USA Law and Practice Contributed by: Richard L. Rosen, Leonard S. Salis and Dennison Marzocco, Rosen Karol Salis PLLC
5.5 Applicable Governance Requirements
significant tax advantages for their investors. A REIT must be formed as an entity that is taxable (federally) as a corporation. A REIT must be governed by directors or trus - tees, and its shares must be transferrable. Inves - tors receive profits in the form of dividends or as “appreciation” , upon the disposition of assets purchased by the REIT. REITs are real estate investment vehicles commonly utilised through - out the USA, and they can be classified as either public or private, traded or non-traded. Publicly traded REITs, which are regulated by the US Securities and Exchange Commission (SEC), are relatively easy to liquidate. Private REITs, which are not traded on the securities markets, are therefore generally less volatile, but are not as easy to liquidate. Private REITs may sell secu - rities to qualified institutional investors and to sophisticated so-called “accredited” individual investors. Investing in US REITs can be a ben - eficial investment approach for certain foreign investors, who may benefit from investing in US REITs as they may receive ordinary dividends, capital gains and return-of-capital distributions. In addition, through sophisticated tax planning, they may reduce their US tax liability. 5.4 Minimum Capital Requirement Some states have no minimum capital require - ment for business entities, while others may require a small amount, as low as USD1,000. There is no minimum capital requirement spe - cifically for real estate entities. However, lenders and other third parties may impose their own capital requirements. Inadequate capitalisation of the entity could expose its owners to per - sonal liability, by piercing of the “corporate veil” , although litigation is required to achieve such a result.
State laws govern LLCs, corporations and lim - ited partnerships, setting default rules for gov - ernance and operations, unless the entity’s own - ers have provided otherwise in their governing agreements. For example, state laws may require that a certain minimum voting percentage – such as 66% or two thirds of votes – be met for the entity to approve certain matters or transactions. As stated previously, LLCs provide their mem - bers with a great deal of flexibility with respect to how the entity is structured, managed and operated, whereas S corporations (and C corpo - rations) have stricter governance requirements and offer less flexibility. In limited partnerships, the general partner(s) provides the governance and management function, while the limited partners typically have limited voting and control rights over the entity’s affairs. In 2024, a new federal law, the Corporate Trans - parency Act (CTA) was enacted in order to enhance transparency in business ownership and to combat illicit activities such as terrorism financing and money laundering. Under the CTA, business entities were to be required to disclose information to the federal government regarding their beneficial owners. However, the enforce - ment of the CTA has been delayed several times as a result of court decisions, and on 2 March 2025, the US Treasury Department announced that it would suspend enforcement of the CTA against US citizens and domestic business enti - ties. 5.6 Annual Entity Maintenance and Accounting Compliance Forming and organising a business entity in the USA varies by state, costing several hundred dollars for filing documents and for using a filing
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