One of the phrases I often use to describe the number of choices that you have for exemptions from registration under the SEC rules is an alphabet soup, because you have a huge number of choices, and they all are just letters and numbers. In this video today, we’re going to go through what those choices are and how you choose from a pretty high level. But it should give you a guideline to start from.
When I needed to put a syndication together as my very first one, I was a real estate attorney. I hadn’t done a syndication yet my knew vaguely what it was, but I never under never looked into exactly how I’d put one together. Suddenly, a deal came to me and I needed to suddenly make sense of what I called the alphabet soup. Because there were all these different numbers 506b, 506c, Regulation A, Regulation CF? And how do they all fit together? Well, in this video, we’re gonna go through what they basically are and sort of how you choose. So this video isn’t going to go into the specifics of them. But it’s going to offer you a sort of a flowchart, if you will, on making that decision. So in order to do that, let’s actually draw out a flowchart that can help you make that decision. So we start at the start, right? So we have, we have to start somewhere. So the first question that you may want to ask yourself is, do I need to advertise? Where are you going to be getting your investors from? Is it people that you already know? Or is it people that you don’t know? And you need to advertise to them? That is a major key question. To answer. Do we need to advertise? If the answer is yes, it takes us down one path? If the answer is no, it takes us down another path. So if the answer is let’s say, we know the answer is no, you want to do this just with some family and friends. But you still want to put together a syndication in the right way and not commit a securities violation by not doing it right. Then we then you have to ask yourself, then, do you want non accredited investors?
Do you want to have be able to have non accredited investors? If the answer is yes, then you have then you have two choices. You can choose Regulation D Rule 504. However, 504 is actually a very complicated exemption, under Regulation D Rule 504. The you basically need to go through each state from where your investors are coming from, and analyze the deal under each state specific security laws, their blue sky laws to see if it complies with that. And then you have to do an analysis to make sure that that the whole deal applies to across the board. Your other option is Reg DRule 506b, (B, like boy) under Reg D Rule 506 B, you can definitely take non accredited investors. But you can all you’re limited to only 35 non accredited investors in any 90 day period. So if you need to do more than 35 in a 90 day period, so you’re doing a pretty large raise. And you don’t need to advertise, maybe you would, but you have to have non accredited investors, you would probably choose rule 504. But if you don’t need to advertise and you want and 35 non accredited investors in any 90 day period is acceptable. Definitely Regulation D Rule 506b. Many, many, many of my clients more than half of my clients do it under 506b. If you do have to advertise however that immediate At least gets rid of rule 506b. It’s not even an option. Because you have to add if if you’re going to make a general solicitation to the world, then it needs to go out to the public. So if the answer is yes, that you do need to advertise, suddenly, then now we need to ask again the question. Do you want non accredited investors?
Right? If you don’t want non accredited investors, or you can live without them, then the easy answer is Reg D Rule 506c. Under Reg D Rule 506c, you can raise an unlimited amount of money from an unlimited number of accredited investors, you just have to go through an independent verification that they are in fact, accredited investors. But this is probably your least complex and most cost effective for you route to go. If you do need to have however, non accredited investors and advertise, you only have you only have two options. And then we asked ourselves this question. And assuming that the money works, because under Reg CF, there’s only $5 million that you can raise under Reg CF. A Reg A you can raise up to 50 million with different tiers, of course, but they’re vastly different in terms of complexity, regulation, A is very complex to do. It’s very expensive to do, because basically you can think of it as a mini IPO. Right? So but if I if you need to advertise, and you need to have non-accredited investors, you could. The other question that you ask yourself is, is it okay? That it only goes through an SEC-approved portal, if all the traffic only goes through that SEC portal which will put its own fees on top of it, and have control over all of those investors. So if you’re okay with that, and the fees, then you may want to consider Regulation CF. A lot of people come to me originally thinking that Regulation CF was going to be the easy way it was going to be the cheap way. Because basically they could re-advertise and do it with non-accredited investors. It’s not the cheap way. So Regulation CF, many times the fees are in excess of 10%, which vastly hurts those returns that you’re trying to get your investors. Not only that everything has to go through that registered portal. And the cost of doing filing the form CF which is required to do it, to have an attorney prepare it most of the time costs somewhere around $10,000 or more. So Reg CF offering oftentimes just doesn’t work because they’re charging, still this, you know, similar fees to doing a Regulation D