.2d 1140 (1981); Texas: Eastman Oil Well Survey Co. v. Hamil (Tex. Civ. App. Houston (1st Dept.)) 416 S.W.2d 597 writ ref n r e (1967).

³⁹See Note, Incorporation to Avoid the Usury Laws, 68 Colum. L. REv. 1390 (1968).

⁴⁰McNellis v. Merchants National Bank, 390 F.2d 239 (2d Cir. 1968).

⁴¹ New York specifically permits the use of the corporate form to avoid the usury limits established for individual borrowing. See e.g., McNellis v. Raymond, 420 F2d 51 (2nd Cir 1970); Greenber v. Goldfeder, 60 Misc2d 577, 303 NYS2d 415 (1969). See also, Schneider v. Phelps, 41 NYS2d 238, 391 NYS2d 568, 359 NE2d 1361 (1977). See also, Lowell, A Current Analysis of the Usury Laws: A National View, 8 U. San Diego L. Rev. 193 (1971).

⁴²For a detailed discussion of financing available to a corporation see Corporate Finance - The Golden Age of Innovation, by John Thackray, Forbes Special Supplement, April 29, 1985. Louisiana: Texas Industries, Inc. v. Dupuy & Dupuy Developers Inc. (La. App. 2d Cir.) 227 So.2d 265 (1969).

⁴³Crusade for Christ Inc. v. New Lebanon, 50 Misc.2d 774, 271 N.Y.S.2d 886, aff'd (3d Dept) 36 App. Div. 2d 247, 320 N.Y.S.2d 164, aff'd 31 N.Y.2d 765, 338 N.Y.S.2d 440, 290 N.E.2d 440 (1972).

⁴⁴Alabama: Johnson v. Livingston Nursing Home Inc., 282 Ala. 309, 211 So.2d 151 (1968); Bauman v. Hayes (1980 Ala.) 379 So.2d 1251 (1980) - holding that directors must act according to the principals governing the formation of the corporation. The Duty of Directors J. Bus. L. 221 (1979).

⁴⁵Illinois: The Interplay Between Corporate Liability and the Liability of Corporate Officers, 1 No. Ill. U. L. Rev. 36 (1980); Pennsylvania: Hechelman v. Geyer, 248 Pa. 430, 94 A 188 (1915).

⁴⁶Trustees of Dartmouth Colllege v. Woodward, 17 U.S> 518, 4 L. Ed. 629 (1819).

⁴⁷Berger v. Columbia Broadcasting System Inc. (CA5 Fla.) 453 F.2d 991, cert. den. 409 U.S. 848, 34 L. Ed. 2d 89, 93 S. Ct. 54 (1972).

⁴⁸Model Business Corporation Act { 3.02 (1984).

⁴⁹Model Business Corporation Act { 1.20 (1984).

⁵⁰General Corp. Law of Delaware { 102.

⁵¹For a list of possible filing fees see e.g. Model Business Corporation Act { 1.22 (1984).

⁵²Federal: De Witt Truck Brokers, Inc. v. WiRay Flemming Fruit Co. (CA4 SC) 540 F.2d 681 (4th Cir. 1976); Louisiana: Cefalu v. N. Cefalu Co. (La. App. 1st Cir.) 253 So.2d 547 (1971); South Carolina: Coastas v. First Federal Sav. & Loan Assoc., 283 S.C. 94, 321 S.E.2d 51 (1984).

⁵³ReRolfe (F BC DC Mass.) 25 BR 89, aff'd (CA1) 710 F.2d 1 (1983).

⁵⁴Federal: American Bell Inc. v. Federation of Tel. Workers (CA3 Pa.) 736 F.2d 879 (1984); California: Wood v. Elling Corp., 20 Cal.3d 353, 142 Cal. Rptr. 696, 572 P.2d 755 (1977); Florida: Eig v. Insurance Co. of North America (Fla. App. D3) 447 So.2d 377 (1984); Maryland: Bart Arconti & Sons Inc. v. Ames-Ennis, Inc., 275 Md. 295, 340 A.2d 225 (1975); New York: Herman v. Siegmund (2d Dept) 101 App. Div.2d 810, 476 N.Y.S.2d 590 (1984); Texas: Nat. Bank v. Gamble, 134 Tex. 112, 132 S.W.2d 100, 125 A.L.R. 265 (1939).

⁵⁵Przybyl v. Chelsea Motor inn., 105 Ill. App.3d 942, 61 Ill. Dec. 715, 435 N.E.2d 204 (Ill. App.1 Dist. 1982).

