Georgia Blue Sky Laws for Syndication

Navigating the complex landscape of securities laws is essential for anyone involved in raising capital through real estate syndications or private equity investments. One critical aspect of this landscape is understanding how state-level regulations, commonly known as Blue Sky Laws, interact with federal securities regulations under Regulation D. For those operating in Georgia, being well-versed in the state’s specific Blue Sky Laws can significantly impact the success and legality of your capital-raising efforts.

This comprehensive guide will delve into the nuances of Georgia’s Blue Sky Laws, exploring their relationship with the SEC’s Regulation D, and providing detailed insights into the exemptions and procedures unique to Georgia. Whether you are a real estate developer planning a multifamily syndication in Atlanta, a business owner raising funds for a new venture, or a private equity fund manager structuring a complex investment vehicle, understanding these regulations is crucial.

We will also address practical questions that often arise, such as whether you need a Georgia-licensed attorney to put together your offering and the extent to which an out-of-state syndication attorney can assist with your purchase contracts. By the end of this article, you will have a clear understanding of how to navigate Georgia’s securities laws and make informed decisions to ensure compliance and maximize your fundraising potential.

How do a State’s Blue Sky Laws Relate to the SEC’s Regulation D?

Understanding the relationship between state Blue Sky Laws and the SEC’s Regulation D is essential for anyone involved in syndication, whether you are a real estate developer, private equity fund manager, or another professional seeking to raise capital.

Federal Preemption of State Laws

Under 15 U.S. Code § 77r(b)(4)(F), offerings made under Regulation D Rule 506(b) or Rule 506(c) are preempted from state Blue Sky Laws. This means that if you are conducting a syndication under these specific rules, you do not need to comply with the full range of state securities registration requirements. Instead, your primary regulatory compliance will be with federal securities laws as overseen by the SEC.

This preemption is particularly beneficial for syndicators as it simplifies the regulatory landscape, allowing them to focus on complying with a uniform set of federal requirements rather than navigating a patchwork of state regulations. It also makes raising capital across multiple states more feasible, as the same federal rules apply regardless of where your investors are located.

Intrastate Offerings

However, if an offering is conducted entirely within one state—meaning the sponsor, all investors, and the assets are all located within that state—the sponsor may choose to take advantage of the state’s Blue Sky Laws instead of Regulation D. This is known as an Intrastate offering.

Intrastate offerings can be an attractive option for sponsors who are focusing their fundraising efforts within a single state and wish to avoid federal registration requirements. Each state has its own set of Blue Sky Laws, which will govern the offering. While these laws can be stringent, they are sometimes more tailored to the specific needs and conditions of the local market.

Practical Implications for Syndicators

For most syndicators engaged in real estate syndication or private placements, utilizing Regulation D Rule 506(b) or Rule 506(c) is the preferred route due to the federal preemption of state laws, simplifying compliance and broadening the pool of potential investors. A private placement memorandum (PPM) is often used in these offerings to provide necessary disclosures to investors, ensuring transparency and regulatory compliance.

However, understanding the option of Intrastate offerings is crucial, especially for those who may find strategic value in limiting their fundraising efforts to a specific state. In such cases, working with a syndication attorney who is knowledgeable about the state’s Blue Sky Laws is advisable to ensure all local regulations are met.

In summary, while Regulation D Rule 506(b) and Rule 506(c) offerings benefit from federal preemption of state Blue Sky Laws, making them a streamlined choice for multi-state syndications, Intrastate offerings governed by state laws remain a viable alternative for localized capital raises. Always consider consulting with a syndication attorney to navigate these complex regulations effectively.

Why Would I Choose Regulation D Rule 506(b) or Rule 506(c) Over the State’s Blue Sky Laws?

When raising capital for syndication, one critical decision is whether to comply with federal Regulation D under Rule 506(b) or Rule 506(c) or to opt for your state’s Blue Sky Laws. While Intrastate offerings governed by Blue Sky Laws can be advantageous under certain conditions, choosing Regulation D often provides broader benefits and mitigates potential risks.