offering. But then also you’ve got this 10% portal fee and it just kind of knocks it out of the running as a possibility. If they are not okay with doing it through an SEC portal, then you want your only option then is Reg A. So right under Regulation A you it’s can be considered a mini IPO. Now this is also kind of like a registered registration that takes place. Because a package is put together typically by an attorney, because it’s a very complex document given to the FCC who reviews it and make sure it’s up to their standards. And in part of that review, there’s a lot of going back and forth. Now fees in general that attorneys charge for this can be around $60,000 or more when they put it together. Plus there needs to most of the time be audited financials that are also part of that package. In the total bill that I’ve heard that most people are paying for regulation, a product is over well over 100,000, somewhere around the 100 to 150,000. Plus it takes at least six months in order to get through the process in order to be able to start your project, which probably kills it for almost everybody certainly in real estate, where time is of the essence and we need to do things quick clay, most of the time Regulation A is not a is not the best. In my opinion, Regulation D Rule 506b and 506c, certainly offered the most opportunity and the fastest results at a good price for syndicators putting together a fun for them. And that’s why we specialize just in Regulation D, because it’s, it’s an answer that we can do very quickly get them the results that they want fast, and then they can keep growing from there. There’s nothing to say that you can’t do a Regulation D Rule 506 C offering, at the same time be putting together a Regulation A offering, if that’s the direction you want to go, you certainly can do that. So while that time is tolling, you’re still gathering investors and putting together your fun. So I hope that helps you choose which pathway makes the most sense to you. If you’d like to talk more about how you would do a Regulation D Rule 506b or 506c offering or you have something already that in the works, where that is definitely the right choice for you. Feel free to give us a call and we can talk about your specific situation and make a plan to get you from where you are today to where you want to go in the next six months, three years, whatever your horizon is.
Podcast - Episode 30
Video - Episode 29
Transcript - Episode 29
Podcast - Episode 29
Video - Episode 29
Transcript - Episode 29
My name is Tilden Moschetti. I’m a syndication attorney with the Moschetti syndication Law Group. We specialize in helping syndicators and put together funds and syndications using Regulation D Rule 506b, and 506c. In today’s video, we’re going to take a deep dive into what I call the alphabet soup, go through the different regulations that have exemptions from registration with the SEC. So that way, it’s clear what your options are, when it comes to it. It’s not just about Regulation D, there’s also Regulation A and Regulation CF. And we’re going to see how everything fits in.
When I came into the world of syndication, I had been a real estate attorney for about 9 or 10 years. And a deal came in my lap, a partner asked me to look at a deal and said, you know, is this a deal that we should Syndicate, I had to look into it. And it sounded like a good deal. To me the property was fantastic. And it definitely knew we could make money on it. I just needed to figure out exactly how to get it done. I had heard of real estate syndication before, never put one together. And as I began to rent my research, there was a mountain of soup, right? So I had this great idea, I wanted to go and build this great thing, it was gonna make me a lot of money, make my partner’s a lot of money, make my investors a lot of money. But I was stuck. Because, boy, there were all these different letters and numbers. And I couldn’t figure out which way it was which, right. So here I was pored through books, tried to figure it all out. And it just never kind of made sense, kept research and kept research answers me as a lawyer researching trying to figure it all out. And it wasn’t until I came up with the whole framework and put it all into context, that things started to make sense for me. But now I’m gonna take advantage of the knowledge that I have now and hopefully make it much easier for you and make it very clear on what the different exemptions are. So to do that, let us open up PowerPoint. So we’re gonna start with Regulation A now regulation eight has two tiers. The Tier one is the simpler of the tiers. And then tier two is more complex. So it’s, it’s more expensive to put together. Now Regulation A is oftentimes very expensive. It takes a long time, because it actually gets sent with the SEC. We’ll go over all that in just a minute. So Regulation A tier one, how much money can be raised with that with regulation, a tier one where we can raise up to $20 million? Can we accept non accredited investors? Absolutely. Can it’s already been looked at by the SEC, and you can take non accredited investors. Now, do we have to make regular disclosures? Absolutely. Now, first, we find in order to do a reggae, we need to file Form One A, and it’s reviewed by the SEC before you can accept money, you can start marketing it but you cannot accept money until it’s been approved by the SEC. Can we advertise definitely can advertise, can put a billboard as soon as you file that form one A, you just cannot touch anybody’s money until it is until it’s been approved by the SEC. So that’s reg a form one, well, you want to raise more than 20 million if you’re going through