⁵⁶Federal: Washington Gas Light Co. v. Lansden, 172 U.S> 534, 43 L.Ed. 543, 19 S. Ct. 296 (1899); Aetna Life Ins. Co. v. Brewer, 56 App. DC 283, 12 F.2d 818, 46 A.L.R. 1499 (D.C> Cir. 1926); California: Spahn v. Guild Industries Corp (1st Dist) 94 Cal. App.3d 143, 156 Cal. Rptr. 375 (Cal. App. 1 Dist. 1979); Florida: Taco Bell of California v. Zappone (Fla. App. D2) 324 So.2d 121 (1975); Illinois: Boyd v. Chicago & N.W. R. Co., 217 Ill. 332, 75 N.E. 496 (1905); Massachusetts: Nims v. Mt. Hermon Boys' School, 160 Mass. 177, 35 N.E. 776 (1893); New York: Nowack v. Metropolitan S.R. Co., 166 N.Y. 433, 60 N.E. 32 (1901); Texas: Cook v. Houston Direct Nav. Co., 76 Tex. 353, 13 S.W. 475 (1890).

⁵⁷Georgia: Howell v. Ayers, 129 Ga. App. 899, 202 S.E.2d 189 (1973); Kansas: Russell v. American Rock Crusher Co., 181 Kan. 891, 317 P.2d 847 (1959); Montana: Poulsen v. Treasure State Industries Inc. (Mont.) 626 P.2d 822 (1981); New York: State by Lefkowitz v. Daro Chartours, Inc. (3 Dept) 72 App. Div.2d 872, 422 N.Y.S.2d 146 (1979).

⁵⁸Trustees of Dartmouth College v. Woodward, 17 U.S. 518, 4 L.Ed. 629 (1819).

⁵⁹Petition of Collins-Doan Co., 3 N.J. 382, 70 A.2d 159 (1949).

⁶⁰Connecticut: Bartholomew v. Derby Rubber Co., 69 Conn. 521, 38 A. 45 (1897); Louisiana: Trisconi v. Winship, 43 La. Ann. 45, 9 So. 29 (1891); Massachusetts: Treadwell v. Salisbury Mfg. Co., 73 Mass. 393 (1856); New York: Holmes & Griggs Manuf'g Co. v. Holmes & Wessell Metal Co., 127 N.Y. 252, 27 N.E. 831; Texas: Graham v. New Mexico Eastern Gas Co. (Tex. Civ. App.) 141 S.W.2d 389 (1940).

⁶¹Federal: Millers Nat. Ins. Co. v. Iowa Kemper Mut. Ins. Co. (CA8 Iowa), 408 F.2d 534 (1969); New York: Re Cantor, 261 N.Y. 6, 184 N.E. 474 (1933); Pennsylvania: Freeman v. Hiznay, 349 Pa. 89, 36 A.2d 509 (1944).

⁶²Federal: Weizer v. C.I.R. CC A6, 165 F.2d 772 (1948); Iowa: Daniel v. Best, 279 N.W. 374, 224 Iowa 1348 (1938); Missouri: Schneider v. Schneider, 347 Mo. 102, 146 S.W.2d 584 (1940); Montana: Simons v. Northern Pas.. Ry. Co., 94 Mont. 355, 22 P.2d 609 (1933); North Carolina: Eggleston v. Eggleston, 228 N.C. 668, 47 S.E.2d 243 (1948); Pennsylvania: Mattei v. Masci, 351 Pa. 93, 40 A.2d 265 (1944).

⁶³California: Black v. Brudige, 125 Cal. App. 641, 13 P.2d 999 (1932); Indiana: Moynahan Const. Co. v. Mohler, 225 Ind. 379, 75 N.E.2d 540 (1947); Michigan: Winshall v. Winshall, 311 Mich. 647, 19 N.W.2d 129 (1945); Minnesota: Randoll Co. v. Briggs, 189 Minn. 175, 248 N.W. 752 (1933); New York: Greenstone v. Klar, 69 N.Y.S.2d 548, modified on other grounds, 71 N.Y.S.2d 201, 272 App. Div. 892 (1947).

⁶⁴Curtis v. Reilly, 188 Iowa 1217, 177 N.W. 535 (1920).

⁶⁵Betts v. Smither, 310 Ky. 402, 220 S.W.2d 989 (1949).

⁶⁶Texas: Paggi v. Quinn (Tex. Civ. App.), 179 S.W.2d 789 (1944) error refused; Utah: Parkinson v. State Bank of Millard County, 84 Utah 278, 35 P.2d 814 (1934).

⁶⁷M & C. Creditors Corporation v. Pratt, 17 N.Y.S.2d 240, 172 Misc. 695, aff'd 7 N.Y.S.2d 662, 255 App. Div. 838, appeal denied 8 N.Y.S.2d 990, 255 Appp. Div. 962, aff'd 24 N.E.2d 482, 281 N.Y. 804 (1939).

