USA - NEW YORK Law and Practice Contributed by: Adam S. Walters, Erin C. Borek, Timothy P. Moriarty and Kelly E. Marks, Phillips Lytle LLP
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 avail - able in the United States and New York, although typically they are formed under Maryland law. New York follows the federal income taxation of REITs, but subjects REITs to state corporate franchise tax if the REIT is subject to federal income tax. REITs can be publicly traded or pri - vately held, and are available to foreign inves - tors. There are plenty of advantages of using REITs. They provide investors with the opportu - nity 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 generated 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 numerous and complex, but the primary statutory requirements are: • the REIT is managed by one or more trustees or directors; • the beneficial ownership of the REIT is evi - denced by transferable shares or by transfer - able certificates of beneficial interest; • the REIT would be taxable as a domestic corporation 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 tax - able 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makes an election to be tax - able as a REIT, or has made this election for a previous taxable year that has not been revoked or terminated, and satisfies all rel - evant filing and other administrative require - ments established by the IRS that must be met to elect and maintain REIT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-keeping requirements of the Code and Treasury regulations promulgated thereunder; • at the end of any taxable year, the REIT has 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. 5.5 Applicable Governance Requirements Corporations The day-to-day management of a corporation’s activities is the responsibility of the directors of the corporation, who generally delegate such management to officers. Certain significant mat - ters associated with the governance and opera - tion of the corporation may require the approval of the corporation’s shareholders. Corporate governance is dictated by the provisions of the certificate of incorporation, bylaws and statutory law.
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