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On or before January 1, 2030 Private Money Authority Inc. will have successfully achieved the following:


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Monday, May 27, 2019

LLC's AND SYNDICATIONS


Preface  An individual who gathers investors together in a group for the purpose of buying, operating or selling real proper is engaged in a process know as syndication. The individual organizing the group is know as a syndicator, or syndication manager. Syndication formation and management can be very profitable for those the experience and leadership skill to safely guide the syndicate over the risky waters of real estate investment. However, it is very important that the syndicator maintain personal profit objectives with the perspective that investors joining such a group are generally uninformed about such thing as:



The legal aspects of their relationship

The property's value

The duties and responsibilities of the Syndicator.

It is, therefore, imperative that the syndicator fully inform each prospective investor of the significant elements of purchase, management and the attendant risk that might influence the investor's decision.





OVERVIEW

OF THE LLC



Limited Partnership or The LLC  A limited liability company (LLC) is a hybrid business entity.  it combines the limited liability advantages of a corporation with the tax treatment of a partnership.

Like a limited partnership, the LLC does not pay federal taxes.  Instead, all reportable income, profits and losses are passed through to the member for for individual tax reporting. The members pay the  federal income tax on their distribution of the income, if any, from the LLC.

The LLC is like a limited partnership without a general (liability) partner, as limited liability in an LLC extends to all members, including the manager.  Conversely, the general partner in a limited partnership is generally liable for the partnership's debts.

The syndicator in a limited partnership sometimes seeks to limit personal liability by forming a one-man corporation to act as general partner for the partnership rather than be named as the general partner.  A sole corporate general partner in a limited partnership creates a situation for the syndicator similar to the LLC, with its limited liability for all individual members, and the manager if other than the syndicator.

A limited partnership with a corporate general partner is a more restrictive form than the LLC.  For instance, a partnership with a corporate general partner is taxed as corporation unless the corporate general partner owns assets worth at least 15% of the partner's contributions.[Revenue Procedure 72-13]

Furthermore, a partnership with a corporate general partner is unable to take advantage of the small partnership exemption from tax reporting. Partnerships with 10 , or fewer, partners are exempt from filing the Internal Revenue Service (IRS) 1065 return, but only if the partners are all individuals.  [Internal Revenue Code 6231(a)(1)(B)]

The LLC also resembles an S corporation, since the LLC is essentially a small corporation treated as a partnership for income tax purposes, with fewer restrictions imposed on the participants and investments than in an S corporation.  While the shareholders in an LLC may be any number of participants and legal entity, including individuals, corporations, partnerships and other LLCs. [IRC 1361(b)]

For real estate syndication purposes, the LLC also resembles a real estate investment trust. Real estate investment trusts (REITs) are unincorporated entities formed for the purpose of group investment in real estate,  and provides limited liability for investors and pass -through income for state and federal tax reporting.

LLC Formation  An LLC is defined as having two, or more. members.  However, only one member is required to form the LLC by filing the appropriate documents with the state in which it is formed. 

Limited Liability  The liability limitation for the member of an LLC is slightly less extensive than for the limited partners in a limited partnership.  

For example, the liability of a partner in a limited partnership is absolutely limited to the amount of their capital contribution.  However, corporate shareholders, as well as members of a LLC, can be held generally liable for teh debts of the corporation/LLC if it can be proven the corporation/LLc exists solely to shield the shareholder from liability for the debs, or actions.  This is sometimes called "piercing the corporate veil".

In a limited partnership, the limited partners escape liability beyond the amount of total their contributions.  Conversely, the general parter is generally liable for all partnership debts.

In a corporation, or LLC, not member, officer or shareholder is generally liable for any of the entity's debts.  This gives rise to the potential for abusing the corporate or LLC by individuals seeking to protect themselves from liability by conducting business with a corporate shell, sometimes referred to as a "alter ego".  This occurs if:



The corporation , or LLC, is entirely dominated by a single individual, or by a small of shareholders/members.

The economic interest of the corporation, or LLC, are indistinguishable from the interest of the shareholder/members.

An injustice would result from treating the shareholders/members' acts as the those of the corporation, or LLC, and not their own.

A corporation which is intentionally undercapitalized is often considered an alter ego of the shareholders since it begins with insufficient funds to operate in the normal course of business.

Naming The LLC The name for LLC must end with the words "Limited Liability Company"', "LLC" or "L.L.C.". The name selected should reference the property purchased and operated by the LLC, such as the property's name, or street address. Since the LLC is a matter of public record is may not be advisable to use the name of a member.



SECURITIES RISK



Exclusions  Forming a limited liability company (LLC) for real estate syndication requires an understanding of state and federal securities laws to avoid securities violations. The examples and citations which follow are offered to assist in the informed application of these laws.  Be sure that you understand the specific application of the securities law in your state.