⁶⁸California: Bates v. Babcock, 95 Cal. 475, 30 P. 605 (1892);

Illinois: Harmon v. Martin, 395 Ill. 599, 71 N.E.2d 74 (1947);

Iowa: Bond v. O'Donnell, 205 Iowa 902, 218 N.W. 898 (1928); Kansas: Jones v. Davies, 60 Kan. 309, 56 P. 484 (1899); Maryland: Morgart v. Smouse, 103 Md. 463, 63 A. 1070 (1906); Texas: Spencer v. Jones, 92 Tex. 516 50 S.W. 118 (1899).

⁶⁹Uniform Partnership Act { 18(a).

⁷⁰Absent such a requirement section 15(a) of the Uniform Partnership Act provides that all partners are "jointly and severally liable for everything chargeable to the partnership".

⁷¹Federal: Parks v. Riverside Ins. Co. (CA 10 Okla.) 308 F.2d 175 (1962); Arizona: Church v. Collier, 71 Ariz. 353, 227 P.2d 385 (1951); Missouri: Arando v. Keitel, 353 Mo. 223, 182 S.W.2d 176 (1944); Nebraska: Hauke v. Frey, 167 Neb. 398, 93 N.W.2d 183 (1958); North Carolina: National Biscuit Co. v. Stroud, 249 N.C. 467, 106 S.E.2d 692 (1959); Oregon: Platt v. Henderson, 227 Or. 212, 361 P.2d 73 (1961); Pennsylvania: Potter v. Brown, 328 Pa. 554, 195 A. 901 (1938); Virginia: Quillen v. Titus, 172 Va. 523, 2 S.E.2d 284 (1939) - the Uniform Partnership Act provides that all partners have equal rights in the conduct and management of the firms business unless the contract of the partnership provides otherwise. Uniform Partnership Act { 18(c).

⁷²Nebraska: Essay v. Essay, 175 Neb. 689, 123 N.W.2d 20 op mod on reh on other grounds 175 Neb. 730, 123 N.W.2d 648 (1963); New Mexico: Adams v. Blumenshine, 27 N.M. 643, 204 P. 66 (1922); Pennsylvania: Potter v. Brown, 328 Pa. 554, 195 A 901 (1938); Texas: Texas Unemployment Compensation Com. v. Bass, 137 Tex. 1 151 S.W.2d 567 (1941).

⁷³Federal: Latta v. Kilbourn, 150 U.S. 524, 37 L.Ed. 1169, 14 S. Ct. 201 (1893); Armstrong v. Commissioner (CA10) 143 F.2d 700 (1944); Georgia: Rogers v. McDonald, 224 Ga. 599, 163 S.E.2d 719 (1968); Missouri: Arado v. Keitel, 353 Mo. 223, 182 S.W.2d 176 (1944); Oklahoma: Reiser v. Johnson, 65 Okla. 307, 166 P. 723 (1917); Pennsylvania: Nick v. Craig, 301 Pa. 50, 151 A. 573 (1930); Vermont: Reirden v. Stephenson, 87 Vt. 430, 89 A. 465 (1914).

⁷⁴Federal: Kausch v. Commissioner of Internal Revenue (CA5) 63 F.2d 466, cert den. 290 U.S. 644, 78 L.Ed. 559, 54 S. Ct. 62 (1933); Alabama: Adams v. State, 43 Ala. App. 281, 189 So.2d 354, cert den. 280 Ala. 707 191 So.2d 372 (1966); Ohio: Synder Mf.g Co. v. Snyder, 54 Ohio St. 86, 43 N.E. 325 (1896); Oklahoma: Forbes v. Becker, 150 Ikla. 281, 1 P.2d 721, 80 A.L.R. 1 (1931); Oregon: Preston v. State Industrial Acci. Com., 174 Or. 553, 149 P.2d 957 (1944); Pennsylvania: O'Donnell v. McLoughlin, 386 Pa. 187, 125 A.2d 370 (1956); Texas: Johnston v. Winn (Tex. Civ. App.) 105 S.W.2d 398 (1937); Washington: Eder v. Reddick, 46 Wash.2d 41, 278 P.2d 361 (1955); West Virginia: Crockett v. Burleson, 60 W. Va. 252, 54 S.E. 341 (1906).

