As the notes in the text indicate, there are a series of questions that must be addressed as fundamental to the choice of entity form used for the acquisition, management and disposition of real estate investments. These are variables that depend on the nature of the investment, as well as the characteristics of the investor(s). Think about the larger categories of questions and the sub-issues inherent in each set of questions. Think of all the good and bad things that can happen in human relationships relevant to "doing business together."
A start would be as follows:
How many people are committed to, or necessary to the investment? Are they related or strangers? Do they appear to have common needs or objectives? Does any one of them have sufficient capital or asset value to undertake the investment alone? Does any one or all have the risk tolerance necessary to undertake the investment alone or in concert with others? Do all have sufficient credit records to permit the investment?
Do they have consistent objects in the management and holding of the investment? Are they interested in the same cash flow, appreciation in value, tax consequences and so forth of the investment? Are their management personalities similar? Are some meek and kind and others nasty and bullies? Would they each be at ease with the world knowing they were in business together, or in trusting the other to represent them or make representations for them?
Are they married? Do their spouses know and have a good relationship? Would they all agree to have surviving spouses of children inherit the investment interest and continue in management or ownership? Do these families have sufficient liquidity or assets to handle the estate or transfer taxes? Is the health of all participants good? Can they afford the economic (as well as emotional) aspects of a buy-sell agreement? Can they fund, through insurance or otherwise, a buy-sell agreement?
What would happen with regard to voting? What voting restrictions do they need for the operation of the business entity – majority, three-quarters, unanimous? On all issues, or only some issues? What issues would you think more than a simple majority would be appropriate or required for entity management?
What if one or more of the entity participants wanted to liquidate their interests? What if they were in fundamental disagreement on an issue and wanted to leave the investment organization? Could a joint tenant, partner or shareholder force the sale of the assets and dissolution of the investment entity?
Assignment: Create you own list of issues in the selection of entity form for business investment and include issues relating to:
Formation
Title Acquisition
Debt
Liability (contractual)
Liability (non-contractual)
Management
Liquidity
Dissolution
Select one category and issue and find a case relevant to the question of your interest. Download the case and prepare a one paragraph summary of the facts and a two paragraph summary of the relevant rules and holding of the case.
Find one Law Review or Trade Journal Article on a related topic.