Broader Reach and Flexibility

One of the primary advantages of opting for Regulation D Rule 506(b) or Rule 506(c) is the ability to reach a wider pool of investors. If any investor or the sponsor is located outside of the state, the offering cannot be considered under the state’s Blue Sky Laws and must comply with federal regulations. Regulation D offerings are preempted from state Blue Sky Laws under 15 U.S. Code § 77r(b)(4)(F), allowing you to target investors nationwide without needing to navigate each state’s specific securities regulations.

Avoiding Intrastate Offering Risks

Choosing Regulation D also helps avoid the significant risk associated with Intrastate offerings. If an offering is mistakenly classified as Intrastate but an investor is later discovered to be domiciled outside of the state, the offering would no longer qualify under the state’s Blue Sky Laws. This discovery can create a serious securities law problem, potentially invalidating the offering and exposing the sponsor to regulatory action and legal liability.

For instance, imagine a scenario where a real estate syndication is conducted under the assumption that all investors are within Georgia, complying with Georgia’s Blue Sky Laws. If it is later discovered that one investor is actually domiciled in a neighboring state, the entire offering could be rendered non-compliant with both state and federal securities laws. This would not only jeopardize the capital raised but also expose the sponsor to significant legal and financial consequences.

Regulation D Rule 506(b) and Rule 506(c) Benefits

Both Rule 506(b) and Rule 506(c) of Regulation D offer clear advantages:

• Rule 506(b): Allows for an unlimited amount of capital to be raised from an unlimited number of accredited investors and up to 35 non-accredited investors, provided they are sophisticated. General solicitation is not allowed, maintaining privacy and exclusivity in the offering.
• Rule 506(c): Permits general solicitation and advertising, enabling sponsors to publicly market their offerings. All investors must be accredited, but this flexibility can significantly expand the reach of your capital raise.

In both cases, the use of a Private Placement Memorandum (PPM) ensures that all necessary disclosures are made to investors, providing transparency and regulatory compliance. Working with a syndication attorney to draft and review the PPM and other offering documents is crucial to ensure all federal requirements are met.

Choosing Regulation D Rule 506(b) or Rule 506(c) over state Blue Sky Laws provides a more secure, flexible, and expansive approach to raising capital. It mitigates the risks associated with Intrastate offerings, particularly the discovery of out-of-state investors, which can invalidate the offering. By leveraging federal preemption and the benefits of Regulation D, sponsors can confidently pursue their syndication goals with greater assurance of compliance and success.

What Are The Notification Rules and Terms For Notifying the State about a Regulation D Rule 506(b) or Rule 506(c) Offering?

When conducting a Regulation D offering under Rule 506(b) or Rule 506(c), it is essential to comply not only with federal requirements but also with state notification rules. Although these offerings are preempted from state Blue Sky Laws, states still require issuers to file a notice and pay a filing fee. Here’s what you need to know about notifying the state of Georgia regarding your Regulation D offering.

Filing Requirements

To ensure compliance with Georgia’s notification rules for Regulation D Rule 506(b) or Rule 506(c) offerings, issuers must file a notice with the state. This notification involves the submission of Form D, which is filed with the SEC and then copied to the state. The process is streamlined through the NASAA Electronic Filing Depository (EFD). Here’s a step-by-step guide to the process:

1. Prepare Form D: Complete Form D through the SEC’s EDGAR system. This form provides the SEC and state authorities with details about the offering, including the type of securities offered, information about the issuer, and the use of proceeds.
2. Submit to the SEC: File Form D electronically with the SEC. This filing must be done within 15 days of the first sale of securities in the offering.
3. Submit through NASAA EFD: Use the NASAA Electronic Filing Depository (EFD) to submit the necessary state notice. The EFD system simplifies the process of filing Form D with state securities regulators. Detailed instructions for using the EFD can be found on their FAQ page.

Filing Fee

Georgia imposes a fixed filing fee for submitting the notice of a Regulation D offering. The specifics are as follows:

• New Notice Filing Fee: $250
• Late Filing Fee: None (Georgia does not impose a late fee for late filings)

It’s important to note that while there is no late fee, timely filing is still crucial to maintain compliance and avoid potential scrutiny from regulatory authorities.

