How to Structure a Small Group Raise for New Construction

Question

Hi BP!I’m working on a new construction project that I plan to raise capital for, let’s say about $300k to cover what the loan won’t. I’m trying to figure out the right business structure to move forward with. There will likely be just 3 members that are active in the deal and the rest will be passive investors. I’m hoping to structure it in a way that works for providing a return on the sell of the new construction in the most tax advantaged way possible. I’ve been reading on LLCs, Limited Partnerships, etc, and can’t seem to get a clear indication of which direction to go in.I’d love to hear your thoughts!

Many thanks,

Desmond

Jay Hinrichs · Answer

300k is too small to spend money on the legal side..  what folks are talking about above is doing a PPM of sorts. and your out 10k right then and you have to follow accounting rules etc.. pretty costly for such a small sum.

U may want to just look to one or two partners that are known to you form your LLC  give them % ownership  etc.  that might be easier.

but if your trying to wrangle 10 to 20k folks and need 10 to 15 investors to raise 300k and you dont really know them.. then you have a securities issue you need to address.

Basit Siddiqi · Answer

Whenever you are dealing with passive investors / limited partners / non-managing members - it is good to bring on an attorney to overview what you are doing.The worst case is that your investment loses money and the limited partners see something was done incorrectly and they attempt to sue you for it.There are also various laws set up in place to protect investors - so you want to make sure that you follow all those rules.

Scott Wolf · Answer

@Desmond Pressey, you may need to speak with a syndication attorney.  I have a client that has done a deal like this before.  If you'd like, I can see if he's willing to chat with you.

Desmond Pressey · Answer

Thanks Scott! I’d love to chat with your associate.

Cody Lewis · Answer

I agree with @Scott Wolf, please speak to a SEC attorney that specializes in syndication.

How to Structure a Small Group Raise for New Construction

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