Real property holding corporation: Overview, definition, and example
What is a real property holding corporation?
A real property holding corporation is a company that primarily owns, manages, or holds real estate as its main asset. Instead of operating a business like a retailer or manufacturer, this type of corporation is mainly used to own and control real property, such as land, buildings, or rental properties.
For example, if a company is set up only to own an office building and lease it to tenants, that company would be considered a real property holding corporation.
Why is a real property holding corporation important?
A real property holding corporation is useful for liability protection, tax planning, and asset management. Instead of owning real estate directly, business owners and investors often place properties in a corporation to separate their personal assets from the risks associated with the property.
For instance, if someone slips and falls at a rental property, a lawsuit would be directed at the corporation rather than the individual owner. Additionally, this structure can offer tax advantages, such as deferring capital gains or structuring income in a more tax-efficient way.
Understanding a real property holding corporation through an example
Imagine a group of investors purchases a commercial office building. Instead of owning the building in their personal names, they set up XYZ Real Estate Holdings, Inc., which becomes the legal owner of the property. The corporation collects rent from tenants, pays for property expenses, and handles legal responsibilities.
If one of the tenants sues over a maintenance issue, the lawsuit is filed against XYZ Real Estate Holdings, Inc., protecting the individual investors’ personal assets. This setup also allows the investors to sell shares in the corporation if they want to transfer ownership without selling the building itself.
An example of a real property holding corporation clause
Here’s how a contract clause involving a real property holding corporation might look:
“For purposes of this Agreement, the term ‘Real Property Holding Corporation’ shall mean any corporation whose primary assets consist of real property holdings, and whose business is substantially related to the ownership, management, or leasing of such real estate.”
Conclusion
A real property holding corporation is a strategic way to own and manage real estate while limiting personal liability and gaining tax benefits. By structuring ownership through a corporation, investors and business owners can protect their assets, simplify management, and create flexibility for future transactions.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.