⁷⁵Federal: Weizer v. C.I.R. (C.C.A. 6) 165 F.2d 772 (1948); California: Swarthout v. Gentry, 62 Cal. App. 2d 68, 144 P.2d 38 (Cal. App. 4th Dist. 1943); Florida: Nahmod v. Nelson, 147 Fla. 564, 3 So.2d 162 (1941); Illinois: Gardenhire v. Ray, 302 Ill. App. 268, 23 N.E.2d 927 (1939); New York: Greenstone v. Klar, 69 N.Y.S.2d 548, modified on other grounds 71 N.Y.S.2d 201, 272 App. Div. 892 (N.Y.A.D. 1 Dept. 1947); Oklahoma: Replogle v. Heff, 176 Okla. 333, 55 P.2d 436 (1936); Washington: Collyer v. Egbert, 200 Wash. 342, 93 P.2d 399 (1939).

⁷⁶Gray v. Carter, 176 So. 885 (La App 1937).

⁷⁷Federal: Schram v. Parkins (D.C. Mich.) 38 F. Supp. 404 (1941); California: Rudolph v. Johnson, 127 Cal. App. 451, 16 P.2d 152 (1932); Florida: Ness v. Cowdery, 110 Fla. 427, 149 So. 33 (1933); Ohio: Simon v. Rudner, 43 Ohio App. 38, 182 N.E. 650 (1932); Oklahoma: Moore v. Diehm, 200 Okla. 664, 199 P.2d 218 (1948); Viriginia: Savings & Loan Corp. v. Bear, 155 Va. 312, 154 S.E. 587, 75 A.L.R. 980 (1930).

⁷⁸Federal: Wallan v. Rankin (C.A. Cal.) 173 F.2d 488 (9th Cir. 1949); California: Kadota Fig Ass'n of Producers v. Cose Swayne Co., 73 Cal. App.2d 796, 167 P.2d 518 (1946); Maryland: David v. David, 161 Md. 532, 157 A. 755, 81 A.L.R. 1100 (1932); New York: Caplan v. Caplon, 268 N.Y. 445, 198 N.E. 23, 101 A.L.R. 1223 (1935); Finlayson v. McDowell Civ. App., 94 S.W.2d 1234, error dismissed (1936).

⁷⁹Indiana: Koppa v. Yockey, 76 Ind. App. 218, 131 N.E. 828 (1921); Oregon: Hayes v. Killinger, 235 Or. 465, 385 P.2d 747 (1963).

⁸⁰Federal: Burwell v. Cawood, 2 How (U.S.) 560 11 L. Ed. 378 (1844); Scholefield v. Eichelberger, 7 Pet (U.S.) 586, 8 L. Ed. 793 (1833); Arkansas: Quinn v. Stuckey, 229 Ark. 956, 319 S.W.2d 839 (1959); Illinois: People v. Zangain, 301 Ill. 299, 133 N.E. 783 (1921); Kansas: Parnell v. Thompson, 81 Kan. 19, 105 P. 502 (1909); New York: Re Orvis' Estate, 223 N.Y. 1, 119 N.E. 88 (1918); Pennsylvania: Froess v. Froess, 284 Pa. 369, 131 A. 276 (1925); Wisonsin: Re Friedman's Estate, 251 Wisc. 180, 28 N.W.2d 161 (1947).

⁸¹Uniforma Partnership Act { 41 and { 42.

⁸²Federal: Brown v. Slee, 103 U.S> 828, 26 L. Ed. 618 (1880); Kentucky: Baker v. Wides' Exr. 299 Ky. 414, 185 S.W.2d 699 (1945); New Jersey: Michaels v. Donato, 4 N.J. Super. 570, 67 A.2d 911 (1949); Washington: Re Randall's Estate, 29 Wash.2d 447, 188 P.2d 71 (1947).

⁸³Uniform Limited Partnership Act { 1.

⁸⁴California: Grairrger v. Antoyan, 48 Cal. 2d 805, 313 P.2d 848 (1957); Florida: Vulcan Furniture Mfg. Corp. v. Vaughn (Fla. App.) 168 So.2d 760 (1964); Georgia: Trans-Am Builders Inc. v. Woods Mill Ltd. (Ga. App.) 210 S.E.2d 866 (1974); New York: Lichtyger v. Franchard Corp., 18 N.Y.2d 528, 279 N.Y.S.2d 377, 223 N.E.2d 869 (1966).

⁸⁵Tatum v. Acadian Production Corporation of Louisiana (D.C. La. 35 F. Supp. 40; Filesi v. United States (CA4 Md.) 352 F.2d 339 (1965).

⁸⁶Bazos, The Limited Partnership as a Vehicle for Syndicated Real Estate Investment: Selected Tax Considerations, 1973 Wisc. L. Rev. 1124 (1973).

⁸⁷fEDERAL: Chick v. Robinson (CA6) 95 F. 619 (C.C.A. Mich. 1899); Hanson v. Birmingham (D.C. Iowa) 92 F. Supp. 33, app dism'd (CA8) 190 F.2d 206 (1951); New York: Ruzicka v. Rager, 305 N.Y. 191, 111 N.E.2d 878, reh den. 305 N.Y. 798 113 N.E.2d 306 (1953).

