Episode 1 – How Should I Structure My Regulation D Syndication?

My name is Tilden Moschetti, and I’m the founder of Moschetti Syndication Law Group. I’m a syndication attorney, and we oftentimes get the question, “What is the best way to structure my Reg D offering?”

As a syndication attorney, one question I hear many times is, “What’s the best way for me to structure the entities for my syndication?” It’s a great question, and there is a best way to do it.

It all starts with the fact that it’s a syndication and an investment. I like to start thinking about it in terms of what people are going to be investing into. They’re investing into a company because it’s a syndication. That entity itself, I like to call the investment entity. It can be an LLC or a corporation. Talk to your accountant or your attorney about which is the best form and the best place to establish it. But that’s the investment entity.

Now, the investment entity doesn’t just run itself. The best practice isn’t to have just you be the CEO of that company. It is actually for the sponsor (you) to have an entity yourself. And that sponsor is the manager or the president of the company that has the controlling interest. So the investment entity is managed by the sponsor entity, which is a separate LLC or corporation, depending on which works best for your situation.

The manager then protects you from any liability. What do I mean by that? Let’s say an investor gets very upset about something. They file a claim against the investment entity, but they also file a claim against the sponsor. Now, if you were just you as a person as the sponsor, they could file a lawsuit against you personally, and all of your assets would be subject to whatever the decision was. However, if the manager of the investment entity is an entity itself, they can sue the investment entity and the sponsor entity. But unless there’s fraud, they’re not getting past the sponsor entity.

This structure shields you from those kinds of things happening; it’s a form of asset protection. It also makes the management much simpler as you go forward in case you need to make any changes with how you work as a sponsor. For example, if you have a group of people that are the sponsor, you can make changes amongst yourselves that don’t impact the investors. The investors don’t need to be privy to it because the entity is still the entity.

Now, one challenge which comes up sometimes is if you’re doing a fund, something that owns multiple entities. Then what I like to do is have the investment entity there, and the investment entity becomes a manager itself of the individual properties or companies or businesses or ventures. So each one of those (I’ll use properties as the example) become their own property LLC, which is managed by the investment entity, which of course is managed by the sponsor entity.

I know it sounds confusing once we get to the fund level, but it really does make sense and it protects everybody at every step of the way. So that’s the best way to structure your investments.

If you need some help with your syndication, be it for real estate, you’re an entrepreneur raising some capital for your business, or you’re putting together that new cryptocurrency hedge fund, give us a call. My name is Tilden Moschetti. I am a syndication attorney. Visit us online at www.moschettilaw.com, or if you need help just with your private placement memorandums, we’ve got you covered there too.