this all this process to raise the money, you know, maybe you want to raise even more than 20 million. So that leads us to reg a tier two, which has a much higher limit. So $50 million. Can we raise money from non accredited investors? Absolutely, we can. Very similar, we still need to do our disclosures as part of form one A and now the scrutiny from the SEC is going to be much higher because the dollar amount is higher. So the kinds of questions you’re gonna have are certainly stronger the amount of audited financials are certainly a higher bar, because we’ve got a much bigger dollar amount. And can we advertise? Yes, you can advertise typical turnaround time for putting together a reg a offering is about six to nine months. In terms of fees. Most attorneys charge at least 60,000 up to $100,000. Typically to put together a reg a offering certainly in the A tier two being on the higher end and tier one being on the lower end. It takes a long time. There needs to be audited financials as well. So you’d have to hire an accounting team that could do those prepare those audited financials for you as well. What about Reg CF, you say I have a lot of people who asked me about Reg CF. Now Reg CF, you can raise up to $5 million. So that sounds pretty good so far, doesn’t it. So up to 5 million that could certainly cover some different real estate assets or things like that, it used to be that you could only raise $1 million with Reg CF. Fortunately, they raise that level, so it’s a little bit more useful now. Now you can accept non accredited investors using a Reg CF. So that’s pretty swell. And there are still some disclosures that must be made. Of course, now that the advertising for Reg CF, that’s where it kind of becomes like “ahh… I don’t know”. And that’s because all offerings must be made through an SEC approved platform, or a broker dealer. And so the SEC and FINRA have to approve that platform. It’s a third party that’s doing all of the management and all of the control of the investors. They also charge fees for that, from what I hear most of the time, those fees are around 10%. So that’s greatly reducing the amount of those returns that your investors are getting, if 10% is immediately flying out the door to the, to the syndications to the portals anyway. So that’s Regulation CF. Now, Regulation D Rule 504. This used to be the big dog. So this used to be the heavyweight champ in the Regulation D world. But it’s not anymore. And we’ll talk about why in a minute. So you can raise up to $10 million. under Regulation D Rule 504. You can occasionally accept non accredited investors, the rules fall under the rules of the states in which your investors are coming from. And that’s where things start getting really complicated. Because when you do a Reg D Rule 504 offering, every state’s local blue sky laws must be analyzed to see if it fits. That adds up to attorney fees greatly. Because now attorneys, a whole squad of them needs to be looking at every state’s local rules to try and figure out exactly is your offering compliant or not. Do you need to make regular disclosures? No, but with an Astra get less it’s required by those local states, then you certainly do. And then is there advertising allowed? No. And I put them down here this note as well, that you actually can advertise if it’s within a state that allows it and typically that will require substantial disclosure documents as well. Rule 504 is out of fashion just because it’s very expensive and complicated to put together. Because you have all the states looking at the local rules enter into the world of 506b. 506b is probably represented somewhere around 50 to 60% of the clients we represent do 506b offerings. It is a terrific platform, it is very efficient, you can raise an unlimited amount of money, you can raise $1, or you could raise $1 trillion under Rule 506b and it’s cousin 506 seat. So no limits on how much money you can raise. Under 506b though you can only have non accredited investors, you cannot have more than 35 in any 90 day period. And they also must be considered sophisticated. The bar for sophisticated is fairly low. I have other videos that talk about that. Under Rule 506b, you will still need to make disclosures. This is your private placement memorandum. This is the main document that my law firm helps you put together because that there you need to make substantial disclosures about what you’re doing, what the risk factors are, it is required if you’re doing a securities offering that your investors know what they are getting into. It is held to a high standard. I have other videos here that talk about what those different standards are and how there is no such thing as a true friends and family syndication where you don’t need to do a ppm or where it’s kind of irrelevant to file a Form D that’s not the case. So 506b, you do need to make those disclosures. Can you advertise? No, that’s the downside of rule 506b, there is no general solicitation of investors. You cannot put it on Facebook and invite the world to come invest in your syndication. Rule 506c. On the other hand, let’s talk about that. You can also raise an unlimited that amount of money, you can raise $1 or $1 trillion. And if you are able to raise $1 trillion, I’ve got a job for you because I’d love you to help raise money with me. Come be my partner. That’s a lot of money. Rule 506c, non accredited investors No. So all accredited investors should be verified by a third party as being non accredited. I mean, as being accredited investors, you need to take reasonable steps in order to make sure that everybody is accredited. Most of the time, that means hiring a third party.
