Let’s suppose I want to construct an office building, film a movie, or some other big budget business deal and wanted to fund it differently than established procedures: not by an investment group or borrowing from a bank, but by creating a corporation.
Offer shares for sale to fund a “creation budget” which carries through until the building is offered for sale/rent/lease, the movie opens in theaters, etc, at which the corporation disburses profits to investors as the return on investment…
Why wouldn’t they be? The whole point of a corporation is to limit liability, so if you’re funding it differently, it might make a lot of sense to incorporate to limit the liability of the investors and clear up the distribution of the profits.
They are fairly common as a way to evade legal repercussions that your corporation is responsible for. Especially legal liability & paying damages.
Many mining & oil fracking operations are set up as dummy corporations, controlled by the supersiduary corporation or the same stockholders. Then when the mine/field is played out, and the environmental devastation starts to become apparent, the dummy corporation can be dissolved – and then who do the injured parties go after?
That was also a common tactic of condo developers. They set up a corporation for that specific building, and then dissolved it when the building was completed. Later, when the shoddy construction, subpar materials, and skimped maintenance started to come to light, that corporation was long gone, legally.
If I remember correctly, back in the 1980s, when new “financial instruments” were all the rage, there were a number of Real Estate Investment Trusts (REIT) formed for the specific purpose of buying land and reselling it within X amount of weeks, months, or years. I’m guessing there was some idea to add value to the property during that period, but it was the '80s, so maybe it was just an extreme version of house flipping.
Anyway, the whole idea was that the investment was liquidated and the investors got their money back (or lost it) by a specific date.
In Spain they’re a special type of company, called a Unión Temporal de Empresas (UTE): “temporary merger”; their statutes indicate the exact terms of which assets are being merged and for what purpose.
You may have for example a bidding process in a town which calls for contractors registered in that town and with… 20 electricians and 10 HVAC specialists. A local HVAC company with 5 people can form a UTE with a different company whose seat is in a different town (so, they wouldn’t be able to bid by themselves) and who have the rest of the technicians. The documents indicate that the UTE is being formed to bid for and provide services according to that specific contract; if the UTE doesn’t get the contract it’s dissolved right then, if it gains it it dissolves at the end of the contract. And if problems come out to light after the contract is finished both companies are held responsible and which shall be held responsible in what % is also part of the initial documents: you can’t use a UTE to avoid being sued.
REITs are still a thing, largely in the shopping mall, office, and apartment areas. My brother works for one of the biggest Canadian REITs with 40 million sq ft of leasable and a market cap of Cdn$8 billion. It’s an going distribution of income, rather than a limited period of time.
Income trusts were a thing especially in Canada decade or two ago, as for a while they escaped income tax on the profits by paying directly to shareholders, or some such financial shenanigans. For a year or two, Canadian businesses went hog wild converting themselves into income trusts, until the government realized what it was doing to tax revenue and made them no different than regular corporations. I suspect a few are still floating around since there’s paperwork required to convert back.
That kind of reminds me of how Omni Air has set up their corporation. They’re a large charter airline company, but all of their aircraft are owned and leased to them by another company–owned by the same person. So if Omni Air ever gets into serious financial or legal problems, they can simply dissolve that corporation and start a new one. Since all of the planes are owned by a “different” company, they don’t lose any planes. Then they can just lease those aircraft to the new corporation and they’ll be back in business as fast as they can repaint the logos.
Some ski resorts have a corporation for each ski lift they have, the idea is that limited liability thing. Once the lift closes the corporation is dissolved.
If that’s the scheme, then you’d have to limit it to cases where the building is supposed to be sold after completion, rather than leased. A corporation will, in most jurisdictions, be dissolved, i.e. its legal personality will be eliminated, only after completion of liquidation. That means all assets will have to be converted into cash, that cash will have to be used to meet creditor demands, and whatever is left is distributed to the shareholders. Only then will the corporation be dissolved.
A lease, on the other hand, generates money on a permanent basis, so you can’t dissolve your corporation if it still owns the building and has only leased it out. In that form, your scheme is fairly common; many major office buildings or shopping malls are run that way: A real estate investment trust is established, collects money from investors to build the building, leases it out, and distributes revenue to investors. Incidentally, the scheme is quite often used for hotels; the big hotel chains that we all know very often do not own the houses that operate under their brand names. Instead, the house is owned by a REIT, run by a hotel chain which manages day-to-day business, puts its brand on it, and retains a management fee for that, and whatever is left is revenue for the REIT owning the building.
As a one-off event, in which the corporation is established solely for the purpose of constructing the building and selling it right after completion, that scheme is left common. For it to work, you’d need a buyer already lined up when you start constructing - otherwise your corporation will face the risk of being stuck with a building that nobody wants to buy afterwards. But in such a scenario it would be cheaper for the buyer to structure the project differently.
Most of the aviation industry works that way. Most airlines do not own the aircraft they fly; instead, the aircraft are owned by an investment fund established specifically for that purpose, which leases it to the airline. Otherwise the airlines would have very heavy capital demands to finance their fleets.