USA - NEW YORK Law and Practice Contributed by: Adam S. Walters, Erin C. Borek, Timothy P. Moriarty and Kelly E. Marks, Phillips Lytle LLP
ing agreement to tailor it to reflect their business agreement and financial arrangements. 5.2 Main Features and Tax Implications of the Constitution of Each Type of Entity Corporation A corporation is an association of shareholders formed under the New York Business Corpora - tion Law that is a legal entity separate and dis - tinct from its shareholders with the capacity for perpetual existence to: • acquire, hold and dispose of property; • sue or be sued; and • have such other powers as may be conferred upon it by law. Owners of a corporation are shareholders, who typically do not manage the day-to-day affairs of the corporation. Shareholders elect directors and approve extraordinary transactions and activities of the corporation. The primary benefit of corporations is that the shareholders are generally not personally liable for the debts and obligations of the corporation, and liability is limited to the assets of the corpo - ration. Directors and officers are generally not liable to shareholders or the corporation for their actions or inactions with respect to the corpora - tion, provided that they act in a manner that is consistent with their fiduciary duties of care and loyalty. Corporations may also limit or eliminate the personal liability of directors for their acts and omissions. However, corporations do not afford the same level of flexibility as do partnerships and LLCs. Limited Liability Company An LLC is an unincorporated organisation of one or more persons having limited liability for the
contractual obligations and other liabilities of the business. An LLC is a hybrid business organisa - tion that combines the flexibility of governance and economic arrangements of a partnership and a corporation. The primary benefit of an LLC is that it offers its members the limited liability protection akin to shareholders of a corporation, is taxed like a partnership (except for a single- member LLC or unless the owners elect corpo - rate tax treatment), and is governed by contract, whereby the operating agreement is the primary document defining the rights of members, the duties of managers, and the financial arrange - ments among the LLC’s members. Members and managers are generally not liable for 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, commercial real estate is more often held in limited partnerships than general part - nerships due to their liability structures. General partners are jointly liable for the debts and obli - gations 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. The benefit of real estate acquisition through a limited partnership is material for the limited partner, whose liability is restricted to the amount that the partner has contributed to the partner - ship plus the partner’s share of any undistributed income. 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.
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