OTHER LAWFULLY CREATED ENTITIES

OTHER LAWFULLY CREATED ENTITIES

In the 19th century when some of the applicable Civil Code Sections previously cited were enacted, the entity
most commonly used to hold title or interests therein was a partnership. Corporations and trusts existed, and
when they joined in a common economic enterprise, were often identified as “combinations”. Two additional
entities have been more recently authorized by state legislative action. They are Limited Liability Companies
(“LLCs”) and, as previously discussed, Limited Liability Partnerships (“LLPs”).

Each of the foregoing entities may and do hold title to real property or to interests therein. The body of law
describing corporations and their organization, operation, and management is enormous. Three categories of
corporations are recognized in California Law. Included are general corporations, nonprofit corporations, and
corporations for a specific purpose.

The law applicable to corporations is set forth in federal and state statutes and regulations. For example, the
State of Delaware publishes statutes and regulations regarding corporations, which are instructive as many
corporations are organized under Delaware law. Organizing and operating a corporation under California Law
requires review of California Corporations Code Sections 100 through 2319 (General Corporation Law),
Sections 5000 through 10841 (Nonprofit Corporation Law), and Sections 12000 through 14451(Corporations
for Specific Purposes).

Limited Liability Partnerships were discussed in the previous section entitled, “TENANCY IN
PARTNERSHIP”. Limited Liability Companies are organized similar to a corporation, but taxed similar to a
partnership. The legislation authorizing the use of such entitles was enacted in 1994 and is set forth in
Corporations Code Sections 17000 through 17656. LLCs may hold title to real property and to interests therein.
However, a real estate broker may not license an LLC entity to perform acts for which a real estate license is
required. See Corporations Code Section 17375. Real estate brokers may license corporations as brokers and
partnerships are able to perform acts for which a real estate license is required through licensed partners that are
real estate brokers. See Business and Professions Code Sections 10137.1, 10158, and 10211.

The body of law describing the administration of trusts, the duties of trustees, the accounting of trust assets,
federal and state tax issues, etc. is complex and appears in various state and federal statutes and regulations.
The primary reference for trust administration is found in California Probate Code Sections 16000 through
16504. The use of trusts to hold title or interests therein occurs most often in family trusts or in other forms of
inter vivos trusts.

Again, it is important to understand that the use of trusts, as well as other entities, to hold title or interests
therein should occur only with the advice of knowledgeable legal counsel and of other appropriate
professionals. A word of caution is necessary regarding the demands frequently made upon real estate and
mortgage brokers by lenders and title insurers (or their underwritten companies), either directly or through
escrow holders, regarding properties where the title is held in trusts by principals of the brokers.

Typically, the real estate or mortgage broker is directed to instruct his/her principals to transfer the title to the
real property from an existing trust to the individual beneficiaries/settlers/trustors for purposes of encumbering
the property with new financing; or to sell, transfer or convey title to the property to third parties. The practical,
legal, estate planning, and tax consequences may be significant and should be reviewed, in advance, by legal
counsel and appropriate professionals representing the principals for this purpose. Real estate and mortgage
brokers may be engaging in the unauthorized practice of law to provide such instructions to their principals
(even when directed to do so by representatives of the lending, title, or escrow industries) without making it
perfectly clear the information required to make such a decision is beyond the scope of the practice of real
estate and requires the advice of knowledgeable legal counsel and competent professionals.