The field is wide open as far as what kind of entity can invest in and hold real estate in Oregon. And even though any legal entity may be used, most commercial real estate in Oregon is owned by a single-purpose entity, an LLC. If an entity is formed in another state, unless it merely holds real estate without doing more, it must qualify to do business in Oregon.
The main drivers for the owners of a real estate holding company to choose one property ownership model over another are the overarching investment structure, taxes, and limited liability. LLCs are the most frequently used entity, largely because they can choose to be taxed as a partnership or as a corporation.
This entry in our Real Estate Review Miniseries provides a comparison of four common entity structures used in Oregon to hold real estate. Additional details are included in our Chambers Regional Real Estate Guide.
Liability: Corporations provide limited liability for shareholders.
Tax Structure: A corporation is taxed at the entity level for income received by the corporation, and dividends are taxed at the shareholder level.
State Registration: Must file Articles of Incorporation with the Oregon Secretary of State.
Governance: The bylaws of a corporation describe the rights and duties of the board of directors, officers and shareholders.
Entity: Limited Liability Company (LLC)
Liability: LLCs provide limited liability for members.
Tax Structure: Usually elect to be taxed as partnerships but can also be taxed as a corporation. If the entity has elected to be taxed as a partnership, the entity does not pay tax, but the partners or members do.
State Registration: Must file Articles of Organization with the Oregon Secretary of State.
Governance: An Operating Agreement describes the rights and duties of an LLC’s managers and members.
Entity: Limited Partnership
Liability: A limited partnership must include a general partner and limited partners. The limited partners have limited liability, the general partner does not. General partners can be structured as LLCs or some other limited liability entity.
Tax Structure: Is taxed as a partnership. Limited partnerships are 'pass-through' entities, meaning the entity does not pay tax, but the partners or members do.
State Registration: Must file a certificate of partnership with the Oregon Secretary of State.
Governance: Unlike the general partner, the limited partners are passive partners and not involved in the day-to-day governance of the partnership, so are given limited liability. The rights and duties of the partners are described in the partnership agreement.
Ownership structure: Tenancy in Common (TIC)
Liability: Co-owners of a TIC each own a percentage of a property rather than a share in an entity. Since a TIC co-owner may be an individual or an entity, such as an LLC, liability for each co-owner is based on their own entity type.
Tax Structure: A TIC is not a legal entity. Tax liability for each co-owner is outlined in a TIC agreement and taxes are paid by an individual’s or entity’s tax structure.
State Registration: A TIC does not need to be registered with the state. However, a co-owning entity must file with the proper state agency.
Governance: The relationship among TIC owners of a property is outlined in a Tenancy-in-Common agreement, which can be similar to a partnership agreement.
Selecting the right structure to hold real estate depends on many unique factors, but one of Oregon’s strengths is that real estate investors have been afforded the flexibility to make the right choice for themselves.