⁸⁸Tracy v. Tuffy (Tex.) 10 S. Ct. 527, 134 U.S. 206, 33 L. Ed. 879 (1890).

⁸⁹Roulac, Giving the Syndicator His Just Reward, 3 Real Est. Rev. 89 (Winter 1974).

⁹⁰Bassam v. Investment Exchange Corp., 83 Wash.2d 922, 524 P.2d 233 Washington 1974 (General Partner Profits with limited partnership).

⁹¹Kitchell Corp. v. Hermansen, 8 Ariz. App. 424, 446 P.2d 934 (1968).

⁹²Riveria Congress Assoc. v. Yassky, 48 Misc.2d 282, 264 N.Y.S.2d 624 (1966) (indicating that in New York the partners can agree to allow the general partners or promotes to take a profit. The question is agreement and disclosure).

⁹³See e.g. Greenberg, Forms of Organization for Holding and Developing Real Estate, 29 N.Y.U. Inst. Fed. Tax 1129, at 1152 (1971).

⁹⁴Illinois: Schumann-Heink v. Folsom, 328 Ill. 321, 159 N.E. 250 (1927); Maryland: Reffan Realty Corp. v. Adams Land & Bldg. Co., 128 Md. 656 98 A. 199 (1916); Missouri: Morriss v. Finkelstein (Mo. App.) 127 S.W.2d 46 (1939).

⁹⁵California: Goldwater v. Oltman, 210 Cal. 408, 292 P. 624 (1930); Illinois: Commercial Causualty Ins. Co. v. Pearce, 320 Ill. App. 221, 50 N.E.2d 434 (1943); Michigan: Rossman v. Marsh, 287 Mich. 580, 283 N.W. 696, aff'd on reh 287 Mich. 720, 286 N.W. 83 (1939); Missouri: Darling v. Buddy, 318 Mo. 784, 1 S.W.2d 163, 58 ALR 493 (1927); New Jersey: Re Winter, 133 N.J. Eq. 245 31 A.2d 769 (1943); Rhode Island: Rhode Island Trust Co. v. Copeland, 39 R.I. 193, 98 A. 273 (1916).

⁹⁶Morrissey v. Commissioner of Internal Revenue, 296 U.S. 344, 80 L. Ed. 263, 56 S.Ct. 289 (1935).

⁹⁷Hecht v. Malley, 265 US 144, 68 L. Ed. 949, 44 S. Ct. 462 (1924).

⁹⁸Federal: Fidelity-Bankers Trust Co. v. Helvering, 72 App. DC 1, 113 F.2d 144, cert den. 310 U.S. 649, 84 L. Ed. 1415, 60 S. Ct. 1102 (1940); Pennsylvania Co. v. United States (DC) 48 F. Supp. 972 (1942) affd 146 F2d 392 (3rd Cir 1944); Cleveland Trust Co. v. Commissioner (CA6) 115 F.2d 481, cert den. 312 U.S. 704, 85 L. Ed. 1137, 61 S. Ct. 809.

⁹⁹Federal: United States v. Homecrest Tract, 160 F.2d 150 (9th Cir 1947); Reinecke v. Kaempfer, 72 F.2d 469, cert. den. 294 U.S. 708, 79 L. Ed. 1243, 55 S. Ct. 405; Smith v. Commissioner (CA3) 69 F.2d 911, cert. den. 293 U.SA> 561, 79 L. Ed. 662, 55 S. Ct. 73.

¹⁰⁰Illinois: Schumann-Heink v. Folsom, 328 Ill. 321, 159 N.E. 250, 58 ALR 485 (1927); Maryland: Reffon Realty Corp. v. Adams Land & Bldg. Co., 128 Md. 656, 98 A. 199 (1916); Missouri: Morriss v. Finkelstein, 127 S.W.2d 46 (Mo App ____).

¹⁰¹California: Koenig v. Johnson, 71 Cal. App.2d 739, 168 P.2d 746 (1945); Illinois: Savit v. Chicago Title & Trust Co., 329 Ill. App. 277, 68 N.E.2d 472 (1945); Mississippi: People Bank v. D'Lo Royalties Inc. (1970 Miss.) 235 So.2d 257.

¹⁰²Illinois: Hart v. Seymour, 147 Ill. 598, 35 N.E. 246 (1893); Massachusetts: Howe v. Morse, 174 Mass. 491, 55 N.E. 213 (1899); Montana: Hodgkiss v. Northland Petroleum Consolidated, 104 Mont. 328, 67 P.2d 811 (1937); Wisconsin: Baker v. Stern, 194 Wis. 233, 216 N.W. 147 (1927).

