|Posted on May 13, 2017 at 12:50 AM||comments (0)|
Unregistered Real Estate Exempt Offerings
Using our template for a general partnership with a specific purpose you do not need to pay and wait for Regulation D exemptions. Private Placement Advisors LLC employs a general partnership vehicle to avoid almost all review by regulators. With no limited partnership or other passive interest created, no security is formed. This particular template is designed for real estate lenders and borrowers. To learn more about the advantages of unregistered, non-exempt private placements, contact [email protected]
|Posted on July 30, 2015 at 12:15 AM||comments (0)|
Think you need only a business plan template and boilerplate subscription and stock purchase agreements to raise capital?
Using templates without understanding the rules and regulations is begging for trouble. Here are seven things to think about.
1. Structure Your LLC or LP If you have multiple founders, a partnership or LLC should be in place, dealing with issues of distributions and control. Down the road, when you add minority owners or limited partners, these issues must be faced again. Use an online template provider to create the LLC. Just do it. Then you can open a checking account and actually be in business.
2. What are the Terms? Terms can include (a) liquidation and sale restrictions; (b) dilution issues; (c) voting preferences and classes of shares; (d) participation, control, and information rights; and (e) management agreements restricting founder ownership and compensation. For starters.
3. Federal and State Securities Laws. You must comply with Federal and state securities laws, rules and regulations. Regulation D of the Securities Act of 1933 is a federal law that requires registration with the Securities Exchange Commission (SEC) unless an exemption applies. Each state has its own agency for registration, reporting, and notice requirements. Note that offerings of promissory notes and especially convertible promissory notes must be registered or be exempt.
4. Exemptions registration for any offering is expensive and only appropriate for very large offerings. Almost all business capital raises are under Regulation D and related, applicable state exemptions.
These are the federal securities exemptions:
a) Rule 504 • Maximum Raise: $1 Million (within 12 month period) • Number of Investors: No Limit • Resale: Restricted (not for resale) or Unrestricted (if exempted) • Mandatory Disclosure: Generally None; Disclaimers • General Solicitation: Only to Accredited Investors (self-certified) • State Law: State law and registration usually apply.
b) Rule 505 • Maximum Raise: $5 Million (within 12 month period) • Number of Investors: Unlimited Accredited Investors (self-certified); 35 Unaccredited Investors • Resale: Restricted (not for resale within 6+ months) • Mandatory Disclosure: Disclaimers, Financial Statements, etc. to Unaccredited Investors • General Solicitation: None • State Law: State law and registration sometimes apply.
c) Rule 506(b) • Maximum Raise: No Limit • Number of Investors: Unlimited Accredited Investors (self-certify); 35 Unaccredited Investors • Resale: Restricted (not for resale within 1 year) • Mandatory Disclosure: Disclaimers, Financial Statements, etc. to Unaccredited Investors; Available for Questions • General Solicitation: None • State Law: No State Law Registration (but notice usually applies).
d) Rule 506(c) • Maximum Raise: No Limit • Number of Investors: Unlimited Accredited Investors (reasonable steps to verify) • Resale: Restricted (not for resale within 1 year) • Mandatory Disclosure: Disclaimers, etc.; Available for Questions • General Solicitation: Only to Accredited Investors • State Law: No State Law Registration (subject to challenge)
5. Exemptions with State Notice Requirements Many states require you to disclose or “notice” the state’s security commissioner of use of the Form D exemption, usually within 15 days of first sale and similar form as Form D. Before offering any security in any state, each state’s securities law must be evaluated for compliance in order to make proper filings.
6. Rule 504 Exemption Coupled with State Filing (Small Corporate Offering Registration – SCOR) States require registration of offerings exempt under Rule 504. Such offerings are typically coupled with a SCOR filing. SCOR filings are not exemptions because they require full registration (just not SEC registration!). A blessing is that those states participating in SCOR have uniform forms.
There are states that do not even accept SCOR forms, such as Alabama, Delaware, Florida, Hawaii, Kentucky, and New York. Some states will automatically approve the forms if complete and accurate without a merit review, such as Connecticut, Georgia, Illinois, Maryland, New Jersey, Vermont, and Washington. Some states are known to be specifically difficult in its merit-review process, such as Arizona, South Carolina, and Iowa. And of course, there just some states that are hostile to these types of filings, including California, Massachusetts, and Texas.
7. Disclose As Much as You Can. Aside from the exemption and the disclosure requirements, having a private placement memorandum (PPM) prepared to disclose the risks and prospects of the investment to the potential investors is the best way to protect the business from future visits by state securities regulators, the SEC, or unhappy investors. (Surprisingly, perhaps, most unhappy investors first contact their state regulators.)
A PPM discloses essential information to potential investors; such material often includes: cover sheet, table of contents, key disclosures, executive summary, risk factors, purpose and use of proceeds, capitalization and dilution, financial data and analysis, business management and plan, term sheet description, subscription agreement, and investor questionnaire.