#delaware statutory trust advantages

[magnifyequity]

1031 Exchange Investment Strategies: Maximizing Real Estate Wealth

Introduction

Navigating the world of real estate investing often involves strategies that optimize returns while minimizing tax burdens. One of the most powerful tools in a real estate investor’s arsenal is the 1031 Exchange. This IRS-sanctioned strategy allows investors to defer capital gains taxes by reinvesting proceeds from the sale of one property into another, fostering growth in wealth and portfolio diversification.

In this article, we’ll dive into the nuances of 1031 Exchanges, explore key strategies, and highlight their benefits and limitations.

What Is a 1031 Exchange?

A 1031 Exchange, derived from Section 1031 of the Internal Revenue Code, permits the deferment of capital gains taxes when an investor exchanges one investment property for another of equal or greater value. The primary goal of this mechanism is to promote reinvestment and portfolio growth without immediate tax penalties.

Types of 1031 Exchanges

Simultaneous Exchange: The sale and purchase occur at the same time.

Delayed Exchange: Offers a window of 180 days to complete the new purchase after selling the original property.

Reverse Exchange: Acquires the replacement property before selling the relinquished property.

Build-to-Suit Exchange: Allows reinvestment in properties requiring improvements or construction.

Why Use a 1031 Exchange?

Tax Deferral: Avoid paying capital gains taxes upfront.

Portfolio Diversification: Invest in different property types or locations.

Increased Cash Flow: Transition into properties with higher income potential.

Wealth Building: Compound the benefits of reinvesting pre-tax dollars.

Strategies for Successful 1031 Exchanges

1. Leverage Like-Kind Properties

The “like-kind” rule is central to a 1031 Exchange. While it’s broad in definition, ensuring both the relinquished and replacement properties are investment-focused is crucial. Examples include:

Trading a single-family rental for a multifamily property.

Exchanging raw land for a commercial building.

2. Plan for the Identification Period

The IRS mandates that replacement properties must be identified within 45 days. To avoid missing this tight window:

Have a shortlist of properties before selling.

Engage a knowledgeable real estate agent or investment advisor.

3. Focus on Market Trends

Research local real estate trends before reinvesting. For instance, booming rental markets or commercial hubs can enhance returns.

4. Diversify Through Delaware Statutory Trusts (DSTs)

DSTs enable fractional ownership in high-value properties, such as office buildings or industrial parks. They are an excellent option for investors seeking passive income without direct property management.

5. Utilize Professional Intermediaries

Engaging a Qualified Intermediary (QI) is mandatory to ensure compliance with IRS rules. Their expertise also minimizes administrative burdens.

Pros and Cons of 1031 Exchanges

Advantages:

Tax Efficiency: No immediate capital gains tax liabilities.

Flexibility: Broad range of eligible property types.

Compounding Growth: Reinvest pre-tax profits for exponential returns.

Drawbacks:

Strict Timelines: Missing deadlines can result in tax penalties.

Limited to Investment Properties: Personal residences don’t qualify.

Complex Rules: Detailed compliance requirements need expert guidance.

Real-Life Example: Growing Wealth with a 1031 Exchange

Jane, a real estate investor, sold a $500,000 rental property with $200,000 in gains. Instead of paying $40,000 in capital gains taxes, she reinvested into a $700,000 multifamily property through a 1031 Exchange. This reinvestment allowed her to:

Increase rental income by 25%.

Diversify into a growing market.

Defer taxes, keeping more capital working for her.

Common Mistakes to Avoid

Missing Deadlines: Stick to the 45-day identification and 180-day exchange rules.

Inadequate Research: Vet replacement properties thoroughly.

Neglecting Backup Options: Always have alternative properties identified in case the primary option falls through.

Failing to Use a Qualified Intermediary: Direct handling of funds disqualifies the exchange.

Emerging Trends in 1031 Exchanges

1. Technology Integration

Online platforms simplify property searches and streamline the paperwork process, reducing time and errors.

2. Focus on Sustainability

Investors are gravitating towards energy-efficient or eco-friendly properties, which attract higher demand and rental income.

3. Rise of Fractional Investments

DSTs and Real Estate Investment Trusts (REITs) enable smaller investors to participate in lucrative 1031 Exchanges.

Conclusion

1031 Exchanges are a cornerstone strategy for real estate investors seeking to build wealth while deferring taxes. Whether you aim to expand your portfolio, transition to higher-income properties, or diversify holdings, understanding the intricacies of 1031 Exchanges is essential.

Partnering with experienced advisors, staying compliant with IRS rules, and leveraging emerging trends can ensure your success in this powerful investment strategy.Unlock the potential of 1031 Exchanges and take your real estate investing to the next level today!

[provident1031]

Delaware Statutory Trusts (DST) an alternative for 1031 exchange investors seeking replacement properties. Learn 1031 Exchange Delaware Statutory Trust.

[averymosciskius]

Capital Square 1031 Launches All-Cash DST Offering of a 100% Leased Medical Facility in Augusta Georgia

AUGUSTA, Ga. (Feb. 4, 2020) – Capital Square 1031, a leading sponsor of Delaware statutory trust (DST) offerings, announced today the launch of CS1031 Augusta MOB, DST, a Regulation D private placement offering primarily for investors seeking 1031 exchange replacement property. The offering is comprised of a 30,548-square-foot orthopedic clinic in Augusta, Georgia, that was acquired by the DST in an all-cash, no debt, transaction.

“There is unprecedented demand for specialized medical facilities,” said Louis Rogers, founder and chief executive officer of Capital Square. “Because the need for medical services is not correlated to the general economy, medical properties have proven to be recession resistant. Capital Square’s medical properties are very popular among 1031 exchange and other investors seeking a recession-resistant, stable asset class. Moreover, this offering was structured on an all-cash, no debt, basis for investors who do not need or want debt for their Section 1031 exchange, thereby removing the mortgage repayment risk.”

Located at 1706 Magnolia Way, the facility is comprised of a 30,548-square-foot orthopedic clinic which includes 18 exam rooms, a dual X-ray suite, designated waiting areas, a physical therapy center, an MRI suite and space to expand for practice growth. Constructed in 2009 and situated on 1.88 acres of land, the building is 100% leased on a 12-year triple net lease to Champion Orthopedics, a provider of orthopedic and musculoskeletal care; specialized sports medicine treatment; orthopedic surgery; physical therapy and rehabilitation services; and diagnostic imaging.

“This medical property was purchased on desirable economic terms, with annual rent increases and a triple net lease in place where the tenant is responsible for taxes, insurance, maintenance and repairs, thereby reducing future inflation risk,” said Whitson Huffman, senior vice president and head of acquisitions. “The combination of a favorable entry capitalization rate, annual rental increases and a triple net lease make this a very desirable investment for Section 1031 exchange and other investors seeking potential income and profit.”

According to the Centers for Medicare and Medicaid Services, health spending increased by 4.6% in 2018 to reach $3.6 trillion and accounted for 17.7% of gross domestic product.

Collin Hart of ERE Healthcare Real Estate Advisors represented the seller in the transaction.

Since inception, Capital Square has acquired 101 real estate assets for more than 2,000 investors seeking quality replacement properties that qualify for tax deferral under Section 1031 of the Internal Revenue Code.

About Capital Square 1031 Capital Square is a national real estate firm specializing in tax-advantaged real estate investments, including Delaware statutory trusts for Section 1031 exchanges and qualified opportunity zone funds for tax deferral and exclusion. Capital Square has completed more than $1.87 billion in transaction volume. Capital Square’s executive team has decades of experience in real estate investments. Its founder, Louis Rogers, has structured hundreds of investment offerings totaling in excess of $5 billion. Capital Square’s related entities provide a range of services, including due diligence, acquisition, loan sourcing, property/asset management, and disposition, for a growing number of high net worth investors, private equity firms, family offices and institutional investors. In 2017, 2018 and 2019, Capital Square was awarded by Inc. 5000 as one of the fastest growing companies. In 2017 and 2018, the company was also ranked on Richmond BizSense’s list of fastest growing companies. In 2019, Capital Square was listed by Virginia Business on their “Best Places to Work in Virginia” and “Fantastic 50” reports. To learn more, visit www.CapitalSquare1031.com.

Disclaimer: Securities offered through WealthForge Securities, LLC, Member FINRA/SIPC. Capital Square and WealthForge Securities, LLC are separate entities. There are material risks associated with investing in DST properties and real estate securities including illiquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and potential loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, returns and appreciation are not guaranteed. IRC Section 1031 is a complex tax concept; consult your legal or tax professional regarding the specifics of your particular situation. This is not a solicitation or an offer to see any securities. Please read the Private Placement Memorandum (PPM) in its entirety, paying careful attention to the risk section prior to investing. Diversification does not guarantee profits or protect against losses.

