USA – SOUTH CAROLINA Law and Practice Contributed by: Matt Norton, Parker Havis and Aaron Lay, K&L Gates
Partnerships Partnerships are similar to LLCs, but they have a significant disadvantage: the individual partners are jointly, or jointly and severally, personally liable for the debts and obligations of the partnership – there is no limited liability. Thus, a partner in a partnership may have liability greatly exceeding the amount of the part - ner’s investment in the partnership. Limited Partnerships (LPs) An LP is similar to a partnership, but it must have at least one general partner and one or more limited part - ners. Although the general partner is fully liable for the debts and obligations of the LP, the limited partners’ liability is limited to their investment in the LP. As an LP is able to offer limited liability to its partners, it is a commonly used vehicle when there are multiple third- party investors. Partnerships and LPs Partnerships and LPs are pass-through entities for tax purposes, with taxation at the partner level and not the partnership level. Corporations Corporations are also established methods of holding title and provide limited liability to their shareholders. The use of corporations as title-holding entities is less common than the use of LLCs and LPs because cor - porations are considered less tax-efficient real prop - erty investment vehicles. Corporations are taxed at the entity level, and distri - butions of property and cash may also be subject to taxation at the shareholder level; because of this dou - ble taxation, and less favourable tax consequences on liquidation, corporations are generally viewed as less favourable vehicles from a tax perspective for the ownership of real property. 5.3 REITs Both public and private REITs are common invest - ment vehicles used in South Carolina, although they are typically organised outside of the state. REITs receive beneficial tax treatment, and South Carolina has adopted the federal income tax treatment of REITs as established by the Internal Revenue Code. Among additional requirements, to qualify as a REIT, a com -
pany must invest at least 75% of its total assets in real estate, derive at least 75% of its gross income from real property rents, real property mortgage interest or real property sales, and pay out at least 90% of its taxable income as shareholder dividends. 5.4 Minimum Capital Requirement Although South Carolina imposes minimal capital requirements on certain banking and financial insti - tutions, and de minimis organisation fees are owed to the South Carolina Secretary of State for an entity to organise or register to conduct business in South Carolina, South Carolina does not otherwise impose minimal capital requirements on the investment enti - ties discussed in 5. Investment Vehicles. 5.5 Applicable Governance Requirements LLCs are usually governed either by the members or by appointed managers, although they can also be governed by a board of directors. Partnerships and LPs are governed by their general partners. Corpora - tions are usually governed by a board of directors. In each case, the applicable members of the govern - ing bodies approve proposed transactions by way of resolutions or actions by written consent. The Corporate Transparency Act has increased dis - closure requirements for the beneficial owners of LLCs. Historically, it would have been common for a real estate attorney to co-ordinate organisation of an LLC, but in response to the Corporate Transparency Act, it is recommended that organisers consult with corporate counsel or third-party servicers to ensure compliance with the Corporate Transparency Act. 5.6 Annual Entity Maintenance and Accounting Compliance The annual entity maintenance and accounting com - pliance cost for each type of entity used to invest in real estate can vary dramatically from a few hundred dollars to several thousand dollars depending on the amount of assets owned and the volume of transac - tions by the entity.
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