What makes it a syndication?

Question

I am putting together a large deal using capital from one private investor. Does this classify as a syndication or is there a less complicated structure that can be used?

Greg Scott · Answer

That is a great question for your attorney.  You will need one regardless of what structure you use, so ask.

If someone gives you money with the idea that you are going to do all the work and give them a profit, then you have technically created a security, and would need to use one of the SEC exemptions under Reg D.  Most people that have one private investor, that investor has a pretty big voice in how the deal is run.  In that case, it might not require a Reg D exemption.  Seek qualified advice.

Ronald Rohde · Answer

80% of contributed equity, 50% of all distributions, losses, and tax benefits

Paul Moore · Answer

Hi @Sarah Msuya! I would have thought this would just be a joint venture, and I have done many of these in years past. However there may be things an attorney can tell you that you should know. I've done many JV's and syndications as well. If you can make it a JV I recommend you do. Good luck!

Brock Mogensen · Answer

Syndications mean a General Partner / Limited Partner structure. Where the GP does all the work (and is compensated with free equity) and LP is a silent partner.  If you are just going to be splitting equity based on capital invested, you likely want a Joint Venture structure.  A good attorney familiar with Operating Agreements will be able to provide further insight.

Steve Vaughan · Answer

Mine is just a lender, but they are older and don't care for equity.  That's probably simplest,  if they just have a mortgage.

Another option may be to own as tenants in common and have a JV agreement.  Certainly wouldn't think one partner requires a lot of compliance,  especially if you know them.

Daniel Apke · Answer

Syndications mean a General Partner / Limited Partner structure. Where the GP does all the work (and is compensated with free equity) and LP is a silent partner. Get with a RE accountant and attorney for something like this if you want to make it a legitimate Syndication. If you're just collecting money from friends and family to invest get with an attorney to figure out legalities but it does not need to be as formal as traditional syndications.

Chris Levarek · Answer

@Sarah Msuya I'd say a joint venture will work. The key is simply ensuring the private investor has active involvement. So this could mean a monthly meeting with a docusign termed "monthly minutes" for example, scheduled email updates, etc.

In the end, it's Active participation versus simply passive investment. How you choose to do define that separation, that is up to you but it should be defined. Consult an attorney of course, the above are just recommendations from experience.It's also worth mentioning, if they don't have ownership, you aren't really selling a security. If you aren't selling a share but using debt instead(private lender), thats not a security. Sounds like you are though...

Zack Gill · Answer

When you say 80/20 capital, do you mean the investor gets 80% of the cashflow and then 50/50 split profit if its sold?

Then yes fees.

John Mazzella · Answer

@Sarah Msuya I agree with what was said above about contacting a securities attorney. If you can make the case that the investor is an activate participant in the deal you likely will not need to run the deal as a syndication.

What makes it a syndication?

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