USA - SOUTH CAROLINA Law and Practice Contributed by: Matt Norton and Christian Kolic, K&L Gates
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 corporations are consid - ered less tax-efficient real property investment vehicles. Corporations are taxed at the entity level, and distributions of property and cash may also be subject to taxation at the shareholder level; because of this double taxation, and less favour - able tax consequences on liquidation, corpora - tions are generally viewed as less favourable vehicles from a tax perspective for the owner - ship of real property. 5.3 REITs Both public and private REITs are common investment 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 company 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 from real property sales, and pay out at least 90% of its taxable income as sharehold - er dividends. 5.4 Minimum Capital Requirement Although South Carolina imposes minimal capi - tal requirements on certain banking and financial
• limitation of duties owed by members to each other and to the LLC. In some states, creditors of individual members may only reach the distributional interest of that member and not the member’s actual limited liability interest; to this extent, an LLC may pro - vide limited asset protection benefits. Single-member LLCs are generally ignored for income tax purposes, with taxation occurring at the parent/owner level. Multiple-member LLCs are typically taxed as partnerships. As a result, the LLC is a pass-through entity for tax purposes – taxation is at the member level and not the entity level. LLCs may, however, elect to be taxed as C corporations under the Internal Revenue Code, such that tax is also levied at the entity level. Partnerships Partnerships are similar to LLCs, but they have a significant disadvantage: the individual part - ners are jointly, or jointly and severally, person - ally 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 partner’s invest - ment 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 partners. 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.
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