In terms of disclosures that are made, the answer is no with an asterix. I have never run across a single entity that’s been sophisticated. That’s put together a Reg 506c offering that has not made substantial disclosures that has not put together a private placement memorandum because why would you skip that? That is your insurance. It putting together a PPM is almost always paid for you’re paid for by the investors anyway. And it’s your insurance that nobody can come back to you and say, Oh, well, I would have invested I would never have invested in it. If you had told me blank. The PPM tells them everything they need to know makes all those risk disclosures, all the conflicts of interest, all the disclosures you need to make so that those investors cannot ever say, Well, you never told me so I get my money back. So rule, can you do advertising? Yes, you can advertise to your heart’s content. You can advertise on TV, radio, put a billboard out on the internet, whatever you want, you can advertise it, you just need to make sure before you accept their money, that you’ve made sure that they are an accredited investor. So hope that helps. This is Regulation D Rule 506c. Regulation D Rule 506b is the other one of the rules under Regulation D that my firm specializes in. If we can help you put your syndication together we’d be happy to do so. We would welcome a call from you to put together a consultation. See if there’s a good fit, and we can go from there. My name is Tilden Moschetti. Moschetti Syndication Law Group.
Podcast - Episode 29
Video - Episode 28
Transcript - Episode 28
Podcast - Episode 28
Video - Episode 28
Transcript - Episode 28
LLC, S Corps, C Corps… what kind of structure should you choose for your syndication? My name is Tilden Moschetti. I am a syndication attorney with the Moschetti Syndication Law Group. Today we’re going to go through the different kinds of choices that you have and explain what the options are and why you should choose one over the other.
Very common question is what exactly kind of structure or legal entity structure should I choose LLC, LP, et cetera, for my syndication. So we’re gonna go through the different choices that you have here, one to me stands out as the front runner for almost every situation. We’ll go through why and explain why the LLC is probably your best pick, but we’re gonna take a step back, and we’re gonna go in with fresh eyes. So let’s open up a whiteboard here. And let’s take a deep dive into these different kinds of options that you have. So we’ve got, let’s talk about what the choices are. We’ve got sole proprietorship, we’ve got partnership. We’ve got LLPs, LLCs. And corporations. Now why have I put S corp on here, too? Good question. S Corp is a tax filing status. It isn’t an actual entity status in and of itself. So we’ll talk about what that means in just a minute. So let’s see if we’re getting shrink fat. All right, here we go. So these are the main kinds of choices that you have. Now, one of the main questions is the where we start is how many people are we going are we talking about? Because that could rule some out immediately how many people are in charge of this and can become members? So number of people? Well, clearly a sole proprietor is just one person. So a sole proprietorship is one person, if you have no filings were made, you have a sole proprietorship. Now, if you have more than one person, and you’d never made a filing with your state, then you have a partnership, a general partnership. Typically, you’ll have a general partnership agreement, but anytime more than one person comes together, and does basically to do something in this kind of structure in a business-type structure. And then it’s a partnership. But that isn’t the only kind of partnership that there is, there’s also what’s called the limited liability partnership, or an LLP, or an LP for limited partnership, very similar structures. The only difference between them is an LLP has a little bit more asset protection on its layer than typical LP amongst all levels. So the GP also has limited liability on the LLP. Part of it. So an LLP is two or more people, our members are a part of that organization. An LLC can also be two or more. Actually, no. An LLC can be one or more, right, so you may have a single-member LLC, which is just acting as a pass-through entity for that person. And then you also have a corporation, which also really only needs one person as well. It may require officers but it only needs one shareholder. So let’s talk about asset protection. That’s another major part of why you may choose one over another. a sole proprietor has none there is no asset protection as part of a sole proprietorship. There is also no there is basically no asset protection for a general partnership for general partners, and there might be a little for LP for a limited partners. And depending on how you were to set up that partnership itself. For LLPs, there is some protection for GPS and then there is good protection For LPs, for limited partners, for LLCs, there is just across-the-board, pretty good asset protection, both for the who people who are basically acting as limited partners. And for people who are in charge of it for the managers have good asset protection as well. For Corporations as well, there is also good asset protection. So in terms of asset protections, we’re probably thinking LLCs, or corporations are our best bet. In terms of any structure, there’s always going to be some level of maintenance and some sort of governance that is required. So let’s talk about the differences there.