Via https://www.capitalsquare1031.com/capital-square-1031-launches-all-cash-dst-offering-of-a-100-leased-medical-facility-in-augusta-georgia/

source https://capitalsquare1031.weebly.com/blog/capital-square-1031-launches-all-cash-dst-offering-of-a-100-leased-medical-facility-in-augusta-georgia

[capitalsquare]

Capital Square

Since 2012, Capital Square has helped investors navigate tax-advantaged real estate offerings. The company’s experienced, investor-centric team provides a successful foundation for investment opportunities, including Delaware statutory trusts as replacement properties for 1031 exchanges, qualified opportunity zones, and private investment offerings.

www.capitalsq.com/about-section-1031-exchanges-delaware-statutory-trusts/

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[auruminfinity]

3 things you should know before making a fractional real estate investment

Investing in fractional real estate is a hot issue right now. People use it to get involved in the real estate industry and make money. It's essential to learn about fractional investment in commercial real estate before putting on your house flipper hat and ditching your small business owner's hat. A basic understanding of how fractional real estate investing works is required. 

An Overview of Fractional Real Estate Investing

Commercial real estate investment in fractional ownership gives investors a stake in a property but does not require them to buy the entire thing outright. This strategy provides investors access to institutional quality deals that they otherwise would not be able to purchase. Investors can also benefit from passive income and portfolio diversification via fractional investments. 

On the other hand, fractional investment in commercial real estate may necessitate a five- to ten-year time commitment, be more expensive due to the fees involved, and carry all of the usual dangers of investing in commercial real estate. However, this sort of fractional investment isn't the only one. Real estate investment trusts (REITs) and Delaware Statutory Trusts are other fractional choices (DSTs). It's usually a good idea for investors considering fractional ownership to conduct their research before making a final decision. 

How it all works?

The platforms consider a property's value, location, potential for capital, and rental appreciation. Currently, most of them are solely interested in commercial real estate investments. Platforms only post homes after agreeing to sell or receiving a letter of intent from the owners. The property up for tokenization is divided into a set number of tokens. The platform offering tokenization will set the price for each token, which could start from as low as INR 5 lakh. One of the significant advantages of tokenization is that these tokens are easy to sell compared to the conventional form of real estate, provided the lock-in period is over. It does not require a long trail of paperwork as such transactions only take place on the tokenization platform. 

PROPERTIES THAT BENEFIT FROM FRACTIONAL INVESTING 

You may be wondering: Is fractional real estate investment a worthwhile investment? For most investment methods, there is at least one clear advantage. If you choose to invest in fractional real estate, you will be able to access far larger real estate projects than you could on your own in the future. However, there are other advantages that you may not have considered. 

An opportunity to acquire an interest in a real estate asset that is simply out of your grasp on your own

Reduce the amount of money you have to pay upfront: To get into the more expensive houses, you need to share the upfront fees, typically rather considerable. 

Invest in various properties: A smaller interest in each property increases your chances of owning many properties. 

Diversification of holdings: A more well-balanced portfolio is better for overall protection. 

Traditional real estate investments are less liquid than fractional ones. It will depend on the specifics of your agreement; nevertheless, it is not uncommon to have the option of selling your shares at any moment, which can reduce the overall risk of an investment decision. 

DISADVANTAGES OF FRACTIONAL OWNERSHIP

If you live in an HOA, you may only be allowed one or two pets. Because so many people are interested in one home, this might be a problem. 

Vacation home designs at odds: A group of like-minded investors will always have conflicting plans. A lawyer should finalise the agreement before it goes into effect. 

Customers who exclusively work with friends and family will not benefit from fractional investing. Customers are wary about partnering with someone they don't know in a small investment. 

INVESTMENTS IN REAL ESTATE COMMERCIAL 

Investing in commercial real estate may seem out of reach for most people. However, fractional investing might be a terrific method to enter into commercial property owners if you're interested in doing so. 

New changes can appear when you pool your funds with other investors (translation: better cash flow which offers a cushion that allows you to hire professional commercial property managers). As soon as you sign a contract, you'll be able to start making money immediately, without dealing with things like evaluating leasing applications and overseeing tenant compliance. 

AURUM INFINITY, IS IT SAFE TO INVEST IN FRACTIONS? 

You may grow and accumulate wealth by fractional real estate investment. As a result, not every investment strategy works the same way. It's essential to know the advantages and disadvantages of each investment strategy before making a decision. 

Here comes Aurum Infinity, a blockchain-driven tokenization platform. Our primary goal is to use our extensive industry knowledge to benefit both current and future investors. We'll get to know your financial objectives to help you make the best possible investment choices. 

[section1031exchange-blog]

Since 2012, Capital Square has helped investors navigate tax-advantaged real estate offerings. The company’s experienced, investor-centric team provides a successful foundation for investment opportunities including: Delaware statutory trusts as replacement properties for 1031 exchanges; Qualified opportunity zones; Private investment offerings. Capital Square 10900 Nuckols Road, Suite 200 Glen Allen, VA 23060 877.626.1031 https://www.capitalsquare1031.com/about-section-1031-exchanges-delaware-statutory-trusts/ Facebook LinkedIn

[tbaassociates]

Benefits of asset protection solutions

Your "structure" (or your business element and how you set it up) normally passes on a few advantages on the double. The most widely recognized Asset Protection Structure we suggest for our customers are the arrangement LLC. These structures give you some remarkable opportunities and roads for shielding your resources.

They arrange your business

Working your land business as a sole owner has huge loads of detriments. As resource insurance experts, the main danger we consider is the danger of claims. The least demanding approach to make yourself an objective and your property helpless is to possess venture property in your own name.

Utilizing a substance can smooth out your land ventures, or really, any business that you decide to work with these structures. Some have lawful prerequisites that require association, however as a rule, we find that the substances utilized for resource security additionally make maintaining a business simpler.

They compartmentalize your resource insurance plan

In a perfect world our resources are compartmentalized, implying that they are isolated lawfully from each other and you by and by. Your substance is ordinarily your best device for compartmentalizing resources.

The ideal method to asset protection solutions is with Limited Liability Companies that "remain in" as the proprietor of the property. Obviously, you control the organization. The excellence of LLCs is you can frame the same number of as you like, ideally with each holding a solitary resource. Both the arrangement LLC and Delaware Statutory Trust for California financial specialists make compartmentalization simple. On account of the arrangement LLC, every resource essentially goes into its own arrangement.

[1031exchange-us]

DST Properties for 1031 Exchange Investors

There are different ways through which 1031 investors can close their transaction. DST investment is one of them. As part of a 1031 exchange, you can buy DST shares as your 1031 exchange replacement property. When you buy DST shares, you invest in real estate properties and not in the trust. DST investment is treated as a real estate investment and that's why it qualifies for 1031 exchange. However, you must have a 1031 DST Properties List in order to invest in DSTs. Otherwise, how will you compare different properties?

DST shares are offered as real estate securities to 1031 investors...

A Delaware Statutory Trust or DST is a private governing trust responsible for buying, managing, administering, and selling real estate properties. DSTs are formed by filing a Certificate of Trust with Delaware Division of Corporations and were first established in 1988 under the Delaware Statutory Trust Act. A DST investor enjoys co-ownership in large institutional-grade properties along with other investors. DST shares are generally offered as real estate securities to 1031 investors and can only be purchased through a real estate broker.

1031 investors receive a lot of benefits through DST investment...

Though there are various reasons why 1031 investors invest in DSTs, here are a few major ones.

Relief from property management - DST investors don't need to bear the burden of     property management as DST properties come with pre-arranged property or     asset managers. As a result, they enjoy management-free income for a long     time.

Low Investment - Due to its large structure, a DST investment     may start from as low as $500K. This enables small investors to own     institutional-grade properties along with other investors.

Tax Advantages - By completing 1031 exchange using DST     investment, 1031 investors can defer up to 100% capital gains taxes.

Relief from day-to-day management responsibilities is relief from all worries for real estate investors. As a property starts aging, it requires repairing and other maintenance quite often. Consequently, the property owner or investor needs to invest more time and money in managing their property, which can't please any investor. To release themselves from the burden of day-to-day management responsibilities, investors prefer an investment structure like DST that comes with no management responsibilities. This could be another reason why you're looking for 1031 Exchange DST Properties.  

Because of the relief from day-to-day management responsibilities, DSTs manage to attract investors in large numbers. As DST properties often come with pre-arranged property or asset managers, investors within a DST enjoy a regular flow of income without any liabilities.

1031 Exchange DST Properties are widely available throughout the United States...

While you can find DST properties for sale for your 1031 exchange anywhere in the United States, you may need assistance from a DST advisor or expert. With the rise in the number of 1031 investors using DST investment for closing their exchange, the demand for institutional-grade properties has also increased significantly in recent years. As a result, finding a good DST property has become a bit difficult. That's why the assistance of an experienced DST advisor is required.   

[provident1031]

Delaware Statutory Trust Advantages - Provident 1031

Delaware Statutory Trust a separate legal entity created trust under Delaware statutory law and permits a very flexible approach to the design the entity.

[melissawalker01]

Can A Limited Liability Company Be A Qualified International Buyer?

A limited liability company (LLC) is a corporate structure in the United States whereby the owners are not personally liable for the company’s debts or liabilities. Limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship. While the limited liability feature is similar to that of a corporation, the availability of flow-through taxation to the members of an LLC is a feature of partnerships.

