Possible for C-Corp to invest in LLC syndication?

Question

One of my friends is wanting to use his C-corp entity to invest passively into a multifamily syndication LLC. He is the only share holder and there will never be any external partners. Is this possible and if so, are there a lot of paperwork involved?

Kim Lisa Taylor · Answer

@Alina Trigub is right. There is no restriction from the Syndication side as to what kind of entity can invest in it, as long as it meets the qualifications for the offering. If the offering is only open to accredited investors under Regulation D, Rule 506(c), then per 17 Code of Federal Regulations Section 230.501(a)(8), all of the equity owners in the entity must be accredited investors. If the offering is open to accredited and unaccredited, but sophisticated investors under Regulation D, Rule 506(b), then he would not have to be accredited as long as he would qualify as a "sophisticated" investor, which is a subjective determination based on such things as past investing or work experience, or education.

As others have pointed out, however, the real question is whether it makes sense from a tax perspective, which is a question best asked of a CPA.

Jeff Kehl · Answer

@Tony Lin A C-corp is a legal entity just like an LLC or a person so sure they could. But as others have posted, why would you want to? Better to just setup a new LLC or invest directly.

Steve Vaughan · Answer

I'm sure it's possible, but why?  C-corps are taxed on income earned, then again on distributions and there isn't SE income tax with RE anyway. Corps help limit SE income. But at least he'll be taxed twice and may not be able to take depreciation.

I do LLCs for passive real estate commercial holdings, corps for actively earned income that owns nothing but helps me limit SE income.

Seek the advice of a RE-focused tax pro always.

Tony Lin · Answer

Thanks for the advice here. I've informed him of the possibility of double taxation and to check with his CPA. He decided to move forward with cash instead.

Alina Trigub · Answer

@Tony Lin An entity may be able to invest in syndication. But I believe depending on the entity type it has to either satisfy the entity financial pre-reqs or each member of the company has to be accredited. I'm not saying it is either or. I'm saying it depends on the entity type as to which requirement they have to qualify for. Check with a syndication attorney.

Basit Siddiqi · Answer

@Tony LinThere are reasons for setting an entity as a C-corp. However, your friend should seek out a CPA/Accountant to see if it makes sense in his case.Regardless of the case - the syndication may request to see that your friend qualifies to invest in the syndication.There may be asset/income tests to pass before he can be qualified to invest in their fund.

Possible for C-Corp to invest in LLC syndication?

Most Popular Reply