USA - FLORIDA Law and Practice Contributed by: Jeffrey R Margolis, Marc S Shuster, James L Berger and Evan Rosenberg, Berger Singerman LLP
business or investment activity for profit. It can be formed by the actions of the parties, even if there is no formal or written partnership agree - ment, or if the participants lead third parties to believe that they are a partnership, and the third parties rely on that assumption. There are three main characteristics: the shar - ing of profits and losses, joint ownership of the capital and partnership assets, and joint control and management of the enterprise. Advantages The principal advantage of the general partner - ship structure is the classification of the concern as a partnership for US tax purposes (also avail - able for LLCs and limited partnerships). Unlike a limited partnership, there are typically no filing requirements or costs associated with the formation of a general partnership and, unlike a corporation, there are no formal operational requirements that demand compliance. Disadvantages The most significant disadvantage of invest - ing through a general partnership is that all the partners have unlimited, joint and several liabil - ity for anything that occurs at or with respect to the property or otherwise with respect to the partnership’s business and activities. Recourse liabilities are shared by the partners jointly. Like the concept of an LLP, many states, includ - ing Florida, have sought to mitigate this issue by adopting statutes that authorise and provide for LLPs, which are general partnerships with elect - ed LLP status. With a valid election in effect, the default rule on general partner liability for the obligations of the general partnership reverses and, by statute, the general partner is not so lia - ble. Here again, the use of an LLP does not yet
provide complete assurance of limited liability for the general partner of the limited partnership, based on the potential for conflict between the governing law of different states. Corporations A corporation is a distinct legal entity formed by filing articles of incorporation or other charter instrument with the appropriate state agency. Advantages The principal advantage of a corporation as an investment vehicle limits the personal liability of the shareholders to their investment in the corporation. Shareholders become personally liable for corporate liabilities only in rare circum - stances, usually involving the failure to observe corporate formalities. Disadvantages Perhaps the single biggest disadvantage of a corporate structure is a higher effective federal and state income tax rate generally associated with the two-tier framework of corporate income taxation in the USA, as described herein. Many investors may find this additional cost unaccep - table. An S-corporation with no C-corporation history is generally a “transparent” or “pass-through” entity subject to a single tier of US federal and state income tax. However, an S-corporation is not optimal for most real estate joint ventures, being subject to substantial limitations. An S-corporation must always have only a single class of equity interest outstanding. Other Real Estate Ownership Structures REMIC A real estate mortgage investment conduit (REMIC) is an investment entity used to hold a fixed pool of real estate mortgages. REMICs
1161 CHAMBERS.COM
Powered by FlippingBook