A limited liability company (LLC) is a hybrid legal entity having certain characteristics of both a corporation and a partnership or sole proprietorship (depending on how many owners there are). An LLC is a type of unincorporated association distinct from a corporation. The primary characteristic an LLC shares with a corporation is limited liability, and the primary characteristic it shares with a partnership is the availability of pass-through income taxation. As a business entity, an LLC is often more flexible than a corporation and may be well-suited for companies with a single owner. Although LLCs and corporations both possess some analogous features, the basic terminology commonly associated with each type of legal entity, at least within the United States, is sometimes different. When an LLC is formed, it is said to be organized, not incorporated or chartered, and its founding document is likewise known as its articles of organization, instead of its articles of incorporation or its corporate charter. Internal operations of an LLC are further governed by its operating agreement, rather than its bylaws. The owner of beneficial rights in an LLC is known as a member, rather than a shareholder. Additionally, ownership in an LLC is represented by a membership interest or an LLC interest (sometimes measured in membership units or just units and at other times simply stated only as percentages), rather than represented by shares of stock or just shares (with ownership measured by the number of shares held by each shareholder). Similarly, when issued in physical rather than electronic form, a document evidencing ownership rights in an LLC is called a membership certificate rather than a stock certificate. In the absence of express statutory guidance, most American courts have held that LLC members are subject to the same common law alter ego piercing theories as corporate shareholders. However, it is more difficult to pierce the LLC veil because LLCs do not have many formalities to maintain. As long as the LLC and the members do not commingle funds, it is difficult to pierce the LLC veil. Membership interests in LLCs and partnership interests are also afforded a significant level of protection through the charging order mechanism. The charging order limits the creditor of a debtor-partner or a debtor-member to the debtor’s share of distributions, without conferring on the creditor any voting or management rights.

Limited liability company members may, in certain circumstances, also incur a personal liability in cases where distributions to members render the LLC insolvent.

What is a QIB?

A qualified institutional buyer (QIB), in United States law and finance, is a purchaser of securities that is deemed financially sophisticated and is legally recognized by securities market regulators to need less protection from issuers than most public investors. Typically, the qualifications for this designation are based on an investor’s total assets under management and specific legal conditions in the country where the fund is located. Rule 144A requires an institution to manage at least $100 million in securities from issuers not affiliated with the institution to be considered a QIB. If the institution is a bank or savings and loans thrift they must have a net worth of at least $25 million. If the institution is a registered dealer acting for its own account it must in the aggregate own and invest on a discretionary basis at least $10 million of securities of issuers not affiliated with the dealer. Certain private placements of stocks and bonds are made available only to qualified institutional buyers to limit regulatory restrictions and public filing requirements.

Understanding Limited Liability Companies (LLCs)

Limited liability companies (LLCs) are a business structure that is allowed under state statutes. The regulations surrounding LLCs vary from state to state. LLC owners are generally called members. Many states don’t restrict ownership, meaning anyone can be a member including individuals, corporations, foreigners and foreign entities, and even other LLCs. Some entities, though, cannot form LLCs, including banks and insurance companies. An LLC is a more formal partnership arrangement that requires articles of organization to be filed with the state. An LLC is much easier to set up than a corporation and provides more flexibility and protection. LLCs don’t pay taxes. Instead, profits and losses are listed on the personal tax returns of the owner(s). If fraud is detected or if a company hasn’t met legal and reporting requirements, creditors may be able to go after the members. Members’ wages are deemed operating expenses and are deducted from the company’s profits.

Some Advantages

• Choice of tax regime. An LLC can elect to be taxed as a sole proprietor, partnership, S corporation or C corporation (as long as they would otherwise qualify for such tax treatment), providing for a great deal of flexibility.

• A limited liability company with multiple members that elects to be taxed as partnership may specially allocate the members’ distributive share of income, gain, loss, deduction, or credit via the company operating agreement on a basis other than the ownership percentage of each member so long as the rules contained in Treasury Regulation (26 CFR) 1.704-1 are met. S corporations may not specially allocate profits, losses and other tax items under US tax law.

• The owners of the LLC, called members, are protected from some or all liability for acts and debts of the LLC, depending on state shield laws.

• In the United States, an S corporation has a limited number of stockholders, and all of them must be U.S. tax residents; an LLC may have an unlimited number of members, and there is no citizenship restriction.

• Much less administrative paperwork and record-keeping than a corporation.

• Pass-through taxation (i.e., no double taxation), unless the LLC elects to be taxed as a C corporation.

• Using default tax classification, profits are taxed personally at the member level, not at the LLC level.

• LLCs in most states are treated as entities separate from their members. However, in some jurisdictions such as Connecticut, case law has determined that owners were not required to plead facts sufficient to pierce the corporate veil and LLC members can be personally liable for operation of the LLC)

• LLCs in some states can be set up with just one natural person involved.

• Less risk of being “stolen” by fire-sale acquisitions (more protection against hungry investors).

• For some business ventures, such as real estate investment, each property can be owned by a separate LLC, thereby shielding the owners and their other properties from cross-liability.

• Flexible membership: Members of an LLC may include individuals, partnerships, trusts, estates, organizations, or other business entities, and most states do not limit the type or number of members.

Some of the Disadvantages

Although there is no statutory requirement for an operating agreement in most jurisdictions, members of a multiple member LLC who operate without one may encounter problems. Unlike state laws regarding stock corporations, which are very well developed and provide for a variety of governance and protective provisions for the corporation and its shareholders, most states do not dictate detailed governance and protective provisions for the members of a limited liability company. In the absence of such statutory provisions, members of an LLC must establish governance and protective provisions pursuant to an operating agreement or similar governing document.

• It may be more difficult to raise financial capital for an LLC as investors may be more comfortable investing funds in the better-understood corporate form with a view toward an eventual IPO. One possible solution may be to form a new corporation and merge into it, dissolving the LLC and converting into a corporation.

• Many jurisdictions—including Alabama, California, Kentucky, New York, Pennsylvania, Tennessee, and Texas—levy a franchise tax or capital values tax on LLCs. In essence, this franchise or business privilege tax is the fee the LLC pays the state for the benefit of limited liability. The franchise tax can be an amount based on revenue, an amount based on profits, or an amount based on the number of owners or the amount of capital employed in the state, or some combination of those factors, or simply a flat fee, as in Delaware.

• Renewal fees may also be higher. Maryland, for example, charges a stock or nonstock corporation $120 for the initial charter, and $100 for an LLC. The fee for filing the annual report the following year is $300 for stock-corporations and LLCs. The fee is zero for non-stock corporations. In addition, certain states, such as New York, impose a publication requirement upon formation of the LLC which requires that the members of the LLC publish a notice in newspapers in the geographic region that the LLC will be located that it is being formed. For LLCs located in major metropolitan areas (e.g., New York City), the cost of publication can be significant.

• The management structure of an LLC may not be clearly stated. Unlike corporations, they are not required to have a board of directors or officers. (This could also be seen as an advantage to some.)

• Taxing jurisdictions outside the US are likely to treat a US LLC as a corporation, regardless of its treatment for US tax purposes—for example a US LLC doing business outside the US or as a resident of a foreign jurisdiction. This is very likely where the country (such as Canada) does not recognize LLCs as an authorized form of business entity in that country.

• The principals of LLCs use many different titles—e.g., member, manager, managing member, managing director, chief executive officer, president, and partner. As such, it can be difficult to determine who actually has the authority to enter into a contract on the LLC’s behalf.

Forming an LLC

Although the requirements for LLCs may vary by state, there are generally some commonalities across the board. The very first thing owners or members must do is to choose a name. Once that’s done, the articles of organization must be documented and filed with the state. These articles establish the rights, powers, duties, liabilities, and other obligations of each member of the LLC. Other information included on the documents includes the name and addresses of the LLC’s members, the name of the LLC’s registered agent, and the business’ statement of purpose. The articles of organization must be accompanied by a fee paid directly to the state. Paperwork and additional fees must also be submitted at the federal level to obtain an employer identification number (EIN).

• Limited liability companies are corporate structures in the United States where owners are not personally liable for the company’s debts or liabilities.

• Regulations surrounding LLCs vary from state to state. • Any entity can form an LLC including individuals and corporations; however, banks and insurance companies cannot. • LLCs do not pay taxes—their profits and losses are passed through to members, who claim them on their tax returns. Requirements to qualify as a QIB The U.S. Securities and Exchange Commission (SEC) requires that an entity meet one of the following requirements to qualify as a QIB: • Any of the following entities, acting for its own account or the accounts of other QIBs, that in the aggregate owns and invests on a discretionary basis at least $100 million in securities of issuers that are not affiliated with the entity: • An insurance company • An investment company registered under the Investment Company Act of 1940 • A Small Business Investment Company licensed by the US Small Business Administration under the Small Business Investment Act of 1958 • A plan established and maintained by a state, its political subdivisions, or state agency, for the benefit of its employees • An employee benefit plan falling under the Employee Retirement Income Security Act of 1974 • A trust fund whose trustee is a bank or trust company and whose participants are exclusively plans established for the benefit of state employees or employee benefit plans, except trust funds that include as participant’s individual retirement accounts or H.R. 10 plans • A business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940. • A 501©(3) charitable organization, corporation (other than a bank or a savings and loan association), partnership, or Massachusetts or similar business trust; and • An investment adviser registered under the Investment Advisers Act of 1940.

