California Department of Real Estate
Benefits
Virtually every real estate broker or developer has been at some time in a controlling position with respect to an expensive piece of property that appears to offer extremely favorable opportunities for profit to the purchaser. All too often the investment outlay on such a purchase is more than any single client can manage. The real estate licensee who understands the methods of syndication can turn what would otherwise have been a frustrating and unrewarding situation into a profitable transaction for both the licensee and the investors.
By pooling limited financial resources with others who are similarly situated, a small scale investor is afforded an opportunity to participate in ownership and operation of a piece of property that is too much to handle singly or in a joint venture with one or two others.
Syndication also offers professional management which might not otherwise be economically feasible for the small investor. Professional management, the basic commodity that the syndicator has to offer, is crucial to successful syndication.
Syndicate Forms
Selecting the form of organization involves practical as well as legal and tax considerations. Each of the available entities has advantages and disadvantages. The corporate form insures centralized management as well as limited liability for the investors but is seldom utilized in modern syndicates because of its negative tax features. The general partnership (joint venture) avoids the double taxation normally involved in a corporate entity but the unlimited liability provision and lack of centralized management militate against its use. The limited partnership combines nearly all of the advantages of the corporate and partnership forms. It has the corporate advantages of limited liability and centralized management and the tax advantages of the partnership.
Consequently, the limited partnership form of organization is the one most frequently selected for real estate syndicates.
Another form of business, the limited liability company, was added in 1994 and includes liability limitation similar to that afforded shareholders of a corporation