For sole proprietorship, super easy, super easy, very little to do, you may have a DBA, that you need to file with a county or some other kind of city or something like that changes state by state. For a partnership, it’s also pretty easy, you should have at least a partnership agreement. So there is that level of maintenance and governance that you have to have. You don’t have to have that you should have. For an LLP. It’s easy to moderate depending on how it’s filed and how its formed. So typically, you’ll file an LLP with the state. And it’s fairly simple to do, there may be annual filings that need to take place with the state, sort of annual reports. LLC is also easy to moderate. Typically, there will be just again, have an annual filing with the state to let the state know what’s going on. There may also be some officers that are appointed or things like that in the sub, there may be some sort of maintenance at your choosing and governance that you’re choosing to make it more complicated, but to make things run smoother. Corporations on the other hand are complex. There needs to be minutes taken annual meetings as well as annual filings. The last topic in making the choice is taxes. So in taxes for a sole proprietor, we’re just looking at individual tax returns. It sole proprietor is reported on your 1040. It’s just part of part of the business itself. A partnership has a partnership return. And it’s taxed as a partnership. An LLP is also taxed as a partnership. Now LLCs, on the other hand are an interesting because you have a choice, you can choose to either be taxed as a as a partnership, or you can be taxed as an S Corp. S Corps are limited to 100 members. So if you were to choose an S corp, you could only have 100 different members in there. And in Corp, you have a choice as well you could choose to be taxed as an S corp. Or you could be taxed as a C Corp. In general, in a syndication where you’re not going to have a huge number thing of things and you’re not looking at going public it may be it’s a real estate syndication where you’re looking to to put together something that has maybe 50 or 60 different investors and into one simple project. And that project goes away over a finite period of time. LLC is almost always going to be your choice. Well what about LPS you may ask because it’s a it is an also a choice. LLP is in my opinion have gone kind of out of favor or limited partnerships. LPS have gone out of favor in doing syndications and funds, we still use them in a very separate kind of context. We still use them for setting up a very kind of different kinds of instruments that are syndications and funds but for the vast majority of people LLCs is the right choice. Now why is that? Well, mostly investors have demanded that they have a little bit more seat at the table, which is what they get as part of a member of membership in an LLC. Corporations are probably not going to be the main choice unless you’re either looking Ain’t going public. Like if you’re building a return you’re going or you want to set up as a read, you’re starting as fun. But your eye is to going public, you’re probably going to choose a corporation. If you’re also if you’re an existing business, and you’re going on thinking that, well, we may want to go public as well, you may want to do it as a business. Now that said, talk to your accountant to make sure that you are tax attorney and make sure you understand the different kinds of things between a partnership, an S corp, and a C Corp because what I’ve given you here is just a very broad overview of what those different tax structures are. And they can speak more readily to your specific situation. Certainly take their advice over just something you hear in a video. So those are the main types of structures that you’d have almost always we’re talking about limited liability companies, formed in whatever state is appropriate top find out exactly which state is appropriate. Again, you’d want to talk with an attorney or tax attorney and really kind of delve in which state makes the most sense for your particular situation. So hope that helps. My name is Tilden Moschetti. I am a syndication attorney for the Moschetti Syndication Law Group. We help syndicators and funds put together Regulation D offerings under rules 506b, and 506c.
