USA – NEW YORK Law and Practice Contributed by: Lindsey E. Haubenreich, Joseph P. Heins, Timothy P. Moriarty and Kimberly R. Nason, Phillips Lytle LLP
Partnership A partnership is a voluntary agreement between at least two persons who bring together their money, property, labor, 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. Whether a general partnership or limited partner - ship, the partners do not have a separate interest in the property and are therefore obliged to treat partnership property as joint property. 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
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 corpo - ration, provided that they act in a manner that is consistent with their fiduciary duties of care and loyalty. 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.
1263 CHAMBERS.COM
Powered by FlippingBook