A real estate investment syndicate is an ownership structure in which a number of people join together to invest in a single project or property. The term syndicate or syndication is more a descriptive than it is a legal term or an actual form of ownership. The actual legal structure of the syndicate also can take a number of different forms, such as a corporation, a limited liability corporation, and general and limited partnerships, and it can be private or public. You can find out more about these forms of ownership in Chapter 7. The key thing to remember about syndicates is that a syndicate is created to invest in one piece of property.
Private syndication usually involves a small group of people, sometimes already known to each other. Public syndication involves a larger group of people, which may offer investments to the public in the form of securities or shares. Depending on factors such as the total number of investors and the value of the investment, the syndicate may be subject to federal and state securities laws designed to protect the public, which commonly are referred to as blue sky laws.
Two forms of syndicates used for real estate investments are general and limited partnerships. The principal difference between the two forms is the extent of management control and liability.
In the general partnership, all partners share management responsibility, profits and losses, and liability. If, for example, the partners are successfully sued and insurance can't cover the judgment, each partner can be held personally liable for the judgment.
In a limited partnership, one partner usually is known as the general partner and is ultimately responsible for any losses or liabilities on the project. Limited partners are entitled to certain profits (and losses, if they're beneficial to their tax situations), but the partners have no management responsibility, and their losses are limited to the amounts of their individual investments.
For more about partnerships and other forms of real estate ownership, see Chapter 7.
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