• Any registered dealer, acting for its own account or the accounts of other QIBs, that in the aggregate owns and invests on a discretionary basis at least $10 million of securities of issuers that are not affiliated with the dealer. • Any registered dealer acting in a riskless principal transaction on behalf of a qualified institutional buyer. • Any investment company registered under the Investment Company Act, acting for its own account or for the accounts of other QIBs, that is part of a family of investment companies which own in the aggregate at least $100 million in securities of issuers, other than issuers that are affiliated with the investment company or are part of such family of investment companies. • Any entity, all of the equity owners of which are QIBs, acting for its own account or the accounts of other QIBs. • Any bank or any savings and loan association or other institution, acting for its own account or the accounts of other QIBs, that in the aggregate owns and invests on a discretionary basis at least $100 million in securities of issuers that are not affiliated with it and that has an audited net worth of at least $25 million as demonstrated in its latest annual financial statements, as of a date not more than 16 months preceding the date of sale under Rule 144A in the case of a US bank or savings and loan association, and not more than 18 months preceding the date of sale for a foreign bank or savings and loan association or equivalent institution.

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When you need legal help with securities, the SEC or private placements, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

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[asafeatherwould]

Can A Limited Liability Company Be A Qualified International Buyer?

A limited liability company (LLC) is a corporate structure in the United States whereby the owners are not personally liable for the company’s debts or liabilities. Limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship. While the limited liability feature is similar to that of a corporation, the availability of flow-through taxation to the members of an LLC is a feature of partnerships.

A limited liability company (LLC) is a hybrid legal entity having certain characteristics of both a corporation and a partnership or sole proprietorship (depending on how many owners there are). An LLC is a type of unincorporated association distinct from a corporation. The primary characteristic an LLC shares with a corporation is limited liability, and the primary characteristic it shares with a partnership is the availability of pass-through income taxation. As a business entity, an LLC is often more flexible than a corporation and may be well-suited for companies with a single owner. Although LLCs and corporations both possess some analogous features, the basic terminology commonly associated with each type of legal entity, at least within the United States, is sometimes different. When an LLC is formed, it is said to be organized, not incorporated or chartered, and its founding document is likewise known as its articles of organization, instead of its articles of incorporation or its corporate charter. Internal operations of an LLC are further governed by its operating agreement, rather than its bylaws. The owner of beneficial rights in an LLC is known as a member, rather than a shareholder. Additionally, ownership in an LLC is represented by a membership interest or an LLC interest (sometimes measured in membership units or just units and at other times simply stated only as percentages), rather than represented by shares of stock or just shares (with ownership measured by the number of shares held by each shareholder). Similarly, when issued in physical rather than electronic form, a document evidencing ownership rights in an LLC is called a membership certificate rather than a stock certificate. In the absence of express statutory guidance, most American courts have held that LLC members are subject to the same common law alter ego piercing theories as corporate shareholders. However, it is more difficult to pierce the LLC veil because LLCs do not have many formalities to maintain. As long as the LLC and the members do not commingle funds, it is difficult to pierce the LLC veil. Membership interests in LLCs and partnership interests are also afforded a significant level of protection through the charging order mechanism. The charging order limits the creditor of a debtor-partner or a debtor-member to the debtor’s share of distributions, without conferring on the creditor any voting or management rights.

Limited liability company members may, in certain circumstances, also incur a personal liability in cases where distributions to members render the LLC insolvent.

What is a QIB?

A qualified institutional buyer (QIB), in United States law and finance, is a purchaser of securities that is deemed financially sophisticated and is legally recognized by securities market regulators to need less protection from issuers than most public investors. Typically, the qualifications for this designation are based on an investor’s total assets under management and specific legal conditions in the country where the fund is located. Rule 144A requires an institution to manage at least $100 million in securities from issuers not affiliated with the institution to be considered a QIB. If the institution is a bank or savings and loans thrift they must have a net worth of at least $25 million. If the institution is a registered dealer acting for its own account it must in the aggregate own and invest on a discretionary basis at least $10 million of securities of issuers not affiliated with the dealer. Certain private placements of stocks and bonds are made available only to qualified institutional buyers to limit regulatory restrictions and public filing requirements.

Understanding Limited Liability Companies (LLCs)

Limited liability companies (LLCs) are a business structure that is allowed under state statutes. The regulations surrounding LLCs vary from state to state. LLC owners are generally called members. Many states don’t restrict ownership, meaning anyone can be a member including individuals, corporations, foreigners and foreign entities, and even other LLCs. Some entities, though, cannot form LLCs, including banks and insurance companies. An LLC is a more formal partnership arrangement that requires articles of organization to be filed with the state. An LLC is much easier to set up than a corporation and provides more flexibility and protection. LLCs don’t pay taxes. Instead, profits and losses are listed on the personal tax returns of the owner(s). If fraud is detected or if a company hasn’t met legal and reporting requirements, creditors may be able to go after the members. Members’ wages are deemed operating expenses and are deducted from the company’s profits.

Some Advantages

• Choice of tax regime. An LLC can elect to be taxed as a sole proprietor, partnership, S corporation or C corporation (as long as they would otherwise qualify for such tax treatment), providing for a great deal of flexibility.

• A limited liability company with multiple members that elects to be taxed as partnership may specially allocate the members’ distributive share of income, gain, loss, deduction, or credit via the company operating agreement on a basis other than the ownership percentage of each member so long as the rules contained in Treasury Regulation (26 CFR) 1.704-1 are met. S corporations may not specially allocate profits, losses and other tax items under US tax law.

• The owners of the LLC, called members, are protected from some or all liability for acts and debts of the LLC, depending on state shield laws.

• In the United States, an S corporation has a limited number of stockholders, and all of them must be U.S. tax residents; an LLC may have an unlimited number of members, and there is no citizenship restriction.

• Much less administrative paperwork and record-keeping than a corporation.

• Pass-through taxation (i.e., no double taxation), unless the LLC elects to be taxed as a C corporation.

• Using default tax classification, profits are taxed personally at the member level, not at the LLC level.

• LLCs in most states are treated as entities separate from their members. However, in some jurisdictions such as Connecticut, case law has determined that owners were not required to plead facts sufficient to pierce the corporate veil and LLC members can be personally liable for operation of the LLC)

• LLCs in some states can be set up with just one natural person involved.

• Less risk of being “stolen” by fire-sale acquisitions (more protection against hungry investors).

• For some business ventures, such as real estate investment, each property can be owned by a separate LLC, thereby shielding the owners and their other properties from cross-liability.

• Flexible membership: Members of an LLC may include individuals, partnerships, trusts, estates, organizations, or other business entities, and most states do not limit the type or number of members.

Some of the Disadvantages

Although there is no statutory requirement for an operating agreement in most jurisdictions, members of a multiple member LLC who operate without one may encounter problems. Unlike state laws regarding stock corporations, which are very well developed and provide for a variety of governance and protective provisions for the corporation and its shareholders, most states do not dictate detailed governance and protective provisions for the members of a limited liability company. In the absence of such statutory provisions, members of an LLC must establish governance and protective provisions pursuant to an operating agreement or similar governing document.

• It may be more difficult to raise financial capital for an LLC as investors may be more comfortable investing funds in the better-understood corporate form with a view toward an eventual IPO. One possible solution may be to form a new corporation and merge into it, dissolving the LLC and converting into a corporation.

• Many jurisdictions—including Alabama, California, Kentucky, New York, Pennsylvania, Tennessee, and Texas—levy a franchise tax or capital values tax on LLCs. In essence, this franchise or business privilege tax is the fee the LLC pays the state for the benefit of limited liability. The franchise tax can be an amount based on revenue, an amount based on profits, or an amount based on the number of owners or the amount of capital employed in the state, or some combination of those factors, or simply a flat fee, as in Delaware.

• Renewal fees may also be higher. Maryland, for example, charges a stock or nonstock corporation $120 for the initial charter, and $100 for an LLC. The fee for filing the annual report the following year is $300 for stock-corporations and LLCs. The fee is zero for non-stock corporations. In addition, certain states, such as New York, impose a publication requirement upon formation of the LLC which requires that the members of the LLC publish a notice in newspapers in the geographic region that the LLC will be located that it is being formed. For LLCs located in major metropolitan areas (e.g., New York City), the cost of publication can be significant.

• The management structure of an LLC may not be clearly stated. Unlike corporations, they are not required to have a board of directors or officers. (This could also be seen as an advantage to some.)

• Taxing jurisdictions outside the US are likely to treat a US LLC as a corporation, regardless of its treatment for US tax purposes—for example a US LLC doing business outside the US or as a resident of a foreign jurisdiction. This is very likely where the country (such as Canada) does not recognize LLCs as an authorized form of business entity in that country.

• The principals of LLCs use many different titles—e.g., member, manager, managing member, managing director, chief executive officer, president, and partner. As such, it can be difficult to determine who actually has the authority to enter into a contract on the LLC’s behalf.

