After I posted my last article on the benefits of forming single purpose entities to hold real property, a law school friend of mine with extensive title experience, Nate Jones at Land Services USA, provided an insightful comment on LinkedIn concerning closing requirements relating to entity documentation from a title company perspective.
The topic is particularly relevant and must be adequately addressed prior to any commercial real estate closing from both the seller and/or purchaser side when a corporate entity (corporation, limited liability company, partnership) is involved. Generally, towards the end of the listed exceptions in the preliminary title report, the title company will identify specific documentation it will require in order to effectuate a closing and issue a title policy. While it is a natural impulse to skim over these requirements and initially focus on the more substantive title exceptions that you will focus on removing from the final policy, good practice dictates opening a dialogue with the title company in order to determine exactly what documentation they will require when a corporate entity is involved.
In my experience, the required documentation will vary depending on which title company is involved and their familiarity with the specific seller and purchaser and respective counsel. For an LLC, one should expect to provide a copy of the formation documents (in California, the Articles of Organization, and any amendments thereto), an executed Operating Agreement, a Certificate of Incumbency authorizing various signatories, and potentially an authorization document ratifying the underlying purchase and sale agreement and election of the LLC to purchase or sell the property. A Certificate of Good Standing from the respective Secretary of State may be required, and oftentimes, a title company will want certified copies of the corporate formation documents, so advance planning is advisable in order to avoid a last minute scramble for any required documents.
One should also keep in mind that to the extent that a corporate entity is a shareholder, member, or partner of the corporation, LLC, or partnership, respectively, a title company will require the same documentation from the upstream shareholder/member corporate entities.
All in all, while the process can appear complex and somewhat convoluted, it is ultimately manageable and easily navigated with the aid of experienced counsel and escrow/title professionals to ensure a successful transaction.
