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 real property sales, and pay out at least 90% of its taxable income as shareholder dividends. 5.4 Minimum Capital Requirement Although South Carolina imposes minimal capi - tal requirements on certain banking and financial
institutions, and de minimis organisation fees are owed to the South Carolina Secretary of State for an entity to organise or register to conduct business in South Carolina, South Carolina does not otherwise impose minimal capital require - ments on the investment entities discussed in 5. Investment Vehicles . 5.5 Applicable Governance Requirements LLCs are usually governed either by the mem - bers or by appointed managers, although they can also be governed by a board of directors. Partnerships and LPs are governed by their gen - eral partners. Corporations are usually governed by a board of directors. In each case, the appli - cable members of the governing bodies approve proposed transactions by way of resolutions or actions by written consent. The Corporate Transparency Act has increased disclosure requirements for the beneficial own - ers of LLCs. Historically, it would have been common for a real estate attorney to co-ordinate organisation of an LLC, but in response to the Corporate Transparency Act, it is recommended that organisers consult with corporate counsel or third-party servicers to ensure compliance with the Corporate Transparency Act. 5.6 Annual Entity Maintenance and Accounting Compliance The annual entity maintenance and accounting compliance cost for each type of entity used to invest in real estate can vary dramatically from a few hundred dollars to several thousand dollars depending on the amount of assets owned and the volume of transactions by the entity.
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