How should I structure my new ownership entity w/ my investors?

Question

Hey all,

I'm looking for some personal advice on how to structure a my deals. I already have the terms agreed upon with my investors, the next question is how I should structure it. My two deals are $1.1 and $1.2M right next to each other and I'm concerned that the huge cost of lawyers to form a syndication could eat into everyone's margins. I'm aware that JV partners are supposed to be somewhat active, but I'm not sure how that would be enforced. I've also met real estate investors who have simply used LLC's and defined the terms in the operating agreement.

What are the pros and cons when considering syndication vs LLC's vs JVs?

Thanks!

AJ Shepard · Answer

I’ve always found that it is a lot cheaper/more economic to have a lawyer review paperwork that you have come up with than it is to have them come up with anything.  I’m not a lawyer and can’t give legal advice.  But you might think of preparing all the paperwork yourself (maybe both scenarios) and asking for a quote from the lawyers on what it would take to clean it up for the deal?  I would also confirm before talking to the lawyers that the structure is supported and accepted by the bank that you are using for debt.  No sense in creating something that can’t get debt anyway…. Hope this helps.

Ryan Auger · Answer

Thanks AJ, I think that's the right way to go. I'm having a friend send their docs so I can see if I can modify them.

Taylor L. · Answer

The LLC vs JV situation doesn't change securities laws. Enforcement typically tends to happen on the back end, when investors lose money and contact the SEC, then it all comes to light. Not a lawyer, that is just what I have observed and been told by lawyers. The SEC does proactively pursue things as well, so that is a possibility.

Syndicated investments will frequently use LLCs with different share classes for the GPs vs LPs.

Amy Wan's Boostrap Legal may be able to help. Either way, certainly seek the advice of counsel. It's best to just do it legally.