Practical Steps for Filing

1. File Form D with the SEC: Ensure that you file Form D with the SEC within the 15-day window post the first sale of securities.
2. Submit through NASAA EFD: After filing with the SEC, use the NASAA EFD system to submit the required notice to the Georgia Secretary of State. Pay the $250 filing fee through the EFD system.
3. Keep Records: Maintain detailed records of your filings, including copies of Form D and proof of payment for the state filing fee. These records will be essential in case of any audits or compliance checks.

Importance of Compliance

Adhering to these notification rules is critical for maintaining the validity of your Regulation D offering under Rule 506(b) or Rule 506(c). Failure to comply with state notification requirements, even in the absence of late fees, can lead to complications and potential challenges to the legitimacy of your offering.

By ensuring that you follow these steps and meet all notification requirements, you safeguard your offering and demonstrate a commitment to regulatory compliance, which can enhance investor confidence and the overall success of your syndication efforts. Working with a knowledgeable syndication attorney can help streamline this process and ensure all legal obligations are met accurately and timely.

In summary, while the federal preemption of Blue Sky Laws under Regulation D simplifies compliance, adhering to state notification rules and terms, such as those in Georgia, is a crucial step in the regulatory process for a successful offering.

What are Georgia’s Blue Sky Laws?

Georgia’s Blue Sky Laws are designed to regulate securities and protect investors from fraud. These laws cover various aspects of securities transactions, including exemptions from registration, registration by coordination, and unlawful practices in securities trading.

1. Exemptions from Registration (Georgia Code § 10-5-10):
   Certain securities, such as those issued by governmental entities and non-profit organizations, are exempt from registration under specific conditions, streamlining the regulatory process for high-quality, regulated securities.
2. Registration by Coordination (Georgia Code § 10-5-22):
   This provision allows securities with federal registration under the Securities Act of 1933 to be registered in Georgia simultaneously. It requires additional documentation, including the latest prospectus and corporate bylaws, ensuring comprehensive disclosure to state regulators.
3. Unlawful Practices in Securities Transactions (Georgia Code § 10-5-50):
   This section prohibits fraudulent activities in the offer, sale, or purchase of securities. It includes making false statements, omitting material facts, and engaging in deceitful acts, ensuring transparency and honesty in securities dealings.

These laws are part of Georgia’s efforts to protect investors and maintain fair and transparent securities markets.

GA ST § 10-5-10 Exempt securities

Georgia Code § 10-5-10 (2020) outlines specific exemptions from the registration requirements for securities. The exemptions include securities issued by governmental entities, certain banking institutions, insurance companies, and public utilities, among others. Additionally, it covers securities issued by non-profit organizations and cooperative memberships. The statute also specifies conditions under which these exemptions apply, ensuring that certain high-quality and regulated securities do not require registration.

GA ST § 10-5-22 Registration of securities; statement and records; effective date of registration

Georgia Code § 10-5-22 deals with the registration of securities by coordination. This provision allows a security, which has a registration statement filed under the Securities Act of 1933, to be registered in Georgia through a process known as coordination. This process requires the registration statement to include additional records such as the latest prospectus, articles of incorporation, bylaws, and any agreements with underwriters. The registration becomes effective concurrently with or after the federal registration, provided no stop order is in effect and the statement has been on file for at least 20 days. The registrant must notify the Commissioner when the federal registration becomes effective and include any price amendments. If these conditions are not met, the Commissioner has the authority to issue a stop order to delay or suspend the registration.

GA ST § 10-5-50 Fraudulent acts unlawful

Georgia Code § 10-5-50 (2010) outlines unlawful practices in the offer, sale, or purchase of securities. It prohibits employing any device or scheme to defraud, making untrue statements of material facts or omitting necessary information to prevent misleading statements, and engaging in any act that operates as a fraud or deceit upon another person. This section is designed to protect investors by ensuring transparency and honesty in securities transactions.

What are Georgia’s Securities Laws Exemptions?

When raising capital through securities offerings in Georgia, it’s essential to understand the exemptions available under the state’s securities laws. These exemptions can significantly simplify compliance requirements, making it easier to navigate the regulatory landscape. Below is an overview of the key exemptions outlined in Georgia Code Section 10-5-10.

