Summary Of Corporate Forms A summary of the tax characteristics of different corporate forms.

Domestic International Sales Corporation The DISC was used in conjunction with Foreign Sales Corporations, but has been reborn following 2003 legislation.

Limited Partnership Limited Partnerships are often used for investment-holding purposes, and have 'pass-through' status for domestic partners.

Limited Partnership

In a Limited Partnership, one or more ‘general' partners manage the business while 'limited' partners contribute capital and share in the profits but take no part in running the business. General partners remain personally liable for partnership debts while limited partners incur no liability with respect to partnership obligations beyond their capital contributions.

The Limited Partnership has been very widely used for investment purposes. In the last 30 years, most major financial companies have used the LP form to channel private capital into real estate, oil and gas and mezzanine financing. These LPs are normally structured to be long-term investments (typically 10 to 15 years with extension rights at the partnership's option) and do not make any liquidity provision to cover the eventuality that the investor decides to sell their partnership interest prior to the termination of the LP.

Normally, death, disability, or withdrawal of a general partner dissolves the partnership unless the partnership agreement provides otherwise or all partners agree, in writing, to substitute a general partner. Death or incompetence of a Limited Partner has no effect on the partnership.

The Family Limited Partnership (FLP), which is simply a Limited Partnership used by one family, has become the leading form for asset protection and estate planning in the US. But there are some legal dangers in many states, where a creditor is permitted to “foreclose” on a partnership or LLC interest. A 'foreclosure' is a seizure of the debtor’s interest and that is a very powerful weapon for the plaintiff. Thus, an asset protection structure using an FLP must also protect ownership interests with a trust.

In May, 2005, the US Treasury and the Internal Revenue Service finalized regulations on the tax withholding obligations of US partnerships that include foreign partners.

Foreign individuals were subject to US tax for income from doing business in the US, in addition to income earned in the US through a partnership. To ensure the tax gets collected the IRS requires that partnerships withhold tax on behalf of the foreign partner.

The final rules, first proposed in September 2003, provided guidance on how to determine a foreign partner's share of partnership income and to calculate withholding tax and payment dates. The matters of interest, penalties and extra taxes for failure to comply with the regulations were also addressed.

In addition, the Treasury also issued related proposed and temporary rules covering certain tax and non-tax attributes of a foreign partner for purposes of determining tax withholding obligations.

Summary Of Corporate Forms A summary of the tax characteristics of different corporate forms.

Domestic International Sales Corporation The DISC was used in conjunction with Foreign Sales Corporations, but has been reborn following 2003 legislation.

Limited Partnership Limited Partnerships are often used for investment-holding purposes, and have 'pass-through' status for domestic partners.