| Subchapter S corporations - investors avoid double taxation and still
retain limited liability. The number of investors in a Subchapter S
corporation is limited by law. Subchapter S is one form of DPP. (Direct
Participation Program) Units of ownership in a DPP are called
interests.
The DPP investor enjoys certain advantages:
The investment is managed by others
Flow-through of income and expenses
Limited liability
DPP's have certain disadvantages:
Lack of liquidity
Difficult, though not impossible, to change the GP. The GP is not
subject to an annual election.
Conflicts of interest by the GP - (ex: Building an apartment
complex next to partnership property and renting her own unit's first)
Improper use of partnership assets.
REIT's manage a portfolio of real estate investments. Shares can be
traded publicly. Under the guidelines of Subchapter M of the IRC, a
REIT can avoid being taxed as a corporation by receiving 75% or more
of it's income from real estate and distributing 95% or more of it's
taxable income to the shareholders.
Because of the 1986 tax law changes REITs became more popular than
DPPs.
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