Key Exemptions Under Georgia Law

Government Securities

• Securities issued, insured, or guaranteed by the United States, a state, or political subdivisions thereof. This includes public authorities, agencies, or instrumentalities of one or more states, as well as entities supervised by and acting as an instrumentality of the United States under congressional authority.

Foreign Government Securities

• Securities issued, insured, or guaranteed by a foreign government with which the United States maintains diplomatic relations, including their political subdivisions, provided these securities are recognized as valid obligations by the issuer, insurer, or guarantor.

Banking Institution Securities

• Securities issued by and representing an interest in or guaranteed by:
  • An international banking institution.
  • A banking institution organized under U.S. laws, member banks of the Federal Reserve System, or depository institutions whose deposits are insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Share Insurance Fund (NCUSIF).
  • Other depository institutions, unless restricted by the Commissioner under Code Section 10-5-13.

Insurance Company Securities

• Securities issued or guaranteed by insurance companies authorized to operate in Georgia.

Public Utility Securities

• Securities issued or guaranteed by railroads, other common carriers, public utilities, or public utility holding companies.

Federal Covered Securities

• Securities that are federally covered, which typically means they are registered with the SEC and thus preempt state-level registration requirements.

Nonprofit Organization Securities

• Securities issued by organizations operated exclusively for religious, educational, benevolent, fraternal, charitable, social, athletic, or reformatory purposes, or chambers of commerce, provided they are not for pecuniary profit.

Cooperative Securities

• Member or owner interests, retention certificates, or similar securities given in lieu of a cash patronage dividend issued by nonprofit membership cooperatives organized under state cooperative laws.

Equipment Trust Certificates

• Certificates with respect to equipment leased or conditionally sold to a person, if any securities issued by the person would be exempt under this section or classified as federal covered securities.

Practical Implications for Syndicators

For those involved in real estate syndication, private placements, or other forms of securities offerings, understanding these exemptions can help in structuring offerings to potentially fall under one of these categories, thereby simplifying the compliance process. While most syndications under Regulation D Rule 506(b) or Rule 506(c) are federally preempted from state Blue Sky Laws, knowing the state exemptions can provide additional layers of regulatory strategy.

Role of Syndication Attorneys

Navigating these exemptions requires a detailed understanding of both federal and state securities laws. A syndication attorney can provide invaluable assistance in determining which exemptions may apply to a specific offering, ensuring that all legal requirements are met, and advising on the preparation of a private placement memorandum (PPM) to provide necessary disclosures to investors.

In summary, Georgia’s securities laws offer several exemptions that can simplify compliance for various types of securities offerings. Understanding and utilizing these exemptions effectively can reduce regulatory burdens and facilitate smoother capital raising processes.

What are Georgia’s Procedures for Securities Law Exemptions?

Understanding Georgia’s procedures for securities law exemptions is crucial for ensuring compliance and streamlining the process of raising capital. Here’s a comprehensive overview of the steps and considerations involved in navigating these exemptions.

Identifying Applicable Exemptions

The first step in the process is to determine which, if any, of Georgia’s securities law exemptions apply to your offering. As outlined in Georgia Code Section 10-5-10, several categories of securities are exempt from registration requirements, including government securities, securities issued by banks and insurance companies, and nonprofit organization securities, among others.

Documentation and Recordkeeping

Even if an offering is exempt from registration, it is important to maintain thorough documentation. This includes:

• Detailed Description: A comprehensive description of the security being offered.
• Eligibility Evidence: Documentation demonstrating that the security qualifies for the specific exemption claimed.
• Investor Information: Records of all investors and the details of their investments.
• Compliance Records: Any correspondence or filings made in relation to the exemption.

Filing Requirements

For certain exemptions, issuers may still need to file a notice with the Georgia Secretary of State. This is especially relevant for federal covered securities, where a notice filing is often required even though the securities themselves are exempt from state registration.

1. Prepare Necessary Forms: Depending on the exemption, specific forms may be required. For federal covered securities, this typically involves filing Form D with the SEC and providing a copy to the state.
2. Use the NASAA Electronic Filing Depository (EFD): For filings required under Georgia law, issuers can use the NASAA EFD system to streamline the submission process. The EFD allows for the electronic submission of Form D and any related fees.
3. Pay Filing Fees: Ensure that any required fees are paid. For instance, the filing fee for notice of a Regulation D offering in Georgia is $250.

