Does 506b need a security lawyer?

13 Replies

I'm considering raising funds from a group of friends and families to purchase a small multifamily property. Since I personally know all the investors, it should be a 506b I assume. In this case do I need a licensed security lawyer to help prepare the necessary documents? Or can I just get a real estate lawyer to form a LLC and prepare the membership docs?

thanks

@Ray Li

Prior to jumping into 506b, speak with security attorneys and determine all the fees associated with it to see if your deal still makes financial sense.

As far as DIY, whenever investors are involved, always work with an attorney to prepare the legal docs (PPM and everything else needed).

@Ray Li Yes, you will still need to bring in a securities attorney because you will need to provide your investors with the private placement memorandum, subscription agreement and operating agreement even if your investors are friends and family.

@Ray Li I highly recommend you hire an SEC attorney when pooling funds. The 506B will work by allowing you to bring in non-accredited investors. The man for this job is highly touted SEC attorney @Mauricio Rauld. Hope this helps

Originally posted by @Ray Li :

I'm considering raising funds from a group of friends and families to purchase a small multifamily property. Since I personally know all the investors, it should be a 506b I assume. In this case do I need a licensed security lawyer to help prepare the necessary documents? Or can I just get a real estate lawyer to form a LLC and prepare the membership docs?

thanks

A smart real estate lawyer will refuse the work if you are pooling funds and claiming you do not need a SEC or state filing. They will say it is outside the scope of their practice. They do not want to lose their license to practice because they took on legal work they are not competent to perform.

 

Thanks guys! I'll definitely look for a security lawyer. I guess everything I read about syndication only talks about 506c, so I wasn't exactly sure about 506b.

Just wondering, has anyone used Bootstrap Legal's AI-drafted syndication? I know that Amy Wan is a highly reputable security attorney here on BP, but I haven't seen much about what people think regarding AI vs human attorney for legal issues.

Thanks

Originally posted by @Ray Li :

Just wondering, has anyone used Bootstrap Legal's AI-drafted syndication? I know that Amy Wan is a highly reputable security attorney here on BP, but I haven't seen much about what people think regarding AI vs human attorney for legal issues.

Thanks

Interesting question. Is the work 100% produced by AI or is a lawyer reviewing the results before sending it on to the client. 

At some level I trust the AI to get the details right and a human to understand the context better.

 

@Ray Li I would echo what has been said above and additionally, consider the perspective of your prospective investors.  When they know you have hired a securities attorney to draw up the documents and guide you on the structure of the investment, that will foster a higher degree of confidence from them as well. Spend the time and $ to work with an experienced securities attorney so you, and anyone who intends to invest will know it is being done correctly. 

@Ray Li just to clarify, we use AI to draft the first draft, but it is always reviewed and edited by a human attorney who acts as your counsel. AI is great to handle the highly repetitive drafting, but every deal always has bespoke terms and due diligence that currently is better handled by an attorney--including counseling. You'll always want an attorney there for all the questions that come up.

I'm all about technology to help with things it can, including improving efficiency, but only where it makes sense :)

Securities attorney is a must. Using internet attorney forms doesn't work. As Amy pointed out, they can help speed the process and maybe cut some costs, but ultimately a securities attorney needs to be highly involved. This is other people's hard earned money and you should be very diligent and careful with handling it.