USA – NEW YORK Law and Practice Contributed by: Lindsey Haubenreich, Joseph Heins, Timothy Moriarty, Kimberly Nason and Matthew Fitzgerald, Phillips Lytle LLP
• is governed by contract, whereby the operating agreement is the primary document defining the rights of members, the duties of managers and the financial arrangements among the LLC’s members. Members and managers are generally not liable for the debts, obligations or liabilities of the LLC solely by reason of being a member or manager. Partnership A partnership is a voluntary agreement between at least two persons who bring together their money, property, labour or skills to conduct a business and share profits and losses. In this jurisdiction, commer - cial real estate is more often held in limited partner - ships than general partnerships due to their liability structures. General partners are jointly liable for the debts and obligations of the partnership, while limited partners are not liable for the contractual obligations of a partnership unless they are also general partners or they participate in the control of the business. Whether a general partnership or limited partnership, the partners do not have a separate interest in the property and are therefore obliged to treat partnership property as joint property. This is often a deterrent to some commercial real estate owners or investors who value the freedom to deal with their undivided interest in the property as would be permitted under a co-ownership arrangement. 5.3 REITs Real estate investment trusts (REITs) are available in the United States and New York, although typically they are formed under Maryland law. New York fol - lows the federal income taxation of REITs, but sub - jects REITs to state corporate franchise tax if they are subject to federal income tax. REITs can be publicly traded or privately held, and are available to foreign investors. There are plenty of advantages of using REITs: • they provide investors with the opportunity to invest in a diversified estate portfolio; • they may provide for more flexibility in terms of tax- efficient sales of real estate by investors looking to exit a real estate portfolio; and
• depending on applicable tax rates, income gener - ated by REITs may be subject to less aggregate federal income tax than real estate held through other types of entities. The requirements for qualifying as a REIT are numer - ous and complex, but the primary statutory require - ments are that: • the REIT is managed by one or more trustees or directors; • the beneficial ownership of the REIT is evidenced by transferable shares or by transferable certifi - cates of beneficial interest; • the REIT would be taxable as a domestic cor - poration but for Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”); • the REIT is neither a financial institution nor an insurance company subject to specified provisions of the Code; • the beneficial ownership of the REIT is held by 100 or more persons; • at all times during the last half of each taxable year, not more than 50% in value of the outstanding shares of the REIT are owned, directly or indirectly, through the application of certain attribution rules, by five or fewer individuals; • the corporation makes an election to be taxable as a REIT, or has made this election for a previous taxable year that has not been revoked or terminat- ed, and satisfies all relevant filing and other admin - istrative requirements established by the IRS that must be met to elect and maintain REIT status; • the REIT uses a calendar year for federal income tax purposes and complies with the record-keep - ing requirements of the Code and Treasury regula - tions promulgated thereunder; • at the end of any taxable year, the REIT must not have any undistributed earnings and profits that are attributable to a non-REIT taxable year; and • the REIT meets other tests regarding the nature of its income and assets, and the amount of its distributions. 5.4 Minimum Capital Requirement New York State does not have a minimum capital requirement to start up any type of entity.
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