¹⁰³Wright v. Webb, 169 Ark. 1145, 278 S.W. 355 (1925).

¹⁰⁴Hossack v. Ottawa Development Asso., 244 Ill. 274, 91 N.E. 439 (1910).

¹⁰⁵Peoples Bank v. D'Lo Royalties, 235 So.2d 257 (Miss 1970).

¹⁰⁶Schumann-Heink v. Folsom, 328 Ill. 321, 159 N.E. 250 (1927).

¹⁰⁷Federal: Hecht v. malley, 265 U.S. 144, 68 L. Ed. 949, 44 S. Ct. 462 (1924); California: Goldwater v. Oltman, 210 Cal. 408, 292 P. 624 (1930).

¹⁰⁸Florida: Willey v. W.J. Hoggson Corp., 90 Fla. 343, 106 So. 408 (1925); Kentucky: Ing v. Liberty Nat. Bank, 216 Ky. 467, 287 S.W. 960 (1926); Massachusetts: State STreet Trust Co. v. Hall, 311 Mass. 299, 41 N.E.2d 30, 156 ALR 13 (1942); New York: Brown v. Bedell, 263 N.Y. 177, 188 N.E. 641, reh den. 264 N.Y. 453, 191 N.E. 510, motion den. 264 N.Y. 513, 191 N.E. 541 (1934); Texas: Thompson v. Schmitt, 115 Tex. 53, 274 S.W. 554 (1925); Wilgus, 13 Mich. L. Rev. 71, 205.

¹⁰⁹Piff v. Berresheim, 405 Ill. 617, 92 N.E.2d 113 (1950) the beneficiaries appeared to have authorized and directed the trustee to engage in the wrongful action and were thereby held liable for damages.

¹¹⁰IRC { 856-853.

¹¹¹Note, The Real Estate Investment Trust - Past. Present and Future, 23 U. Pitt. L. Rev. 779 (1962).

¹¹²IRC { 857(a)(4), Regulations - { 1.856-1(d)(4).

¹¹³IRC { 857(a)(1).

¹¹⁴Page, Massachusetts Real Estate Syndication: Tax and Other Pitfalls, 43 B.U.L. Rev. 491 (1963).

¹¹⁵Berger, Real Estate Syndication: Property, Promotion and the Need for Protection, 69 Yale L.J. 725 (1960).

¹¹⁶Maryland: Hambleton v. Rhind, 84 Md. 456, 36 A. 597 (1897); Michigan: Hathaway v. Porter Royalty Pool, 296 Mich. 90, 295 N.W. 571, 138 A.L.R. 955, amd 296 Mich. 733, 299 N.W. 451, 138 A.L.R. 967 (1941).

¹¹⁷Greenberg, Forms of Organization for Holding and Developing Real Estate, 29 N.Y.U. Inst. on Fed. Tax. 1129 (1971); Tigner, Organizational Forms for Real Estate Ventures: Selected Tax Considerations, 2 Memp. St. L. Rev. 259 (1972).

¹¹⁸See generally, Carlin, Partnership vs. Corporation: Non-Tax Shelter Business Enterprise, 1 N.Y.U. 34th Annual Institute on Federal Taxation 741:753 (1976).

¹¹⁹Smith, Syndication Topics, Real Estate Review, Vol. 17, No. 1 (Spring 1987).

¹²⁰Darling v. Buddy, 318 Mo. 784, 1 S.W.2d 163, 58 A.L.R. 493 (1927).

¹²¹See generally, Note, Partnership: Liability of a Limited Partner, Who is an Officer, Director, and Shareholder of a Corporate Sole General Partner, 31 Okla. L. Rev. 997 (1978); Comment, Limited Partner Control and Liability Under the Revised Uniform Limited Partnership Act, 32 Southwest L.J. 1301 (1979).

¹²²United States v. Wernes, 157 F.2d 797 (7th Cir 1946); Securities & Exchange Comm. v. Universal Serv. Asso., 106 F.2d 232, cert den. 308 U.S. 622, 84 L. Ed. 519, 60 S. Ct. 378 (1940); United States v. Davis, 40 F. Supp. 246 (19__).

¹²³Securities Act { (2)(1) (1933), 15 USCS { 77b(1).

¹²⁴See generally, Coffey, The Economic Realities of a "Security": Is There a More Meaningful Formula? 18 Wisc. L. Rev. 367 (1967) 163 A.L.R. 1050; 87 A.L.R. 42.

¹²⁵328 U.S. 293, at 298-299 (1946).

¹²⁶State Comm'r of Secur. v. Hawaii Market Center Inc., 52 Hawaii 642, 485 P.2d 105 (1971).

