Legal max number of general partners

7 Replies

Hi All,

I went to a meetup last night on multifamily here in Jacksonville and it was great.

One of the questions that came up was the not having too many partners in a deal without syndication, it becomes frowned upon legally at some point.

The problem is that under a certain number of units the scale isn't there to absorb the cost of going through a syndication, so I've been trying to put together a small group of investors interested in partnering on a multifamily deal, but don't want to get in trouble.

As a caveat, I won't hold anyone to it as binding legal advice, but in general is there a rule of thumb about the maximum number of partners in a deal that is legal?

Thanks in advance!

Josh

My understanding is that there isn't a specific law around the # of GPs in a syndication. However, I have seen where syndicators interpret the "limit" as 10 or fewer GPs.

I haven't seen any restriction on the # of LPs.

@Joshua Schoer , a syndication only comes into play if you are looking at passive investors, who beyond putting money in, have no real say in the deal. I am guessing, given the meetup, that you are looking at a JV and partners for the JV, where all partners will have a certain amount of responsibility and say in the deals.

I am not aware of any limit to the number of partners you can bring in, but as noted, all have to have responsibilities within the partnership to not be viewed as passive and the more you have the more you split up the money, and it might not make sense.  

On the syndication side, I have heard of deals that end up with 8 GPs, although again I don't know of any reason you couldn't have more than that, but it becomes a point of what is another GP bringing to the deal of value. 

Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.

There isn't a limit on the number of GPs a partnership can have. However, at some point there is a management problem with having too many people able to vote on every little thing. The more managers you have, the more disputes may arise and less gets done. 

Josh, I'm not an attorney or an accountant, but I can provide a couple of pointers for education.

First, I recommend you speak with an SEC attorney before you consider doing anything and get professional advice.  Most will get on a call for 15 mins to an hour for a free consultation to answer your basic questions.  One I recommend is Kim Lisa Taylor of Syndication Attorneys (syndicationattorneys.com).  On Kim's website, she has many blog posts, videos and other resources to answer many questions.  

Now some thoughts for your educational consideration.

A syndication is defined by the roles the people play, not by the number of people involved.  A syndication can be between two people when one person is active and one person is passive in the deal.  A couple people have commented on this point.

To my knowledge, there is no law limiting the number of GPs, but there is the law of diminishing returns!  For a 506(b) syndication, the number of accredited investors is unlimited, but sophisticated investors are limited to 35.  A 506(c) syndication allows only accredited investors, but they are unlimited.  Again, check with an SEC attorney for this up to date information as I do not keep up with the laws.  I depend on my attorney.

There are not only federal laws but state laws that govern  syndications, and, again, good SEC attorneys (not transactional real estate attorneys) are your best resource.

Also, IMO, Evan posted accurate information.