Ownership Form

Definition

Ownership form refers to the legal framework through which real estate is held. Each mode of ownership can influence various factors, including income tax, estate tax, continuity, liability, survivorship, transferability, as well as the disposition at death and in bankruptcy.

Examples

Some typical forms of ownership include:

Corporation: A legal entity that holds property in its name. Shareholders own corporation stocks, which provide limited liability and enable easy transferability, but can lead to double taxation.
Joint Tenancy: Property owned by two or more parties with the right of survivorship. Ownership passes to surviving partner(s) upon death.
Limited Partnership: A partnership consisting of at least one general partner (with full liability) and one or more limited partners (with liability limited to their investment).
Partnership: An arrangement where two or more individuals share ownership. The partners may have unlimited liability depending on the structure.
S Corporation: A corporation that passes corporate income, losses, deductions, and credits through to its shareholders for federal tax purposes with limited liability.
Limited Liability Company (LLC): A flexible type of ownership that offers limited liability protection with tax benefits similar to a partnership.
Limited Liability Partnership (LLP): A partnership where some or all partners have limited liabilities, protecting each one from personal liability, except for their own actions.
Tenancy by the Entirety: A form of joint tenancy specifically for married couples, with the right of survivorship.
Tenancy in Common: Ownership by two or more parties where each has a distinct share that does not automatically transfer to survivorship.
Tenancy in Severalty: Sole ownership by an individual or a legal entity.

Frequently Asked Questions

What is the difference between Joint Tenancy and Tenancy in Common?

Joint Tenancy includes the right of survivorship; when one owner dies, the property automatically transfers to the surviving owner(s). Tenancy in Common does not; owners’ shares can be transferred to heirs.

How does a Limited Liability Company (LLC) separate liability?

An LLC protects owners’ personal assets from business liabilities and debts, effectively separating personal and company finances.

What is a Tenancy by the Entirety?

It is a method of holding title by a married couple in which both have an undivided interest and the right of survivorship.

Are there tax advantages to owning property through an S Corporation?

Yes, profits and losses are passed through to shareholders to avoid double taxation while providing limited liability protection.

What does “tenancy in severalty” entail?

It refers to property ownership by a single party, whether an individual or a legal entity, with complete and exclusive ownership rights.

Corporate Structure: Framework detailing the organization’s setup, including S Corp, C Corp.
Partnership Agreement: A legal document outlining the rights and responsibilities of each partner within a partnership.
Estate Planning: The preparation of tasks aiming to manage an individual’s asset base in the event of their incapacitation or death.
Asset Protection: Strategies used to protect an individual’s wealth and property from lawsuits and creditors.

References

Suggested Books

“Real Estate Principles: A Value Approach” by David C. Ling and Wayne R. Archer
“The Real Estate Wholesaling Bible” by Than Merrill
“Principles of Real Estate Practice” by Stephen Mettling and David Cusic

Fundamentals of Ownership Form: Real Estate Basics Quiz

### What is the key difference between Joint Tenancy and Tenancy in Common? - [ ] Both have the right of survivorship. - [x] Only Joint Tenancy has the right of survivorship. - [ ] Both distribute ownership shares to heirs. - [ ] Tenancy in Common provides the right of survivorship. > **Explanation:** Joint Tenancy provides the right of survivorship whereas Tenancy in Common does not. This key difference influences what happens to the property shares when an owner dies. ### Which type of ownership best protects personal assets from business liabilities? - [ ] Partnership - [ ] Tenancy in Common - [x] Limited Liability Company (LLC) - [ ] Joint Tenancy > **Explanation:** A Limited Liability Company (LLC) protects personal assets from business liabilities, offering a separation between personal and business finances. ### What type of ownership applies solely to married couples? - [ ] Joint Tenancy - [x] Tenancy by the Entirety - [ ] Tenancy in Common - [ ] Limited Partnership > **Explanation:** Tenancy by the Entirety applies specifically to married couples, providing undivided interest and survivorship rights. ### In a Limited Partnership, who holds full liability? - [x] General Partners - [ ] Limited Partners - [ ] Shareholders - [ ] Joint Tenants > **Explanation:** General Partners in a Limited Partnership hold full liability, while Limited Partners have liability restricted to their investment. ### Which ownership form allows income to pass directly to shareholders to avoid double taxation? - [ ] Corporation - [x] S Corporation - [ ] LLC - [ ] Partnership > **Explanation:** An S Corporation allows income, losses, deductions, and credits to pass directly to shareholders, thus avoiding double taxation. ### Which ownership type involves only one individual or legal entity? - [x] Tenancy in Severalty - [ ] Tenancy by the Entirety - [ ] Joint Tenancy - [ ] Tenancy in Common > **Explanation:** Tenancy in Severalty involves sole ownership by an individual or legal entity, granting complete control. ### What is a notable advantage of an LLP (Limited Liability Partnership)? - [ ] Full liability for all partners. - [x] Limited liability for each partner. - [ ] Equal sharing of educational credits. - [ ] Automatic survivorship rights. > **Explanation:** In a Limited Liability Partnership (LLP), each partner has limited liability, which is advantageous for protecting individual partners from the actions of others. ### What occurs upon the death of a partner in Joint Tenancy? - [x] Ownership transfers to the surviving partner(s). - [ ] Ownership is divided among heirs. - [ ] Property is sold to the highest bidder. - [ ] Shares are frozen. > **Explanation:** In Joint Tenancy, ownership automatically transfers to the surviving partner(s) due to the right of survivorship. ### By which form of ownership can taxes be directly influenced? - [ ] Tenancy in Common - [x] S Corporation - [ ] Partnership - [ ] Joint Tenancy > **Explanation:** S Corporation allows profits and losses to pass through directly to shareholders, influencing personal income tax filings. ### What is a key characteristic of Tenancy in Common? - [ ] There is no long-term liability. - [ ] It includes automatic survivorship rights. - [x] Shares can be transferred to heirs. - [ ] Ownership must be equal among parties. > **Explanation:** In Tenancy in Common, each owner holds an individual share that can be transferred to heirs, without survivorship rights.

Thank you for learning about real estate ownership forms through this detailed article and quiz. Continue to expand your understanding of real estate to make well-informed decisions!