Forming an LLC

Although the requirements for LLCs may vary by state, there are generally some commonalities across the board. The very first thing owners or members must do is to choose a name. Once that’s done, the articles of organization must be documented and filed with the state. These articles establish the rights, powers, duties, liabilities, and other obligations of each member of the LLC. Other information included on the documents includes the name and addresses of the LLC’s members, the name of the LLC’s registered agent, and the business’ statement of purpose. The articles of organization must be accompanied by a fee paid directly to the state. Paperwork and additional fees must also be submitted at the federal level to obtain an employer identification number (EIN).

• Limited liability companies are corporate structures in the United States where owners are not personally liable for the company’s debts or liabilities.

• Regulations surrounding LLCs vary from state to state. • Any entity can form an LLC including individuals and corporations; however, banks and insurance companies cannot. • LLCs do not pay taxes—their profits and losses are passed through to members, who claim them on their tax returns. Requirements to qualify as a QIB The U.S. Securities and Exchange Commission (SEC) requires that an entity meet one of the following requirements to qualify as a QIB: • Any of the following entities, acting for its own account or the accounts of other QIBs, that in the aggregate owns and invests on a discretionary basis at least $100 million in securities of issuers that are not affiliated with the entity: • An insurance company • An investment company registered under the Investment Company Act of 1940 • A Small Business Investment Company licensed by the US Small Business Administration under the Small Business Investment Act of 1958 • A plan established and maintained by a state, its political subdivisions, or state agency, for the benefit of its employees • An employee benefit plan falling under the Employee Retirement Income Security Act of 1974 • A trust fund whose trustee is a bank or trust company and whose participants are exclusively plans established for the benefit of state employees or employee benefit plans, except trust funds that include as participant’s individual retirement accounts or H.R. 10 plans • A business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940. • A 501(c)(3) charitable organization, corporation (other than a bank or a savings and loan association), partnership, or Massachusetts or similar business trust; and • An investment adviser registered under the Investment Advisers Act of 1940.

• Any registered dealer, acting for its own account or the accounts of other QIBs, that in the aggregate owns and invests on a discretionary basis at least $10 million of securities of issuers that are not affiliated with the dealer. • Any registered dealer acting in a riskless principal transaction on behalf of a qualified institutional buyer. • Any investment company registered under the Investment Company Act, acting for its own account or for the accounts of other QIBs, that is part of a family of investment companies which own in the aggregate at least $100 million in securities of issuers, other than issuers that are affiliated with the investment company or are part of such family of investment companies. • Any entity, all of the equity owners of which are QIBs, acting for its own account or the accounts of other QIBs. • Any bank or any savings and loan association or other institution, acting for its own account or the accounts of other QIBs, that in the aggregate owns and invests on a discretionary basis at least $100 million in securities of issuers that are not affiliated with it and that has an audited net worth of at least $25 million as demonstrated in its latest annual financial statements, as of a date not more than 16 months preceding the date of sale under Rule 144A in the case of a US bank or savings and loan association, and not more than 18 months preceding the date of sale for a foreign bank or savings and loan association or equivalent institution.

Securities Lawyer Free Consultation

When you need legal help with securities, the SEC or private placements, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Ascent Law LLC 8833 S. Redwood Road, Suite C West Jordan, Utah 84088 United States Telephone: (801) 676-5506

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Can A Limited Liability Company Be A Qualified International Buyer?

A limited liability company (LLC) is a corporate structure in the United States whereby the owners are not personally liable for the company’s debts or liabilities. Limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship. While the limited liability feature is similar to that of a corporation, the availability of flow-through taxation to the members of an LLC is a feature of partnerships.

A limited liability company (LLC) is a hybrid legal entity having certain characteristics of both a corporation and a partnership or sole proprietorship (depending on how many owners there are). An LLC is a type of unincorporated association distinct from a corporation. The primary characteristic an LLC shares with a corporation is limited liability, and the primary characteristic it shares with a partnership is the availability of pass-through income taxation. As a business entity, an LLC is often more flexible than a corporation and may be well-suited for companies with a single owner. Although LLCs and corporations both possess some analogous features, the basic terminology commonly associated with each type of legal entity, at least within the United States, is sometimes different. When an LLC is formed, it is said to be organized, not incorporated or chartered, and its founding document is likewise known as its articles of organization, instead of its articles of incorporation or its corporate charter. Internal operations of an LLC are further governed by its operating agreement, rather than its bylaws. The owner of beneficial rights in an LLC is known as a member, rather than a shareholder. Additionally, ownership in an LLC is represented by a membership interest or an LLC interest (sometimes measured in membership units or just units and at other times simply stated only as percentages), rather than represented by shares of stock or just shares (with ownership measured by the number of shares held by each shareholder). Similarly, when issued in physical rather than electronic form, a document evidencing ownership rights in an LLC is called a membership certificate rather than a stock certificate. In the absence of express statutory guidance, most American courts have held that LLC members are subject to the same common law alter ego piercing theories as corporate shareholders. However, it is more difficult to pierce the LLC veil because LLCs do not have many formalities to maintain. As long as the LLC and the members do not commingle funds, it is difficult to pierce the LLC veil. Membership interests in LLCs and partnership interests are also afforded a significant level of protection through the charging order mechanism. The charging order limits the creditor of a debtor-partner or a debtor-member to the debtor’s share of distributions, without conferring on the creditor any voting or management rights.

Limited liability company members may, in certain circumstances, also incur a personal liability in cases where distributions to members render the LLC insolvent.

What is a QIB?

A qualified institutional buyer (QIB), in United States law and finance, is a purchaser of securities that is deemed financially sophisticated and is legally recognized by securities market regulators to need less protection from issuers than most public investors. Typically, the qualifications for this designation are based on an investor’s total assets under management and specific legal conditions in the country where the fund is located. Rule 144A requires an institution to manage at least $100 million in securities from issuers not affiliated with the institution to be considered a QIB. If the institution is a bank or savings and loans thrift they must have a net worth of at least $25 million. If the institution is a registered dealer acting for its own account it must in the aggregate own and invest on a discretionary basis at least $10 million of securities of issuers not affiliated with the dealer. Certain private placements of stocks and bonds are made available only to qualified institutional buyers to limit regulatory restrictions and public filing requirements.

Understanding Limited Liability Companies (LLCs)

Limited liability companies (LLCs) are a business structure that is allowed under state statutes. The regulations surrounding LLCs vary from state to state. LLC owners are generally called members. Many states don’t restrict ownership, meaning anyone can be a member including individuals, corporations, foreigners and foreign entities, and even other LLCs. Some entities, though, cannot form LLCs, including banks and insurance companies. An LLC is a more formal partnership arrangement that requires articles of organization to be filed with the state. An LLC is much easier to set up than a corporation and provides more flexibility and protection. LLCs don’t pay taxes. Instead, profits and losses are listed on the personal tax returns of the owner(s). If fraud is detected or if a company hasn’t met legal and reporting requirements, creditors may be able to go after the members. Members’ wages are deemed operating expenses and are deducted from the company’s profits.

Some Advantages

• Choice of tax regime. An LLC can elect to be taxed as a sole proprietor, partnership, S corporation or C corporation (as long as they would otherwise qualify for such tax treatment), providing for a great deal of flexibility.

• A limited liability company with multiple members that elects to be taxed as partnership may specially allocate the members’ distributive share of income, gain, loss, deduction, or credit via the company operating agreement on a basis other than the ownership percentage of each member so long as the rules contained in Treasury Regulation (26 CFR) 1.704-1 are met. S corporations may not specially allocate profits, losses and other tax items under US tax law.

• The owners of the LLC, called members, are protected from some or all liability for acts and debts of the LLC, depending on state shield laws.

• In the United States, an S corporation has a limited number of stockholders, and all of them must be U.S. tax residents; an LLC may have an unlimited number of members, and there is no citizenship restriction.

• Much less administrative paperwork and record-keeping than a corporation.

• Pass-through taxation (i.e., no double taxation), unless the LLC elects to be taxed as a C corporation.

• Using default tax classification, profits are taxed personally at the member level, not at the LLC level.

• LLCs in most states are treated as entities separate from their members. However, in some jurisdictions such as Connecticut, case law has determined that owners were not required to plead facts sufficient to pierce the corporate veil and LLC members can be personally liable for operation of the LLC)

• LLCs in some states can be set up with just one natural person involved.

• Less risk of being “stolen” by fire-sale acquisitions (more protection against hungry investors).

• For some business ventures, such as real estate investment, each property can be owned by a separate LLC, thereby shielding the owners and their other properties from cross-liability.

• Flexible membership: Members of an LLC may include individuals, partnerships, trusts, estates, organizations, or other business entities, and most states do not limit the type or number of members.

Some of the Disadvantages

Although there is no statutory requirement for an operating agreement in most jurisdictions, members of a multiple member LLC who operate without one may encounter problems. Unlike state laws regarding stock corporations, which are very well developed and provide for a variety of governance and protective provisions for the corporation and its shareholders, most states do not dictate detailed governance and protective provisions for the members of a limited liability company. In the absence of such statutory provisions, members of an LLC must establish governance and protective provisions pursuant to an operating agreement or similar governing document.

