Understanding Legal Entities in Real Estate
In the realm of real estate and title insurance, legal entities such as corporations and Limited Liability Companies (LLCs) are treated as distinct legal "persons." This means they have the capacity to hold, convey, and encumber title to real property in their own name, separate from the individuals who own or manage them. However, insuring title for these entities presents unique challenges for title agents, primarily surrounding the issues of authority and legal existence.
When an individual sells a home, the title agent verifies their identity through standard government-issued identification. When a corporation or LLC sells property, the agent must go several steps further. They must confirm that the entity actually exists, that it is in good standing with the state of formation, and that the specific individual signing the deed has the legal authority to bind the entity to the contract. For a deeper dive into general title principles, see our complete Title Insurance exam guide.
Documentation Requirements: Corporations vs. LLCs
| Feature | Corporation | LLC |
|---|---|---|
| Formation Document | Articles of Incorporation | Articles of Organization |
| Governing Rules | Bylaws | Operating Agreement |
| Proof of Authority | Corporate Resolution | Member/Manager Consent |
| Authorized Signer | Officer (President/Secretary) | Member or Manager |
Verifying Authority and the Corporate Resolution
One of the most critical steps in insuring corporate title is the Corporate Resolution. This is a formal document, typically certified by the Corporate Secretary, stating that the Board of Directors met and authorized the sale or purchase of a specific property. It also designates which officer is empowered to sign the closing documents.
For LLCs, the process depends on whether the entity is member-managed or manager-managed. If it is member-managed, all members might need to sign unless the operating agreement specifies otherwise. If it is manager-managed, the designated manager usually holds the authority. Title insurers must carefully review the Operating Agreement to ensure the transaction does not violate any internal restrictions or require a majority vote that hasn't been obtained.
To prepare for these types of scenario-based questions, you can practice with our practice Title Insurance questions.
Title Agent's Due Diligence Checklist
Common Risks and 'Ultra Vires' Acts
A primary risk when insuring title for entities is an ultra vires act. This Latin term means "beyond the powers." If an officer signs a deed for a property transfer that the corporation is not legally permitted to make under its charter, or if they act without a proper resolution, the transfer could be challenged as void or voidable.
- Dissolved Entities: If a corporation has been administratively dissolved by the state for failing to pay taxes or file reports, it generally lacks the power to convey title except for the purpose of winding up its affairs.
- Foreign Entities: A "foreign" entity (one formed in a different state) must often be registered to do business in the state where the property is located before a title policy can be safely issued.
- Missing Signatures: In many LLCs, a single member may attempt to sell property without the consent of other members, leading to potential litigation and title claims.
The Importance of the Seal
While many states have modernized and no longer strictly require a corporate seal on deeds, some jurisdictions still view the absence of a seal as a technical defect. Title agents must always follow local statutory requirements and underwriter guidelines regarding the use of corporate seals to ensure the instrument is self-authenticating.
Frequently Asked Questions
It is a document issued by the Secretary of State (or equivalent agency) confirming that a corporation or LLC has filed all necessary reports and paid all required state taxes, meaning it is legally authorized to conduct business.
Yes, provided that the LLC's Operating Agreement or a specific Member Resolution grants that individual the authority to bind the entity in real estate transactions.
Generally, a dissolved corporation can only convey title if the sale is part of the 'winding up' process. If the conveyance is not for liquidation purposes, it may create a significant title defect that requires reinstatement of the corporation to fix.
The Bylaws (for corporations) or Operating Agreement (for LLCs) contain the internal rules governing who can sign documents and what approvals are needed for major asset sales. Without these, the title company cannot be sure the signer has actual authority.