|re: legal structure||<– Date –> <– Thread –>|
|From: Buzz Burrell (72253.2101compuserve.com)|
|Date: Tue, 26 Mar 1996 21:07:40 -0600|
>We are a newly formed cohousing group, Cascadia Cohousing. We are just >starting to search for land, and before going much further, we want to set up >a partnership agreement between our members that determines how large sums of >money invested by our members will be handled. We would like to know how >other communities have handled this. Boy, was that a good question. Wish I had asked it myself last year. Geneva proceeded merily along as a regular corporation, thinking since there would be no profits to the shareholders (us), there would be no taxes. WRONG. Even if one is a Sub S, you will still almost certainly have tax exposure as the Corp dissolves into a HOA (a common transition). Therefor, I strongly recommend Cascadia Cohousing become an LLC. This is the legal instrument that accountants are putting many of their clients into nowadays. A Limited Liability Company has Members, not Shareholders, and the legal and financial aspects are quite similar. Its just a better tax situation. As long as you don't hold real estate, regular corporations are OK. Partnerships are possible, but by the time you write up all the needed agreements, you might as well be an LLC. Needless to say, this is a very very complicated question for me to volunteer such a quick and easy answer, particularly since the safe answer would be: "consult an attorney and a CPA with experience in cohousing". > We have heard that some communities >paid interest to early investing members, and others have not. If interest >was paid, we'd like to know how much? Also, we're all members required to >make similar investments, such as $10,000 or 10% of the projected cost? Or >was each member allowed to invest as much as was feasible for them at the >time? Communities do whatever they need to in order to raise that venture capital. Paying big interest to the early investors is not uncommon; when the developement loan closes, then they are paid off. We didn't do that though. We achieve the same result by a reverse process. Members own shares in the corporation. We set the cost of a share. The first shares were cheap, the subsequent ones cost more and more, depending on how much we have put into the project at the time of new share being sold. >Were the investments of each member made public to the group or were >they kept confidential? The financial and legal affairs of a community *must* be utterly transparant, in my opinion. Buzz Burrell Paonia, CO
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