• It may be more difficult to raise financial capital for an LLC as investors may be more comfortable investing funds in the better-understood corporate form with a view toward an eventual IPO. One possible solution may be to form a new corporation and merge into it, dissolving the LLC and converting into a corporation.

• Many jurisdictions—including Alabama, California, Kentucky, New York, Pennsylvania, Tennessee, and Texas—levy a franchise tax or capital values tax on LLCs. In essence, this franchise or business privilege tax is the fee the LLC pays the state for the benefit of limited liability. The franchise tax can be an amount based on revenue, an amount based on profits, or an amount based on the number of owners or the amount of capital employed in the state, or some combination of those factors, or simply a flat fee, as in Delaware.

• Renewal fees may also be higher. Maryland, for example, charges a stock or nonstock corporation $120 for the initial charter, and $100 for an LLC. The fee for filing the annual report the following year is $300 for stock-corporations and LLCs. The fee is zero for non-stock corporations. In addition, certain states, such as New York, impose a publication requirement upon formation of the LLC which requires that the members of the LLC publish a notice in newspapers in the geographic region that the LLC will be located that it is being formed. For LLCs located in major metropolitan areas (e.g., New York City), the cost of publication can be significant.

• The management structure of an LLC may not be clearly stated. Unlike corporations, they are not required to have a board of directors or officers. (This could also be seen as an advantage to some.)

• Taxing jurisdictions outside the US are likely to treat a US LLC as a corporation, regardless of its treatment for US tax purposes—for example a US LLC doing business outside the US or as a resident of a foreign jurisdiction. This is very likely where the country (such as Canada) does not recognize LLCs as an authorized form of business entity in that country.

• The principals of LLCs use many different titles—e.g., member, manager, managing member, managing director, chief executive officer, president, and partner. As such, it can be difficult to determine who actually has the authority to enter into a contract on the LLC’s behalf.

Forming an LLC

Although the requirements for LLCs may vary by state, there are generally some commonalities across the board. The very first thing owners or members must do is to choose a name. Once that’s done, the articles of organization must be documented and filed with the state. These articles establish the rights, powers, duties, liabilities, and other obligations of each member of the LLC. Other information included on the documents includes the name and addresses of the LLC’s members, the name of the LLC’s registered agent, and the business’ statement of purpose. The articles of organization must be accompanied by a fee paid directly to the state. Paperwork and additional fees must also be submitted at the federal level to obtain an employer identification number (EIN).

• Limited liability companies are corporate structures in the United States where owners are not personally liable for the company’s debts or liabilities.

• Regulations surrounding LLCs vary from state to state. • Any entity can form an LLC including individuals and corporations; however, banks and insurance companies cannot. • LLCs do not pay taxes—their profits and losses are passed through to members, who claim them on their tax returns. Requirements to qualify as a QIB The U.S. Securities and Exchange Commission (SEC) requires that an entity meet one of the following requirements to qualify as a QIB: • Any of the following entities, acting for its own account or the accounts of other QIBs, that in the aggregate owns and invests on a discretionary basis at least $100 million in securities of issuers that are not affiliated with the entity: • An insurance company • An investment company registered under the Investment Company Act of 1940 • A Small Business Investment Company licensed by the US Small Business Administration under the Small Business Investment Act of 1958 • A plan established and maintained by a state, its political subdivisions, or state agency, for the benefit of its employees • An employee benefit plan falling under the Employee Retirement Income Security Act of 1974 • A trust fund whose trustee is a bank or trust company and whose participants are exclusively plans established for the benefit of state employees or employee benefit plans, except trust funds that include as participant’s individual retirement accounts or H.R. 10 plans • A business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940. • A 501(c)(3) charitable organization, corporation (other than a bank or a savings and loan association), partnership, or Massachusetts or similar business trust; and • An investment adviser registered under the Investment Advisers Act of 1940.

• Any registered dealer, acting for its own account or the accounts of other QIBs, that in the aggregate owns and invests on a discretionary basis at least $10 million of securities of issuers that are not affiliated with the dealer. • Any registered dealer acting in a riskless principal transaction on behalf of a qualified institutional buyer. • Any investment company registered under the Investment Company Act, acting for its own account or for the accounts of other QIBs, that is part of a family of investment companies which own in the aggregate at least $100 million in securities of issuers, other than issuers that are affiliated with the investment company or are part of such family of investment companies. • Any entity, all of the equity owners of which are QIBs, acting for its own account or the accounts of other QIBs. • Any bank or any savings and loan association or other institution, acting for its own account or the accounts of other QIBs, that in the aggregate owns and invests on a discretionary basis at least $100 million in securities of issuers that are not affiliated with it and that has an audited net worth of at least $25 million as demonstrated in its latest annual financial statements, as of a date not more than 16 months preceding the date of sale under Rule 144A in the case of a US bank or savings and loan association, and not more than 18 months preceding the date of sale for a foreign bank or savings and loan association or equivalent institution.

Securities Lawyer Free Consultation

When you need legal help with securities, the SEC or private placements, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Ascent Law LLC 8833 S. Redwood Road, Suite C West Jordan, Utah 84088 United States Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews

Recent Posts

Utah Formal Probate

Basics Of Common Law Marriage

Lottery Trust

Parents Rights Custody And Liability

Home Buying Agent vs. Real Estate Attorney

Firearms Dealers And Licensing Requirements

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Ascent Law Ogden Utah Office

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Can A Limited Liability Company Be A Qualified International Buyer?

A limited liability company (LLC) is a corporate structure in the United States whereby the owners are not personally liable for the company’s debts or liabilities. Limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship. While the limited liability feature is similar to that of a corporation, the availability of flow-through taxation to the members of an LLC is a feature of partnerships.

A limited liability company (LLC) is a hybrid legal entity having certain characteristics of both a corporation and a partnership or sole proprietorship (depending on how many owners there are). An LLC is a type of unincorporated association distinct from a corporation. The primary characteristic an LLC shares with a corporation is limited liability, and the primary characteristic it shares with a partnership is the availability of pass-through income taxation. As a business entity, an LLC is often more flexible than a corporation and may be well-suited for companies with a single owner. Although LLCs and corporations both possess some analogous features, the basic terminology commonly associated with each type of legal entity, at least within the United States, is sometimes different. When an LLC is formed, it is said to be organized, not incorporated or chartered, and its founding document is likewise known as its articles of organization, instead of its articles of incorporation or its corporate charter. Internal operations of an LLC are further governed by its operating agreement, rather than its bylaws. The owner of beneficial rights in an LLC is known as a member, rather than a shareholder. Additionally, ownership in an LLC is represented by a membership interest or an LLC interest (sometimes measured in membership units or just units and at other times simply stated only as percentages), rather than represented by shares of stock or just shares (with ownership measured by the number of shares held by each shareholder). Similarly, when issued in physical rather than electronic form, a document evidencing ownership rights in an LLC is called a membership certificate rather than a stock certificate. In the absence of express statutory guidance, most American courts have held that LLC members are subject to the same common law alter ego piercing theories as corporate shareholders. However, it is more difficult to pierce the LLC veil because LLCs do not have many formalities to maintain. As long as the LLC and the members do not commingle funds, it is difficult to pierce the LLC veil. Membership interests in LLCs and partnership interests are also afforded a significant level of protection through the charging order mechanism. The charging order limits the creditor of a debtor-partner or a debtor-member to the debtor’s share of distributions, without conferring on the creditor any voting or management rights.

Limited liability company members may, in certain circumstances, also incur a personal liability in cases where distributions to members render the LLC insolvent.

What is a QIB?

A qualified institutional buyer (QIB), in United States law and finance, is a purchaser of securities that is deemed financially sophisticated and is legally recognized by securities market regulators to need less protection from issuers than most public investors. Typically, the qualifications for this designation are based on an investor’s total assets under management and specific legal conditions in the country where the fund is located. Rule 144A requires an institution to manage at least $100 million in securities from issuers not affiliated with the institution to be considered a QIB. If the institution is a bank or savings and loans thrift they must have a net worth of at least $25 million. If the institution is a registered dealer acting for its own account it must in the aggregate own and invest on a discretionary basis at least $10 million of securities of issuers not affiliated with the dealer. Certain private placements of stocks and bonds are made available only to qualified institutional buyers to limit regulatory restrictions and public filing requirements.

Understanding Limited Liability Companies (LLCs)

Limited liability companies (LLCs) are a business structure that is allowed under state statutes. The regulations surrounding LLCs vary from state to state. LLC owners are generally called members. Many states don’t restrict ownership, meaning anyone can be a member including individuals, corporations, foreigners and foreign entities, and even other LLCs. Some entities, though, cannot form LLCs, including banks and insurance companies. An LLC is a more formal partnership arrangement that requires articles of organization to be filed with the state. An LLC is much easier to set up than a corporation and provides more flexibility and protection. LLCs don’t pay taxes. Instead, profits and losses are listed on the personal tax returns of the owner(s). If fraud is detected or if a company hasn’t met legal and reporting requirements, creditors may be able to go after the members. Members’ wages are deemed operating expenses and are deducted from the company’s profits.