Podcast - Episode 28
Video - Episode 27
Transcript - Episode 27
Podcast - Episode 27
Video - Episode 27
Transcript - Episode 27
If you’re putting together a real estate syndication or any kind of syndication or fund, one question you may have is can you get a bank loan on that property or whatever those assets are, at the same time as raising money through equity from your investors. We’re gonna go through that my name is Tilden Moschetti. I am an attorney with the Moschetti Syndication Law Group. We specialize in Regulation DRule 506b and 506c syndications and helping syndicators like yourself, put together those offerings.
Can you take traditional financing, while you’re also putting together a syndication? The answer to that question is yes, you can. So it’s part of your analysis of certainly the bank or whoever that lender is, is going to get paid back first. Right? So first and foremost, they always get their money back first, all of your investors need to come second to that. So they need to know that you’re going to be taking that financing. So first off, you need to disclose it, make sure that they know now in order to get that financing, they’re gonna the banks typically are going to ask for a guarantor. Now, if it’s a non-recourse loan, so a loan where they can go after the borrower for anything like a, you know, a fee, and as part of a foreclosure, then it they still are going to need a guarantor and what they call Bad Boy carve-outs or carve-outs, and those are saying that in the case of fraud, of course, they can still go after that person. So they still need a guarantor for that limited scenario. For the for a traditional loan, where there is a recourse loan, which currently is the vast majority of the loans are recourse loans, they will still require a guarantor that guarantor is typically you the sponsor, or a could be some other person that somehow affiliated with the investment vehicle itself. Sometimes what syndicators will do if they don’t have the financials, to be able to qualify as the guarantor is, they will pay for the guarantee, they will pay for a guarantor from one of the investors. And they do this by offering a finance fee. So they charge of finance fee of maybe 1%, to the entire investment, and that money gets sent over to the gets paid to the guarantor, one of the investors so that they get compensated for the risk level that they’re being taken that they’re taking on. The other thing that banks will oftentimes require is they want to know that there is no one in this part of the syndication that owns more than 20%. Typically, it’s 20% by have occasionally heard about it at 10%. Most of the time, it’s 20% is what the underwriting requires. If anybody owns more than that, then they need to sign on the loan itself. Typically, we don’t disclose names to the banks of all of your investors. And so if somebody is going to be own more than 20%, they need to know that they probably will have to have their name disclosed, and they will also have to sign on the loan. So, in short, the quick answer is yes, you can use traditional financing, hard money financing all those different vehicles in order to raise money, raise additional capital for the purchase of assets for your investment vehicle itself. My name is Tilden Moschetti. I am an attorney with the Moschetti Syndication Law Group. We specialize in Regulation D Rule 506b and 506c offerings, helping put those offerings together for real estate syndications businesses, anybody who needs outside investment in order to raise capital from outside investors to make those asset acquisitions possible.
Podcast - Episode 27
Video - Episode 26
Transcript - Episode 26
Podcast - Episode 26
Video - Episode 26
Transcript - Episode 26
One question I often get from syndicators who are doing their first syndication is whether or not they need a license, a real estate license, a securities license, any sort of license in order to do a syndication or put together a fund? Well, we’re going to answer that question in this video.
