DIY



Types of Property Ownership

A homesteader and legal expert provides advice on different types of property ownership, the laws governing property owners, and the process of establishing an owner's agreement.

| November/December 1974

Les Scher is a practicing attorney, an expert on property deals and the author of an excellent book, Finding and Buying Your Place in the Country. Please note that this fourth (and final) extract from his work is only part of an extensive chapter on types of property ownership, which should be read in its entirety by any cooperative or other group that plans to homestead together. Excerpted by permission of Macmillan Publishing Co., Inc. from Finding and Buying Your Place in the Country, Copyright ® 1974.  


Forming a Corporation to Buy Land

If you have a fairly large group that wants to purchase land together, you might consider corporate ownership. Its unique feature is that a corporation has all of the legal aspects of a single person. When a corporation is formed, each person puts in a sum of money in return for shares of stock and becomes a shareholder in the corporation. This money goes to make the down payment for the land. The shares are issued as in any other type of corporation and entitle the shareholder to live on the land and obligate him to pay assessments to the corporation to cover its costs of owning the property.

The shareholders must draw up Articles of Incorporation, bylaws, and a Shareholders' Agreement. Each state has its own requirements regarding the proper legal form of these documents, but every state requires the filing of the articles and bylaws with the Secretary of State for approval. A filing fee is required and, in most states, an annual corporation tax.   

The corporation is managed by a Board of Directors. Each shareholder can be a member of the board and thus take part in all the decision-making. The voting power of each member will depend on the number of shares of stock he owns. For simplicity, it is preferable in a large group to keep things equal. The group will specify in the bylaws the number of votes required to approve an action taken by the board. For instance, the group might decide that 75 percent of the board members must agree on any decision. The board passes resolutions authorizing its officers, including a president, vice president, secretary, and treasurer, to handle particular problems involving the land, such as paying taxes and insurance premiums, hiring someone to do road work, and paying off the mortgage. Each board member can take turns being an officer.

The Shareholders' Agreement specifies any terms the group wants binding on the shareholders. It must be in writing, but it does not have to be filed with the Secretary of State. The agreement is a contract signed by all the shareholders which states their rights and obligations. For example, the agreement can specify that no shares can be sold or transferred by a shareholder without the approval of the board or that the use or occupancy of the land by any person other than a shareholder is prohibited unless approval is granted.

To form a corporation, it is not necessary to have an income-producing business. I have had Articles of Incorporation approved which state that "the specific business in which the corporation is primarily engaged is to own and occupy certain real property." This type of corporation will have no income and, therefore, will be charged no federal income tax. Of course, a profit will be made when the land is sold, and a tax will be levied at that time. Although the corporation has no regular income, it will have regular expenses, such as mortgage payments, property taxes, and maintenance costs, which the individual shareholders must pay according to the terms in the Shareholders' Agreement. Thus, the corporation operates at a loss each year.




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