Some Advantages

• Choice of tax regime. An LLC can elect to be taxed as a sole proprietor, partnership, S corporation or C corporation (as long as they would otherwise qualify for such tax treatment), providing for a great deal of flexibility.

• A limited liability company with multiple members that elects to be taxed as partnership may specially allocate the members’ distributive share of income, gain, loss, deduction, or credit via the company operating agreement on a basis other than the ownership percentage of each member so long as the rules contained in Treasury Regulation (26 CFR) 1.704-1 are met. S corporations may not specially allocate profits, losses and other tax items under US tax law.

• The owners of the LLC, called members, are protected from some or all liability for acts and debts of the LLC, depending on state shield laws.

• In the United States, an S corporation has a limited number of stockholders, and all of them must be U.S. tax residents; an LLC may have an unlimited number of members, and there is no citizenship restriction.

• Much less administrative paperwork and record-keeping than a corporation.

• Pass-through taxation (i.e., no double taxation), unless the LLC elects to be taxed as a C corporation.

• Using default tax classification, profits are taxed personally at the member level, not at the LLC level.

• LLCs in most states are treated as entities separate from their members. However, in some jurisdictions such as Connecticut, case law has determined that owners were not required to plead facts sufficient to pierce the corporate veil and LLC members can be personally liable for operation of the LLC)

• LLCs in some states can be set up with just one natural person involved.

• Less risk of being “stolen” by fire-sale acquisitions (more protection against hungry investors).

• For some business ventures, such as real estate investment, each property can be owned by a separate LLC, thereby shielding the owners and their other properties from cross-liability.

• Flexible membership: Members of an LLC may include individuals, partnerships, trusts, estates, organizations, or other business entities, and most states do not limit the type or number of members.

Some of the Disadvantages

Although there is no statutory requirement for an operating agreement in most jurisdictions, members of a multiple member LLC who operate without one may encounter problems. Unlike state laws regarding stock corporations, which are very well developed and provide for a variety of governance and protective provisions for the corporation and its shareholders, most states do not dictate detailed governance and protective provisions for the members of a limited liability company. In the absence of such statutory provisions, members of an LLC must establish governance and protective provisions pursuant to an operating agreement or similar governing document.

• It may be more difficult to raise financial capital for an LLC as investors may be more comfortable investing funds in the better-understood corporate form with a view toward an eventual IPO. One possible solution may be to form a new corporation and merge into it, dissolving the LLC and converting into a corporation.

• Many jurisdictions—including Alabama, California, Kentucky, New York, Pennsylvania, Tennessee, and Texas—levy a franchise tax or capital values tax on LLCs. In essence, this franchise or business privilege tax is the fee the LLC pays the state for the benefit of limited liability. The franchise tax can be an amount based on revenue, an amount based on profits, or an amount based on the number of owners or the amount of capital employed in the state, or some combination of those factors, or simply a flat fee, as in Delaware.

• Renewal fees may also be higher. Maryland, for example, charges a stock or nonstock corporation $120 for the initial charter, and $100 for an LLC. The fee for filing the annual report the following year is $300 for stock-corporations and LLCs. The fee is zero for non-stock corporations. In addition, certain states, such as New York, impose a publication requirement upon formation of the LLC which requires that the members of the LLC publish a notice in newspapers in the geographic region that the LLC will be located that it is being formed. For LLCs located in major metropolitan areas (e.g., New York City), the cost of publication can be significant.

• The management structure of an LLC may not be clearly stated. Unlike corporations, they are not required to have a board of directors or officers. (This could also be seen as an advantage to some.)

• Taxing jurisdictions outside the US are likely to treat a US LLC as a corporation, regardless of its treatment for US tax purposes—for example a US LLC doing business outside the US or as a resident of a foreign jurisdiction. This is very likely where the country (such as Canada) does not recognize LLCs as an authorized form of business entity in that country.

• The principals of LLCs use many different titles—e.g., member, manager, managing member, managing director, chief executive officer, president, and partner. As such, it can be difficult to determine who actually has the authority to enter into a contract on the LLC’s behalf.

Forming an LLC

Although the requirements for LLCs may vary by state, there are generally some commonalities across the board. The very first thing owners or members must do is to choose a name. Once that’s done, the articles of organization must be documented and filed with the state. These articles establish the rights, powers, duties, liabilities, and other obligations of each member of the LLC. Other information included on the documents includes the name and addresses of the LLC’s members, the name of the LLC’s registered agent, and the business’ statement of purpose. The articles of organization must be accompanied by a fee paid directly to the state. Paperwork and additional fees must also be submitted at the federal level to obtain an employer identification number (EIN).

• Limited liability companies are corporate structures in the United States where owners are not personally liable for the company’s debts or liabilities.

• Regulations surrounding LLCs vary from state to state. • Any entity can form an LLC including individuals and corporations; however, banks and insurance companies cannot. • LLCs do not pay taxes—their profits and losses are passed through to members, who claim them on their tax returns. Requirements to qualify as a QIB The U.S. Securities and Exchange Commission (SEC) requires that an entity meet one of the following requirements to qualify as a QIB: • Any of the following entities, acting for its own account or the accounts of other QIBs, that in the aggregate owns and invests on a discretionary basis at least $100 million in securities of issuers that are not affiliated with the entity: • An insurance company • An investment company registered under the Investment Company Act of 1940 • A Small Business Investment Company licensed by the US Small Business Administration under the Small Business Investment Act of 1958 • A plan established and maintained by a state, its political subdivisions, or state agency, for the benefit of its employees • An employee benefit plan falling under the Employee Retirement Income Security Act of 1974 • A trust fund whose trustee is a bank or trust company and whose participants are exclusively plans established for the benefit of state employees or employee benefit plans, except trust funds that include as participant’s individual retirement accounts or H.R. 10 plans • A business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940. • A 501(c)(3) charitable organization, corporation (other than a bank or a savings and loan association), partnership, or Massachusetts or similar business trust; and • An investment adviser registered under the Investment Advisers Act of 1940.

• Any registered dealer, acting for its own account or the accounts of other QIBs, that in the aggregate owns and invests on a discretionary basis at least $10 million of securities of issuers that are not affiliated with the dealer. • Any registered dealer acting in a riskless principal transaction on behalf of a qualified institutional buyer. • Any investment company registered under the Investment Company Act, acting for its own account or for the accounts of other QIBs, that is part of a family of investment companies which own in the aggregate at least $100 million in securities of issuers, other than issuers that are affiliated with the investment company or are part of such family of investment companies. • Any entity, all of the equity owners of which are QIBs, acting for its own account or the accounts of other QIBs. • Any bank or any savings and loan association or other institution, acting for its own account or the accounts of other QIBs, that in the aggregate owns and invests on a discretionary basis at least $100 million in securities of issuers that are not affiliated with it and that has an audited net worth of at least $25 million as demonstrated in its latest annual financial statements, as of a date not more than 16 months preceding the date of sale under Rule 144A in the case of a US bank or savings and loan association, and not more than 18 months preceding the date of sale for a foreign bank or savings and loan association or equivalent institution.

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Can A Limited Liability Company Be A Qualified International Buyer?

A limited liability company (LLC) is a corporate structure in the United States whereby the owners are not personally liable for the company’s debts or liabilities. Limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship. While the limited liability feature is similar to that of a corporation, the availability of flow-through taxation to the members of an LLC is a feature of partnerships.

A limited liability company (LLC) is a hybrid legal entity having certain characteristics of both a corporation and a partnership or sole proprietorship (depending on how many owners there are). An LLC is a type of unincorporated association distinct from a corporation. The primary characteristic an LLC shares with a corporation is limited liability, and the primary characteristic it shares with a partnership is the availability of pass-through income taxation. As a business entity, an LLC is often more flexible than a corporation and may be well-suited for companies with a single owner. Although LLCs and corporations both possess some analogous features, the basic terminology commonly associated with each type of legal entity, at least within the United States, is sometimes different. When an LLC is formed, it is said to be organized, not incorporated or chartered, and its founding document is likewise known as its articles of organization, instead of its articles of incorporation or its corporate charter. Internal operations of an LLC are further governed by its operating agreement, rather than its bylaws. The owner of beneficial rights in an LLC is known as a member, rather than a shareholder. Additionally, ownership in an LLC is represented by a membership interest or an LLC interest (sometimes measured in membership units or just units and at other times simply stated only as percentages), rather than represented by shares of stock or just shares (with ownership measured by the number of shares held by each shareholder). Similarly, when issued in physical rather than electronic form, a document evidencing ownership rights in an LLC is called a membership certificate rather than a stock certificate. In the absence of express statutory guidance, most American courts have held that LLC members are subject to the same common law alter ego piercing theories as corporate shareholders. However, it is more difficult to pierce the LLC veil because LLCs do not have many formalities to maintain. As long as the LLC and the members do not commingle funds, it is difficult to pierce the LLC veil. Membership interests in LLCs and partnership interests are also afforded a significant level of protection through the charging order mechanism. The charging order limits the creditor of a debtor-partner or a debtor-member to the debtor’s share of distributions, without conferring on the creditor any voting or management rights.

Limited liability company members may, in certain circumstances, also incur a personal liability in cases where distributions to members render the LLC insolvent.

