USA – NORTH CAROLINA Law and Practice Contributed by: John Livingston and Brittani Miller, Kilpatrick
comply with setback requirements or exceed - ing density limits, may result in penalties issued by local enforcement officials or the stopping of construction of a project or activities being con - ducted illegally. 5. Investment Vehicles 5.1 Types of Entities Available to Investors to Hold Real Estate Assets Investors have several entity options for holding real estate assets, including the limited liability company (LLC), which is commonly used due to its flexibility, limited liability for members and favourable tax treatment. Individuals, corpora - tions, non-profit corporations, limited partner - ships and other less common entities can hold real estate as well. Other options are the real estate investment trust (REIT), suitable for large- scale or institutional real estate investments with tax advantages but complex compliance requirements, and the limited partnership (LP), where limited partners have liability protection but general partners do not. 5.2 Main Features and Tax Implications of the Constitution of Each Type of Entity LLCs For LLCs, the main features and tax benefits and costs are as follows. Main features: • Members enjoy limited liability, meaning their personal assets are protected from the entity’s debts and liabilities. • LLCs are flexible in terms of ownership, profit allocation and management structures. • Can be member-managed (owners manage the business) or manager-managed (desig - nated managers handle operations).
Tax benefits and costs: • LLCs are taxed as pass-through entities by default, meaning profits and losses flow directly to members and are reported on their personal tax returns, avoiding corporate-level taxation. • LLCs can elect to be taxed as a corporation (C-Corp or S-Corp) for specific tax advan - tages. • Members of an LLC may be subject to self- employment taxes on their share of profits if taxed as a partnership. • Moderate. Filing fees for Articles of Organisa - tion are USD125, plus annual reports costing USD200. • LLCs allow for deductions related to certain expenses. REITs For REITs, the main features and tax benefits and costs are as follows. Main features: • Shareholders have limited liability. • Managed by a board of directors or trustees; investments are pooled and professionally managed. • Must have at least 100 shareholders and can - not have more than 50% of shares owned by five or fewer individuals. • Must distribute at least 90% of taxable income to shareholders as dividends. Tax benefits and costs: • REITs are generally exempt from corporate income tax if they meet regulatory require - ments, including distributing 90% of taxable income.
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