LEGAL STRUCTURE
FIVE CANADIAN
SPECIFIC OWNERSHIP STRUCTURE
1. Simple, Personal, Basic
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2. Simple, Corporate
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3. One Partner Ownership
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4. Corporate Ownership (unanimous Shareholders Agreement)
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5. Corporate Ownership as trustee for Joint Ventures
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#3 and #5 are the main structure we use at Foundationz.
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#5 allows us to access and buy multifamily real estate which is the most stable and predictable form of real estate holding. It also has the best amortization (Mortgage Length) and favourable interest rates, if a good property is being purchased by the investors. Multi family buy and hold is the main strategy for wealth creation at Foundationz.
1. Simple, Personal & Basic
This is the easiest ownership structure to understand and implement, which is why it is also the most common way joint ventures buy their investment properties. These deals can have more than one real estate expert and more than one money partner. Banks also like this form of structure because the title carries personal names. Lenders like to know who is borrowing and where they can find you.
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However this can be complicated with larger properties like multifamily deals where many investors may be needed, as all parties involved need to be on the offers with signatures which makes things clunky and harder to act quickly for the managing partner. It is also difficult if not everyone lives in the same geographic location as the managing partner, the lawyers office and the property.
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Too many on title?
Clarity is the primary advantage of listing each parties name on the offer.
Having personal names on the title of the property offers all the co venturers protection in terms of who is responsible for the mortgage, since all names are on the mortgage application.
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On the other hand having all these names on mortgage and on title can be problematic for managing partners who are putting deals together for multiple money partners. ​
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As a rule lenders do not like to see more than 4 people on a mortgage application. This is due to the fact that it costs more to foreclose on 4 or more people. From the banks perspective this is an issue of cost and litigation. For this reason most lawyers will say 4 is the maximum.
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Tenants in common vs joint tenants?
Under and ownership structure that is simple, personal, basic, all of those on title are "Tenants in Common" under the law. This means that if a partner dies , their shares go to their estate, and not to the other partners.
This differs from joint tenants which would be more like a married couple. They own the property equally. Almost all investments are done as Tenants in Common. You can learn more about this by "clicking here"​
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** This structure is great for small simple JV deals like buying a duplex and there is just one money partner and one managing partner.
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2. Simple, Corporate & Basic
Other offers may be written with just a single person or company on the offer. Some lenders may not want to lend to corporations mixed with personal though. Pre approval is important in these cases, or they may just require a personal guarantee from the main shareholder of the corporation.
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To incorporate or not is always a central question, and it depends on each persons situation. A tax accountant and lawyer must be consulted.
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What if the one of the investors or money partner does not want to be on title for any reason?
The signed joint venture agreement protects all involved in the transaction and can be registered on title post closing with a Caveat. This then renders the property title "clouded", which means that it can't be sold without both partners approval.
The general rule though with title and financing is, if you name is on the mortgage then your name must be on the title.
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Generally speaking, banks will shy away from these deals as they want title to be less complicated.
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Capital Gain Issues
Being the sole name on a title could cost you money if everything is well tracked and in integrity with the JV partner. If you are the sole name on title, according to the Canada Revenue Agency, if the property is sold, you would be on the hook for the full capital gains tax. Separating and keeping track of beneficial ownership and splitting revenues and expenses ever year is critical to create a proper paper trail. For example if a deal is owner 50% / 50%, at tax time each year, each investor would only claim 50% of the revenues and expenses.
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3. One Partner Ownership
A one partner ownership structure applies when only one partner can qualify for a mortgage, usually the real estate expert who may have a number of other mortgages from other buy and hold deals.
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This is one of the most popular and simple structures for JV investing when starting out.
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In this case, the money partner puts up the money and qualifies for the mortgage, and the real estate expert is protected by the joint venture agreement, which gets registered against the title as a caveat.
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It would look something like this:
"John Jones of Vancouver BC, claims a beneficial interest as an owner pursuant to a joint venture Agreement dated January 10th 2024"
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That gets filled on title and the property can not be sold or transferred without it's removal. In this case we also need to consider taxes and making sure the income and expenses are split.
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4. Corporate Ownership USA
These can be complicated and tax advisors, lawyers and accountants are important. This structure is used when there are multiple investors that hold a unanimous shareholders agreement or USA .​
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A unanimous shareholders agreement (USA) is a contract between all the shareholders of a corporation that outlines how the company will be managed and how certain issues will be handled. Unlike a regular shareholder agreement, which may require a majority or a specific vote to make decisions, a unanimous shareholders agreement requires the consent of all shareholders involved for significant decisions.
Typically, the agreement covers various aspects, such as:
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Share Transfers: Conditions under which shares can be bought, sold, or transferred, and any rights of first refusal or buyout provisions.
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Management and Control: How the company will be managed, including the appointment of directors or officers.
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Dispute Resolution: Procedures for resolving disagreements between shareholders.
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Exit Strategy: How shareholders can exit the company, and any obligations or processes for doing so.
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Voting Rights: The specific voting rights each shareholder holds, which might include supermajority requirements or other conditions for decisions.
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The key point is that, in a unanimous agreement, all shareholders must agree on the terms, making it a powerful tool for avoiding disputes and ensuring that no shareholder can act unilaterally without the consent of others.
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KEY NOTE: USA's don't include a Joint Venture Agreement. The USA basically replaces the Joint Venture Agreement. This model is rarely used, and it not the one of the strategic legal structures at Foundationz.
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5. Corporate Ownership
As Trustee For Joint Ventures
Under this structure, a newly formed corporation holds the property as a trustee for the owners. Not all corporations can qualify for a mortgage, so this needs to get prepared before you make any offers. This structure works wonderfully if there are multiple shareholders and you are perhaps buying a larger property like a commercial building or multi unit rentals. The real estate expert and all money investors / co-venturers will hold personally or corporately a percentage of shares of the newly formed corporation, based on the share split determined by the parties involved.
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The newly formed corporation will then hold the qualify for the mortgage based on the property fundamentals and then hold the property as a trustee for the JV partners.
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In other words, the corporation holds the title and the venturers are entitled to whatever is stipulated by the signed and enforceable joint venture agreement. ​​
