depends on how you structure it... if your state allows multi beneficiary loans you could do it that way.
now in CA the threshold was 10 investors per deed of trust .. kind of unwritten rule.. after that you were selling a security.
pretty hard to put 20 people in an LLC without it being a security.
but there are much smarter people on this site about this than me..
@Jillian Sidoti may want to comment..
Thank you for the feedback. Im locates in New Jersey so I’ll have to look up the regulations here.
If it was you and two buddies you could probably make it fly as a simple partnership (using an entity such as an LLC). With 20 people, its much dodgier. Further, you say $20-30K each, which is a small amount. That makes me think these are not accredited investors and perhaps not even sophisticated investors. If that's the case you really need to formalize this. If you're unfamiliar with those terms, again, you want to formalize this. Its not a difficult or complex process, though it will take some time and something like $10-20K in legal costs. But this will give you protection WHEN one of these investors gets unhappy.
You may think, "that's won't happen". You CANNOT afford to think like that. At this point you must assume something will go wrong and take the necessary steps to protect yourself. That means a property LLC operating agreement and a proper private placement memorandum.
If any of these investors are not people that you already know socially, then, that's yet another reason to get an attorney and do this correctly.
Thank you for the response. Yes I was looking to make a legal entity for protection. Wasn’t sure exactly what structure would fit with this investment model. Maybe partnership with general and limited partners but I’ll have to talk to a lawyer about it. Doing an LLC would be less complicated, but it’s worth it to set up the correct structure at first because like you said it’s only time until someone is unhappy and the correct structure will protect me.
Also in Jersey and there was a thread that included @Jillian Sidoti and my lawyer @Jessica Zolotorofe that seemed to generally conclude about 10 is the reasonable limit you can look at before you really start to push your risks in terms of regulations. 20 people just in and of itself is a lot to get to agree to and be content with the terms of any agreement. You might start a fight just getting that many to agree to a single dinner appetizer.
You might want to just start by compiling what kind of terms you are imagining in case of every possible catastrophe you can think of (death, debt, theft, lawsuit from within, lawsuit from without, members wanting to sell off their interest, etc) which may weed some out to begin with and then approach a lawyer who may have other things to offer that you should consider as well as what type of formalization you should have.
Hey @Andrew Wenman - I just noticed the "shout outs" to me. Please let me know if you want to discuss. My recommendation at minimum is to provide a SOLID operating agreement and subscription agreement with risks. You should file form Ds if you are crossing state lines and/or not securing a note with a DOT or mortgage.
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