¹²⁷Healy v. Consumer Business System, Inc., 482 P.2d 549 (Or. App. 1971).

¹²⁸It has been said that each case must judged independently in determining whether or not a security is involved. California: Ol Lease Service Inc. v. Stephenson, 162 Cal. App.2d 100 327 P.2d 628 (1958); People v. Hosor, 92 Cal. App.2d 250, 206 P.2d 882 (1949); Indiana: Holloway v. Thompson, 112 Ind. App. 229, 42 N.E.2d 421 (1942).

¹²⁹Federal: SEC v. W.J. Howey Co., 328 U.S. 293 (1946); California: People v. Elliot, 54 Cal. 2d 498, 6 Cal. Rptr. 753, 354 P.2d 255.

¹³⁰Hirtenstein v. Tenny, 252 F. Supp. 827 (DC NY 1966).

¹³¹Securities Act { (4)(2) (1933), 15 USCS { 77(d)(2).

¹³²Securities & Exchange Comm. v. Ralston Purina Co., 346 U.S> 119, 97 L. Ed. 1494, 73 S. Ct. 981 (1953).

¹³³Value Line Fund, Inc. v. Marcus (F DC NY) (____).

¹³⁴Central Bank & Trust Co. v. Robinson, 137 Colo. 409, 326 P.2d 82 (1958).

¹³⁵Securities & Exchange Comm. v. Tax Service Inc. (CA4 NC) 357 F.2d 143 (1966).

¹³⁶Securities & Exchange Comm. v. Ralston Purina Co., 346 U.S. 119, 97 L. Ed. 1494, 73 S. Ct. 981 (1953).

¹³⁷Securities Act Release No. 33-285, 11 Fed. Reg. 10952 (Jan. 24, 1935).

¹³⁸Alabama: Gallion v. Alabama Market Centers Inc., 282 Ala. 679, 213 So.2d 841 (1968); Texas: Koscot Interplanetary Inc. v. King (Tex. Civ. App.) 452, S.W.2d 531 error cf n re (1970); Washington: McClellan v. Sundholm, 89 Wash.2d 527, 574 P.2d 371 (1978).

¹³⁹Illinois: Ronnett v. American Breeding Herds Inc., 124 Ill. App.3d 842 80 Ill. DEC 218, 464 N.E.2d 1201 (1984); Michigan: Department of Commerce v. De Beers Diamond Invest. Ltd., 89 Mich. App. 406, 280 N.W.2d 547 (1979); Oregon: Sperry v. Hutchinson Co. v. Hudson, 190 Or. 458, 226 P.2d 501 (1951).

¹⁴⁰Dickey and Thorpe, Federal Security Regulation of Condominium Offerings, 19 N.Y. Law Forum 473, 480 (1974).

¹⁴¹Clurman, Condominiums As Securities - A Current Look., 10 N.Y. Law Forum 457, 465 (1974).

¹⁴²Id. at 470.

¹⁴³Fisher, Securities: Another Way to Regulate the Resort Development Boom, 27 Oklahoma L. Rev. 104, 108 (1974).

¹⁴⁴Securities Act Rule 234(b) (1933).

¹⁴⁵Securities Act Rule 235(c) (1933).

¹⁴⁶Freeze v. Smith, 254 Mich. 386, 236 N.W. 810 (1931).

¹⁴⁷Oregon: Pratt v. Kross, 276 Or. 483, 555 P.2d 765 (1976); Texas: Adickes v. Andreoli (Tex. Civ. App.) 600 S.W.2d 939 (1980).

¹⁴⁸Sire Plan Portfolios Inc. v. Carpentier, 8 Ill. App.2d 354 132 N.E.2d 78 (1956) (where title was transferred to purchasers of undivided interest in income producing real estate with each lessee ostensibly to manage separate interests held to be illusory).

¹⁴⁹California: People v. Rankin, 160 Cal. App.2d 93, 325 P.2d 10 (1958); Moore v. Stella, 52 Cal. App.2d 766, 127 P.2d 300 (1942).

¹⁵⁰7 ULA 691.

¹⁵¹Merrick v. N.W. Halsey & Co., 242 U.S. 568, 61 L.Ed. 498, 37 S. Ct. 227 (1917).

¹⁵²State v. Cushing, 137 Me. 112, 15 A.2d 74 (1940).

¹⁵³N.Y. Gen. Bus. Law Article 23-A.

¹⁵⁴15 USCA { 77R.

¹⁵⁵California: People v. Sears, 138 Cal. App.2d 773, 292 P.2d 663 (1956); Illinois: Marketlines Inc. v. Camberlain, 63 Ill. App.2d 274, 211 N.E.2d 399 (1965); Virginia: Travelers Health Assn. v. Commonwealth, 188 Va. 877, 51 S.E.2d 263, aff'd 339 U.S. 643, 94 L. Ed. 1154, 70 S. Ct. 929 (1950).