What is a QIB?

A qualified institutional buyer (QIB), in United States law and finance, is a purchaser of securities that is deemed financially sophisticated and is legally recognized by securities market regulators to need less protection from issuers than most public investors. Typically, the qualifications for this designation are based on an investor’s total assets under management and specific legal conditions in the country where the fund is located. Rule 144A requires an institution to manage at least $100 million in securities from issuers not affiliated with the institution to be considered a QIB. If the institution is a bank or savings and loans thrift they must have a net worth of at least $25 million. If the institution is a registered dealer acting for its own account it must in the aggregate own and invest on a discretionary basis at least $10 million of securities of issuers not affiliated with the dealer. Certain private placements of stocks and bonds are made available only to qualified institutional buyers to limit regulatory restrictions and public filing requirements.

Understanding Limited Liability Companies (LLCs)

Limited liability companies (LLCs) are a business structure that is allowed under state statutes. The regulations surrounding LLCs vary from state to state. LLC owners are generally called members. Many states don’t restrict ownership, meaning anyone can be a member including individuals, corporations, foreigners and foreign entities, and even other LLCs. Some entities, though, cannot form LLCs, including banks and insurance companies. An LLC is a more formal partnership arrangement that requires articles of organization to be filed with the state. An LLC is much easier to set up than a corporation and provides more flexibility and protection. LLCs don’t pay taxes. Instead, profits and losses are listed on the personal tax returns of the owner(s). If fraud is detected or if a company hasn’t met legal and reporting requirements, creditors may be able to go after the members. Members’ wages are deemed operating expenses and are deducted from the company’s profits.

Some Advantages

• Choice of tax regime. An LLC can elect to be taxed as a sole proprietor, partnership, S corporation or C corporation (as long as they would otherwise qualify for such tax treatment), providing for a great deal of flexibility.

• A limited liability company with multiple members that elects to be taxed as partnership may specially allocate the members’ distributive share of income, gain, loss, deduction, or credit via the company operating agreement on a basis other than the ownership percentage of each member so long as the rules contained in Treasury Regulation (26 CFR) 1.704-1 are met. S corporations may not specially allocate profits, losses and other tax items under US tax law.

• The owners of the LLC, called members, are protected from some or all liability for acts and debts of the LLC, depending on state shield laws.

• In the United States, an S corporation has a limited number of stockholders, and all of them must be U.S. tax residents; an LLC may have an unlimited number of members, and there is no citizenship restriction.

• Much less administrative paperwork and record-keeping than a corporation.

• Pass-through taxation (i.e., no double taxation), unless the LLC elects to be taxed as a C corporation.

• Using default tax classification, profits are taxed personally at the member level, not at the LLC level.

• LLCs in most states are treated as entities separate from their members. However, in some jurisdictions such as Connecticut, case law has determined that owners were not required to plead facts sufficient to pierce the corporate veil and LLC members can be personally liable for operation of the LLC)

• LLCs in some states can be set up with just one natural person involved.

• Less risk of being “stolen” by fire-sale acquisitions (more protection against hungry investors).

• For some business ventures, such as real estate investment, each property can be owned by a separate LLC, thereby shielding the owners and their other properties from cross-liability.

• Flexible membership: Members of an LLC may include individuals, partnerships, trusts, estates, organizations, or other business entities, and most states do not limit the type or number of members.

Some of the Disadvantages

Although there is no statutory requirement for an operating agreement in most jurisdictions, members of a multiple member LLC who operate without one may encounter problems. Unlike state laws regarding stock corporations, which are very well developed and provide for a variety of governance and protective provisions for the corporation and its shareholders, most states do not dictate detailed governance and protective provisions for the members of a limited liability company. In the absence of such statutory provisions, members of an LLC must establish governance and protective provisions pursuant to an operating agreement or similar governing document.

• It may be more difficult to raise financial capital for an LLC as investors may be more comfortable investing funds in the better-understood corporate form with a view toward an eventual IPO. One possible solution may be to form a new corporation and merge into it, dissolving the LLC and converting into a corporation.

• Many jurisdictions—including Alabama, California, Kentucky, New York, Pennsylvania, Tennessee, and Texas—levy a franchise tax or capital values tax on LLCs. In essence, this franchise or business privilege tax is the fee the LLC pays the state for the benefit of limited liability. The franchise tax can be an amount based on revenue, an amount based on profits, or an amount based on the number of owners or the amount of capital employed in the state, or some combination of those factors, or simply a flat fee, as in Delaware.

• Renewal fees may also be higher. Maryland, for example, charges a stock or nonstock corporation $120 for the initial charter, and $100 for an LLC. The fee for filing the annual report the following year is $300 for stock-corporations and LLCs. The fee is zero for non-stock corporations. In addition, certain states, such as New York, impose a publication requirement upon formation of the LLC which requires that the members of the LLC publish a notice in newspapers in the geographic region that the LLC will be located that it is being formed. For LLCs located in major metropolitan areas (e.g., New York City), the cost of publication can be significant.

• The management structure of an LLC may not be clearly stated. Unlike corporations, they are not required to have a board of directors or officers. (This could also be seen as an advantage to some.)

• Taxing jurisdictions outside the US are likely to treat a US LLC as a corporation, regardless of its treatment for US tax purposes—for example a US LLC doing business outside the US or as a resident of a foreign jurisdiction. This is very likely where the country (such as Canada) does not recognize LLCs as an authorized form of business entity in that country.

• The principals of LLCs use many different titles—e.g., member, manager, managing member, managing director, chief executive officer, president, and partner. As such, it can be difficult to determine who actually has the authority to enter into a contract on the LLC’s behalf.

Forming an LLC

Although the requirements for LLCs may vary by state, there are generally some commonalities across the board. The very first thing owners or members must do is to choose a name. Once that’s done, the articles of organization must be documented and filed with the state. These articles establish the rights, powers, duties, liabilities, and other obligations of each member of the LLC. Other information included on the documents includes the name and addresses of the LLC’s members, the name of the LLC’s registered agent, and the business’ statement of purpose. The articles of organization must be accompanied by a fee paid directly to the state. Paperwork and additional fees must also be submitted at the federal level to obtain an employer identification number (EIN).

• Limited liability companies are corporate structures in the United States where owners are not personally liable for the company’s debts or liabilities.

• Regulations surrounding LLCs vary from state to state. • Any entity can form an LLC including individuals and corporations; however, banks and insurance companies cannot. • LLCs do not pay taxes—their profits and losses are passed through to members, who claim them on their tax returns. Requirements to qualify as a QIB The U.S. Securities and Exchange Commission (SEC) requires that an entity meet one of the following requirements to qualify as a QIB: • Any of the following entities, acting for its own account or the accounts of other QIBs, that in the aggregate owns and invests on a discretionary basis at least $100 million in securities of issuers that are not affiliated with the entity: • An insurance company • An investment company registered under the Investment Company Act of 1940 • A Small Business Investment Company licensed by the US Small Business Administration under the Small Business Investment Act of 1958 • A plan established and maintained by a state, its political subdivisions, or state agency, for the benefit of its employees • An employee benefit plan falling under the Employee Retirement Income Security Act of 1974 • A trust fund whose trustee is a bank or trust company and whose participants are exclusively plans established for the benefit of state employees or employee benefit plans, except trust funds that include as participant’s individual retirement accounts or H.R. 10 plans • A business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940. • A 501(c)(3) charitable organization, corporation (other than a bank or a savings and loan association), partnership, or Massachusetts or similar business trust; and • An investment adviser registered under the Investment Advisers Act of 1940.

• Any registered dealer, acting for its own account or the accounts of other QIBs, that in the aggregate owns and invests on a discretionary basis at least $10 million of securities of issuers that are not affiliated with the dealer. • Any registered dealer acting in a riskless principal transaction on behalf of a qualified institutional buyer. • Any investment company registered under the Investment Company Act, acting for its own account or for the accounts of other QIBs, that is part of a family of investment companies which own in the aggregate at least $100 million in securities of issuers, other than issuers that are affiliated with the investment company or are part of such family of investment companies. • Any entity, all of the equity owners of which are QIBs, acting for its own account or the accounts of other QIBs. • Any bank or any savings and loan association or other institution, acting for its own account or the accounts of other QIBs, that in the aggregate owns and invests on a discretionary basis at least $100 million in securities of issuers that are not affiliated with it and that has an audited net worth of at least $25 million as demonstrated in its latest annual financial statements, as of a date not more than 16 months preceding the date of sale under Rule 144A in the case of a US bank or savings and loan association, and not more than 18 months preceding the date of sale for a foreign bank or savings and loan association or equivalent institution.

Securities Lawyer Free Consultation

When you need legal help with securities, the SEC or private placements, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Ascent Law LLC 8833 S. Redwood Road, Suite C West Jordan, Utah 84088 United States Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews

Recent Posts

Utah Formal Probate

Basics Of Common Law Marriage

Lottery Trust

Parents Rights Custody And Liability

Home Buying Agent vs. Real Estate Attorney

Firearms Dealers And Licensing Requirements

Ascent Law St. George Utah Office

Ascent Law Ogden Utah Office

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