Ongoing Compliance

Maintaining compliance doesn’t end with the initial filing. It’s crucial to keep accurate records and remain vigilant about ongoing obligations, which may include:

• Annual Reports: Depending on the nature of the exemption, there may be ongoing reporting requirements.
• Investor Communication: Keeping investors informed with regular updates and reports as stipulated by securities laws or as best practices.
• Audits and Reviews: Being prepared for potential audits or reviews by state regulators by keeping detailed and organized records.

Legal Assistance

Given the complexities of securities law, working with a knowledgeable syndication attorney is highly advisable. An attorney can help:

• Evaluate Eligibility: Assess which exemptions apply to your offering.
• Prepare Documentation: Ensure all necessary documents and forms are properly prepared and submitted.
• Maintain Compliance: Advise on ongoing compliance requirements and best practices for recordkeeping and reporting.

Navigating Georgia’s procedures for securities law exemptions involves careful planning, thorough documentation, and an understanding of the applicable regulations. By leveraging available exemptions and following the correct procedures, issuers can efficiently raise capital while remaining compliant with state and federal laws. Consulting with a syndication attorney can further streamline this process, providing peace of mind and ensuring all legal requirements are met.

Frequently Asked Questions

Do I Need an Attorney from Georgia to Put Together an Offering?

The necessity of having an attorney licensed in Georgia to put together a securities offering largely depends on the specifics of the offering and the applicable laws. If your offering falls under Regulation D and does not require adherence to Georgia-specific Blue Sky Laws, you may not need a Georgia-licensed attorney.

For instance, suppose you are a real estate syndicator seeking to put together a private placement memorandum (PPM) for a multifamily deal in Atlanta, Georgia. If this offering is intended to attract investors from multiple states and is structured under Regulation D Rule 506(b) or Rule 506(c), a syndication attorney licensed in another state could likely handle the bulk of the work. This attorney could draft the PPM, create the entity, and prepare the operating agreement. However, their advice would be limited to federal securities laws and the laws of their licensed state. They would not be able to provide legal counsel specifically on Georgia’s state laws and how they might affect your offering.

On the other hand, if your offering is more localized, such as a private placement memorandum for a development project in Columbus, Georgia, with all investors being Georgia residents, and you plan to rely on one of Georgia’s Blue Sky Laws for an exemption from registration, it is crucial to engage an attorney licensed in Georgia. This is because the offering will need to comply with state-specific regulations, and an attorney well-versed in Georgia’s securities laws will ensure that you meet all local legal requirements and properly navigate the state’s regulatory landscape.

In summary, while a non-Georgia licensed syndication attorney can manage offerings under Regulation D that do not hinge on state-specific laws, any offering relying on Georgia’s Blue Sky Laws or targeting exclusively Georgia-based investors should be handled by a Georgia-licensed attorney. This approach ensures comprehensive legal compliance and mitigates potential risks associated with misunderstanding or misapplying state-specific regulations.

Is it Okay if the Real Estate Syndication Attorney, Licensed Outside of Georgia, Looks Over My Purchase Contract?

While a real estate syndication attorney licensed outside of Georgia can review your purchase contract, their ability to provide specific legal advice related to Georgia law is limited. For example, Tilden Moschetti, Esq., a syndication attorney with the Moschetti Syndication Law Group, is able to review your contract for a property in Augusta, Georgia. However, he will be clear that his input is confined to business consulting advice, such as discussing price and broad deal points like the length of time until closing.

This means that while he can offer valuable insights on general aspects of the contract and provide strategic business advice, he cannot offer legal advice on specific terms of the contract that pertain to Georgia law. For instance, if there are particular clauses in the purchase contract that are governed by Georgia’s legal statutes, only an attorney licensed in Georgia would be able to provide accurate and legally sound advice on those matters.

In summary, while an out-of-state syndication attorney can provide a helpful review and business-related input on your purchase contract, any legal advice related to Georgia-specific terms should be sought from an attorney licensed to practice in Georgia. This ensures that you receive accurate legal guidance and remain compliant with all relevant state laws.