¹⁵⁶Allabama: Gallion v. Alabama Market Centers Inc., 282 Ala. 679, 213 So.2d 841 (1968); California: People v. Syde, 37 Cal.2d 765, 235 P.2d 601 (1951); Georgia: Georgia Market Centers Inc. v. Fortson, 225 Ga. 854, 171 S.E.2d 610 (1969); Illinois: Sire Plan Portfolios Inc. v. Carpentier, 8 Ill. App.2d 354, 132 N.E.2d 78 (1956); Kansas: State v. Hodge, 204 Kan. 98, 460 P.2d 596 (1969); Minnesota: Donovan v. Dixon, 261 Minn. 455, 113 N.W.2d 532 (1962); North Carolina: State v. Heath, 199 N.C. 135, 153 S.E. 855, 87 A.L.R. 37 (1930); Ohio: State v. Silberberg, 166 Ohio St. 101, 1 Ohio Ops 2d 221, 139 N.E.2d 342 (1956); Oregon: State ex rel. Healy v. Consumer Business System Inc. (Or. App.) 482 P.2d 549 (1971); Texas: Bruner v. State (Tex. Crim.) 463 S.W.2d 205 (1970).

¹⁵⁷See e.g. SEC v. W.J. Howey Co., 328 U.S. 293 (1946); In re Waldstein, 160 Misc. 763, 291 N.Y.S. 697 (1936).

¹⁵⁸ Federal: Hurst v. Dare To Be Great, 474 F.2d 483 (9th Cir Ore 19__); California: Hamilton Jewlers v. Department of Corps., 37 Cal. App.3d 330, 112 Cal. Rptr. 387 (1974); Hawaii: Cunha v. Ward Foods, Inc. (1980 DC Hawaii) 501 F. Supp. 830; Ohio: State v. George, 50 Ohio App.2d 297, 4 Ohio Ops.3d 259, 362 N.E.2d 1223 (1975).

¹⁵⁹Alabama: Gallion v. Alabama Market Centers Inc., 282 Ala. 679, 213 So.2d 841 (1968); California: People v. Davenport, 13 Cal.2d 681, 91 P.2d 892 (1939); Hawaii: State Comm'r Secur. v. Hawaii Market Center Inc., 52 Hawaii 642, 485 P.2d 105, 47 ALR3d 1366 (1971); Kansas: State v. Hodge, 204 Kan. 98, 460 P.2d 596 (1969).

¹⁶⁰Oregon: Pratt v. Kross, 276 Or. 483, 555 P.2d 765 (1976); Texas: Adickes v. Andreoli (Tex. Civ. App.) 600 S.W.2d 939 (1980).

¹⁶¹Kerst v. Nelson, 171 Min. 191, 213 N.W. 904, 54 A.L.R. 495 (1927).

¹⁶²Freeze v. Smith, 254 Mich. 386, 236 N.W. 810 (1931).

¹⁶³Sire Plan Portfolios Inc. v. Carpentier, 8 Ill. App.2d 354, 132 N.E.2d 78 (1956).

¹⁶⁴Berman v. Orimex Trading Inc., 291 F.Supp. 701 (DC NY 1968).

¹⁶⁵California: Oil Lease Service Inc. v. Stephenson, 162 Cal. App.2d 100, 327 P.2d 628 (1953); Illinois: Brothers v. McMahon, 351 Ill. App. 321, 115 N.E.2d 116 (1953); Minnesota: State v. Hofacre, 206 Minn. 167, 288 N.W. 13 (1939); Texas: Koscot Interplanetary Inc. v. King (Tex. Civ. App.) 452 S.W.2d 531 error ref n r e (1970).

¹⁶⁶Illinois: Prohaska v. Hemmer-Miller Development Co., 256 Ill. App. 331 (1930); Minnesota: State v. Ogden, 154 Minn. 425, 191 N.W. 916 (1923); Kerst v. Nelson, 171 Minn. 191, 213 NJ.W. 904, 54 A.L.R. 495 (1927).

¹⁶⁷Adickes v. Andreoli (Tex. Civ. App. 1st Dist.) 600 S.W.2d 939 (1980).

¹⁶⁸Brothers v. McMahon, 351 Ill. App. 321, 115 N.E.2d 116 (1953).

¹⁶⁹Clurman, Condominiums As Securities: A Current Look, 19 N.Y. Law Forum 457 (1974); Levine, Registering

A Condominium Offering in New York, 19 N.Y. Law Forum 493 (1974).