[BUYING AND SELLING REAL ESTATE IN THE UNITED STATES - MASSACHUSETTS]
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6. The existence of a business trust may be subject to the Rule against Perpetuities. Many trusts have specified dates of termination. 7. Advantages 1. Free transferability of interests. 2. Limited life. 3. May elect “pass - through” treatment. 4. Once popular, now uncommon outside the utility, mutual fund, and REIT industries. 8. Disadvantages 1. Potential unlimited liability. 2. Fiduciary duties. G. Business Corporations 1. Statutory entity – G.L. c. 156D. 2. C corporation taxable as an entity (max. Federal tax, 35%; Mass., 8%). 3. S corporation gives pass-through of income and loss (Federal and Mass.) pro rata based on shareholdings. 1. Requires election by all shareholders. 2. One class of stock. 3. 100 shareholder maximum. 4. Shareholders must be individuals (no non-resident aliens), certain trust and estates, certain tax-exempt entities. 4. Advantages 1. Limited liability of shareholders by statute. 2. Free transferability of stock. 3. No deeds excise tax on sale of stock.
4. Pass-through treatment for S corporations. 5. S corporation dividends are tax free to extent of basis. 5. Disadvantages 1. Double taxation for C corporation. 2. No pass-through of C corporation loss. S corporation losses limited to shareholder’s basis ( plus loans to corporation and corporate liabilities assumed by S corporation shareholders). Guaranties not considered as debts. 3. Unlike partnership, S corporation’s allocation of income and loss is inflexible. 4. Mass. “sting tax” to “big” S corporations with over $6 million in income (1.87%) or $9 million (2.8%). (G. L. c. 63, §32(b)). 5. Corporation excise tax lien (G.L. c. 62C, §51). i. (NOTE: excise tax lien now also applies to unincorporated entities electing corporate tax status). 6. Two-thirds shareholder vote required to approve sale of all or substantially all assets. (G.L. c. 156D, §12.02). 7. Dissolution by Secretary of State – but reinstatement possible. (G.L. c. 156D, §108). Note that assets can be sold after dissolution as part of “winding up.” 8. Corporate signatories: President or Vice President and Treasurer or Asst. Treasurer, who may be the same
ILN Real Estate Group – Buying and Selling Real Estate Series
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