Woodbridge corporate and securities lawyer, Joseph Chiummiento, of Core Lawyers, discusses how having the right business structure will give you credibility with banks, financial institutions, service providers and stakeholders.

Most key business relationships expect your company will use “standard” structures when executing on business development plans. When the time comes to turn your entrepreneurial aspirations into reality, choosing the right structure is a crucial component of your future success.

Real Estate Builders and Developers

If you are a builder, developer or financier in development projects, it is important to understand the tried and tested models seen by all the players involved in the project. Allot of times, builders and developers will share the costs of building projects, condominiums or home development, and finance with partners for land purchases and with banks for construction development.

Many models have been used in the past, and ensuring your development project complies with laws or does not offend a law is crucial. Many new builders and developers will consult with real estate lawyers in helping them navigate the agreements needed to move their plans forward. When raising funds from others for the business, you may also consider speaking with securities lawyers.

The typical builder/developer structure

Typically, a builder/developer or entrepreneur planning to develop or build-out a project will use one of the following standard structures:

1. Partnership Model

Create a limited partnership structure where others subscribe for partnership units and fund the project development.  This model will require filings with the relevant securities regulator in the province of record. In addition, managing funds under this model in Ontario may also require the company has a compliance department and a person on staff that has their “investment fund manager” designation and understands securities laws.

2. Corporate JV/Private Funds Model

This model involves creating a joint venture agreement between the owners, ie. the persons/entities that funded the purchase and will fund development. Typically, a separate entity is used to manage the project development in a “Project Manager” role or “Operator” role. This model has been used by many of the well-known builders and developers over the last 30 years.

3. Mutual Fund Model:

In this model, an offering memorandum and subscription agreement are prepared to allow the raise of funds from accredited investors, and money is received in exchange for units in a fund being given to investors. Compliance with securities laws remains the focus, and the units are usually taken over or are being managed in conjunction with a Real Estate Investment Trust (REIT as they are known). Agents can be hired to sell the investment units, and finders fees may be paid.

Ensuring compliance with laws and maintaining flexibility are important. Banks and financiers that typically lend or invest in these developments may equate the use of these structures with credibility of the builder/developer. Similarly, these structures will also communicate confidence to banks, city building, planning and zoning departments involved in some way or another with the project build-out as stakeholders.

Are you ready to take the plunge to set up your business structure or do you have questions about the right choice? – Please feel free to contact me for a no-obligation consultation.

Direct Line: 905.851.8180 ext. 2
Email: joseph@corelawyers.ca