My name is Tilden Moschetti. I am a securities attorney with the Moschetti Syndication Law Group. We specialize in Regulation DRule 506b and 506c offerings in order to raise capital for your business or for real estate. When I have clients who are new to grid syndication or putting together a fund, oftentimes they’ll ask me if they need a license from the SEC, or FINRA or a real estate license to do real estate syndication? The short answer is no. So you do not need a license in order to do those things. So let’s break it out into securities licensing, and then real estate licensing, and then we can go through those, and maybe you’ll decide to get a license and maybe you will decide not to. So in the securities licensing, oftentimes, having a securities license is an additional problem, rather than a benefit. Now, under Regulation D, rule, 506b and 506c, that sponsor of that security. So that’s you the syndicator, or the fund organizer, putting it together, is automatically allowed to sell its own security. So you’re already allowed to go and sell all the securities yourselves, you do not need a broker-dealer. In order to do that, you need to follow the rules, obviously, of the SEC regulations that say that you can’t have non-accredited investors unless it’s a 506b offering and then up to 35. But then you can’t advertise all those things need to be complied with. But you as a sponsor can do the advertising. Now, why did I say that it was actually more difficult if you do have a licensing? Well, the problem comes down to what we call suitability, whether the investment itself is suitable for the job that it’s being hired to do. So is your investment in very best interests of that investor. Now, broker-dealers deal with suitability all the time, and they make sure that the investments that they put their clients into are suitable, but your investment may not actually be suitable for a specific person. And you may not know the know that that is the case, it may be a perfectly great investment. But if you’re, if your investment is simply just waiting for this gigantic cash flow at the end of 10 years, and you were trying to sell this security to somebody who was 90 and really just needed that cash flow, right, they needed monthly checks, well, the investment isn’t suitable for that person. But you wouldn’t necessarily know that as the sponsor, a broker-dealer would need to know that. So if you had a securities license, you would need to know that. And it’d be a problem if you sold it to that nine year old person, because it then had, you’re not meeting that suitability problem. So when I have clients who do have securities licenses, really the challenge becomes distancing themselves from their their securities license itself, making it very, very, very clear that you were acting in this in the capacity of a sponsor, and not in the capacity of an RA or a broker-dealer, or anything like that, that you’re making no claims about suitability whatsoever, and have no input on whether it is suitable or not. And so it’s a lot of work to actually separate the two and it’s not perfect when it’s done. Because if they knew you, as a broker-dealer, there’s still the chance that they relied on your information, because you were a broker-dealer. That’s the information on why a securities license would be a little bit more challenging than not having one at all. So not required to have a securities license to sell your security. When it comes to real estate licenses. That’s a little bit different story. So the answer is no. If you’re doing a real estate syndication, you do not need to have a real estate license. However, the real estate license can help you in a lot of ways. It most importantly, it can change your fees. So the work that you do as a real estate, a salesperson or a real estate broker can be used and you can get those fees that you would generate from things like buying real estate or selling real estate State or being a property manager. Now it needs to obviously be disclosed that you’d be acting in that capacity as part of the syndication. But you as an agent or a broker would be hired by the syndication itself. In order to perform those activities, we also make sure to put in language that makes it very clear that we’re you not the broker, that you might have gotten a higher price for the sale of the property. Or you might have gotten a lower price for the purchase of the property. If it had been some other agents or some other salesperson that gets rid of the argument later down the road of somebody saying, well, we could have made a lot more if we hired my friend Suzy. It doesn’t matter, because we’ve already described that we’re hiring you. And we’re also saying that, you know, it’s possible that the rates would have been higher, but we’re going to be hiring the salesperson anyway. So at least long before the money ever came into your hands into the syndication. It was already disclosed and discussed with the investors. So they knew at least that it was going on. So I like to have my investors to have my syndicators have a real estate license if they’re doing real estate syndication because it’s an opportunity for them to get increased feeds. And as long as they do good, competent work, that’s a win for everybody because then you know the real estate better than anyone else, and you can sell or buy the real estate that you need to do. So I hope that helps answer the question about licenses and you doing a Regulation D Rule 506b or 506c syndication. If you’re putting together a syndication or fun, feel free to call my office and set up a time for us to talk and we can go through your own situation and see if I am a good fit to help you do that next deal and the next deals thereafter to accomplish your goals.
As a Syndication Law and Private Placement Memorandum attorney, my firm specializes in providing expert legal guidance for raising capital through Regulation D. Our services cater to various sectors, including real estate, entrepreneurs, crypto-businesses, and private equity. We pride ourselves on preparing customized, attorney-drafted private placement memorandums, operating agreements, and subscription agreements. Our primary focus is to ensure compliance with Regulation D, allowing you to navigate the capital raising process confidently and successfully.