top of page

Do You Need 100 Shareholders for a Private REIT? (Google Says Yes, but What Does the Law Say?)

3 days ago4 min read

When structuring a Real Estate Investment Trust (REIT), one of the most common misconceptions is that all REITs require at least 100 shareholders to qualify for favorable tax treatment. A quick Google search might tell you that this is a requirement, but what does the law actually say?


Breaking Down the 100-Shareholder Myth

The 100-shareholder rule comes from IRC Section 856(a)(5), which states that, for a corporation to qualify as a REIT, it must be beneficially owned by at least 100 persons during at least 335 days of a taxable year (except for the first taxable year).


However, this requirement only applies to REITs seeking to be classified as such for federal tax purposes under the Internal Revenue Code (IRC). If a REIT is privately held and does not elect to be taxed as a REIT, then it does not need to meet this requirement.

What the Law Actually Says

A privately held REIT that does not elect REIT tax treatment under IRS Section 856 can still operate as a corporation without the 100-shareholder rule.


Case Law & IRS Guidance Supporting This

  1. PLR 200813005 (Private Letter Ruling) – The IRS confirmed that a corporation structured as a REIT that does not elect to be treated as a REIT for tax purposes is not subject to the 100-shareholder requirement.

  2. GCM 38718 (General Counsel Memorandum, 1981) – Clarified that a company failing to meet REIT qualification defaults to being taxed as a C-Corporation, meaning the REIT rules, including the 100-shareholder requirement, do not apply.

  3. Snow v. Commissioner, 97 T.C. 14 (1991) – This case emphasized that corporations electing REIT status must meet statutory requirements, but those choosing not to elect REIT status are treated under general corporate tax rules.

  4. IRS Treasury Regulations 1.856-1(a) – The regulations specifically state that entities must meet all REIT qualifications to receive REIT tax treatment. Failing to do so results in default C-Corp taxation.


Strategic Approach: How to Use a Private REIT to Your Advantage

While you do not need 100 shareholders for a private REIT and case law confirms that it is not required, there is a deeper strategic advantage to structuring your REIT correctly.


A REIT is required to distribute 90% of its taxable income to shareholders in the form of dividends. The underlying strategy is this:


  • Until you reach 100 shareholders, you should still purchase all real estate through the REIT, even if it is privately held.

  • You make your Wyoming Holding Company the majority shareholder of the REIT.

  • The REIT then distributes money to the holding company, but here’s where the strategy goes deeper.


The Corporate Taxation Strategy

Remember, a corporation is required to pay all of its expenses first before paying taxes. If, and only if, there is money left over, the corporation pays taxes on what remains.


This is where the Stripe strategy I teach comes into play: one company invoices another company to manage taxation and cash flow efficiently. Here’s how it applies to a private REIT:


  • Your Wyoming Holding Company can invoice your REIT for management fees (e.g., $100K, $20K, or whatever makes sense) every year as a "holding fee."

  • The REIT must pay that bill before calculating taxable income.

  • If the REIT has no taxable income left after expenses, then no taxes are owed.

  • The holding company sits in Wyoming, where there is no corporate income tax, allowing profits to accumulate tax-free at the state level.


Why Structure Matters More Than Taxation

We open companies for their structure first, not just their tax benefits. The entire purpose of a REIT is to ensure that a property management company owns the properties—not you personally. This protects assets, separates liabilities, and creates a scalable business model.


Scaling Up: The 100-Shareholder Strategy for Growth

As your business grows and you open more companies, you can ultimately use the 100-shareholder strategy to unlock additional tax benefits and capital-raising opportunities. It is all about structuring your business for long-term success, and the Legacy Builder package provides you with the right foundation to do exactly that.


Final Thoughts

If you are a private investor holding real estate in a corporation structured as a REIT but not electing REIT tax treatment, you do not need 100 shareholders. However, using a Wyoming Holding Company as the majority shareholder allows you to manage distributions efficiently, minimize taxable income, and retain control over your real estate investments.


This is all about strategies. Every piece of your business structure should work together to protect your assets, maximize profitability, and create a lasting legacy.


For professional guidance on structuring your REIT correctly, reach out to MAC Enterprise Consulting today.


DO NOT RELY ON GOOGLE ALONE for answers when Google does NOT know YOUR strategy, intention, and overall game plan. We open companies and structure them first... We use tax strategy and planning to remove taxes. Remember... you still have retained earnings, donations to non-profits, etc. There are tons of strategies... so no,


YOU DO NOT need 100 shareholders for a private REIT.


Sources:



 
 

Comments

bottom of page