USA - TEXAS Law and Practice Contributed by: Brad Holdbrook, Mary Mendoza, Michael Coleman and James Barnett, Haynes and Boone, LLP
C-Corporations and S-Corporations These are popular choices, with S-Corps being particularly beneficial for developers because they can reduce self-employment tax liability by distinguishing between W-2 wages and distri - butions. However, S-Corps have limitations on the number and type of shareholders they can have and strict protocols for payroll and profit distribution must be followed to avoid double taxation common in C-Corps. LLCs LLCs are often a preferred choice due to their flexibility in management and favourable pass- through tax treatment, which avoids the dou - ble taxation that corporations may face. The LLC structure allows profits and losses to pass directly to the members, avoiding corporate tax - es, while still providing liability protection. Partnerships Partnerships are also available as options. In general partnerships, all partners are consid - ered equal owners and share responsibility for managing the business. Limited partnerships, on the other hand, consist of at least one general partner, who manages the partnership and has unlimited liability, and one or more limited part - ners, who contribute capital and have liability limited to the extent of their investment. Both entities benefit from pass-through taxation, avoiding corporate tax levels and allowing profits to be taxed at the individual partner level. Both partnership types have their place in real estate investment, with the choice largely depending on the level of involvement and liability the part - ners are willing to assume. TICs TICs allow two or more parties to hold title to real estate. Each tenant in common holds an individ - ual, undivided ownership interest in the property
opment rights, or concessions regarding den - sity and design standards to ensure the project aligns with local development goals and com - munity needs. 4.7 Enforcement of Restrictions on Development and Designated Use In Texas, enforcement of restrictions on develop - ment and designated use is typically carried out by local government agencies through zoning and planning regulations. These agencies have the authority to review and approve develop - ment projects, ensuring compliance with local zoning laws, land use plans, and building codes. Violations can lead to penalties, including fines, stop-work orders, or requirements to modify or demolish non-compliant construction. 5. Investment Vehicles 5.1 Types of Entities Available to Investors to Hold Real Estate Assets The types of entities available to investors for holding real estate assets in Texas include cor - porations, limited liability companies (LLCs), partnerships (including general partnerships, limited partnerships, and limited liability partner - ships), tenancies in common (TICs), Delaware statutory trusts (DSTs), condominiums, and professional entities. Each type offers different benefits, operational structures, and tax impli - cations. 5.2 Main Features and Tax Implications of the Constitution of Each Type of Entity When it comes to investing in real estate in Texas, various entities are available that each offer specific benefits, especially concerning tax implications and liability protection.
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