Business entities buy and sell real estate on a regular basis. A successful transaction hinges, in part, on the proper parties executing the requisite documents. Because failing to correctly identify the parties and obtain proper signatures can be fatal to any real estate transaction, understanding who has authority to sign, on behalf of the entity, is imperative.
Four types of business entities are commonly involved in real estate transactions: (1) general partnerships; (2) limited partnerships; (3) limited liability companies; and (4) corporations.
A general partnership is an association of two or more persons to carry on as co-owners a business for profit. Formation of a partnership does not require a filing with the State, nor does it require a partnership agreement. As such, any conveyancing documents must clearly identify whether partnership property, versus non-partnership property, is being sold. In general, all partners should sign the conveyancing document to sell partnership property. However, a Statement of Authority may be voluntarily filed with the Secretary of State, granting specific partner(s) express authority to solely dispose of partnership property. Unlike the general partnership, a limited partnership (“LP”) is registered with the Secretary of State and is comprised of one or more general partners and one or more limited partners. Like the general partnership, a limited partnership may be governed by a partnership agreement. To convey real property, a deed must be executed by all general partners, unless a duly executed and authorized partnership agreement or Statement of Authority provides otherwise.
A limited liability company (“LLC”) is either member-managed or manager-managed and is created by filing a Certificate of Organization with the Secretary of State. The entity is governed by an operating agreement, which is not filed. Unless the operating agreement dictates otherwise, consent is typically required by all managers (if manager-managed) or members (if member-managed) to transfer real property outside the ordinary course of business. A duly executed and authorized Statement of Authority can be filed with the Secretary of State to supersede the signing authority as designated in the operating agreement. As such, be sure to confirm that the Statement of Authority is executed by all members or managers, depending on the LLC management structure.
A corporation is a legal entity that is owned by shareholders and operated by the Board of Directors. Articles of Incorporation must be filed with the Secretary of State to create a corporation. The corporation’s affairs are governed by its bylaws. If the corporate president does not have authority to transfer real estate, corporate disposition of property is generally a two-step process. The Board of Directors, as dictated by the bylaws, must consent to the transaction, and upon consent, the Board must pass a resolution that authorizes the transaction and designates the authorized signatory.
Early review of the relevant entity documents is key, if not crucial, to ensuring the proper parties are named and have executing authority in any real estate transaction. This simple, but fundamental, step can certainly facilitate not only a timely and efficient real estate closing, but also a successful transaction.
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