In federal law, the classic definition of a corporation is:

An investment of money

A common enterprise, providing for mutual success, or failure, of the group in its investment goals

An expectation of profits produced by the efforts of others. [Securities and Exchange Commission v. W.J. Howey Co. (1946) 328 US 293]

The formation of any group to purchase and own real estate, since it is an investment in a common enterprise has the potential of creating a securities risk should a return of the investment be based on a promise of future physical development, or a change of use for the real estate acquired.

The mere formation of an LLC for a group to purchase and operate an existing income-producing real estate project, or hold land for profit, does not involve a securities risk.  The expectation of a return is based on the performance of the property in the marketplace, not on the efforts of teh syndicator, or anyone else, to produce improvements or develop a use for the property after acquisition.  Since the LLC is merely a business structure used for group ownership or a real estate investment program, a securities risk is not created by publicly offering fractional membership interests in a LLC to fund acquisition of existing assets.

An investment group formed to engage in an ongoing resale marketing program, or business opportunity, contains a securities risk.  Placing the investor's capital at risk of loss by the requirement to complete value added activities after the acquisition of the property, or by the later selection of the asset to be acquired creates a corporate securities risk.  

When an investment program involves a securities risk, the syndicator creating the program an soliciting investors' capital must, unless exempt, report to the appropriate government agency.  Some exemptions exist to remove investment programs containing securities risks. Failure to properly qualify non-exempt corporate securities places the syndicator at risk for both civil and criminal penalties.

Asset Control  Suppose a LLC purchases a newly constructed and unoccupied building, and the syndicator agrees to act as manager for the group pursuant to a management agreement providing for termination with 90 days notice.  Does the purchase of the property constitute a security if the investment fails due to insufficient tenancy since the members were reliant on the syndicator's management skills and agreement to create occupancy?

No.  The members retained control over the management of the property based on the termination provisions of the agreement.  Therefore, no security as created by the management agreement.  Rather than placing capital at risk in by relying on the skill and effort of another to create a return on the investment, the LLC acquired a fully improved asset over which it retained ultimate management and control.  [Fargo Partners v. Dain Corp. (1976) 540 F2d 912]

Consider, however, a promoter who sell separate parcels of agricultural land planted with citrus trees to individual investors. The sale of each parcel is subject to a service agreement which obligates the promoter who has the knowledge and  equipment needed to care for the trees, harvest  then market the fruit for a period of ten years.  

The promoter then operates, collectively, the groves on all of the parcels sold to the individual investor, coordinating the ownership and operations of the parcels as a single large scale farming enterprise.  Each investor receives a share of the profits pooled form the crop production based their fractional interest of all the farm property under the service agreement.  Does the purchase of the property constitute a security?   

Yes.  An investment in parcels of agricultural land to operate a farming business, coordinated  and operated by the promoter contains a securities risk since the investors were entirely dependent upon the cooperation of the other owners, and the promoter, for their expected return.

So, even though the transaction was structured as a sale of parcels of real estate combined with a service agreement, it displays the critical elements of a corporate security - A group investment with an expectation of profit and success that is entirely dependent upon the performance of others. [W.J. Howey., supra]

Investor Protection  State and federal corporate securities laws exist to protect investors who risk capital in asset-creating investment schemes offered by others in order to exact a reasonable expectation for profit.

A securities risk is created when an investor:

Places funds at risk

Assumes a passive role with control over essential asset selection, development, pooling or resale decisions held exclusively by the syndicator, or others.

A security is created when the asset is placed at risk by the investor is a promise from the syndicator, or others, to perform a value service after the purchase has been completed.  A service that must be completed successfully before a return of capital can be expected.

In this case the investor has not invested in an asset, but in the skill and knowledge of the syndicator, or some third party, to create some future value which might include:

Later locating and acquiring the property without the approval of the investor ( A blind Pool).

Obtaining additional approvals.

Added improvements necessary to the performance of the asset.

Operating a business unrelated to the asset.

The securities laws are designed to give investors a reasonable opportunity to meet investment  objectives.  The syndicator is responsible for the protection and performance sufficient to meet these expectations. [Silver Hills Country Club v. Sobieski (1961) 55 C2d 811]

Controlled Investments  The securities issue for the syndicate manager is to determine which investments activities include and which do not include situations which create risks triggering additional securities law protection for investor.

The existence of a security is a matter of  the "substance over form" rule.  It is the formation features, rather than the title, which determines whether a securities risk.  An exception to this rule is the issuance of stock.  Any transaction which involves the issuance, or transfer, of investment certificates which are formally called stock is a controlled security, regardless of the economic substance of the investment in  the stock.  [Landreth Timber Company v. Landreth ( 1985) 471 US 681]

Recall the citrus grove investment program as structured as a sale of agricultural property. Each investor became the separate owner of an individual parcel of land, but with no reasonable ability to control, or operate, the property and farming business without the services of the promoter.

Now consider a buyer who purchases a condominium unit.  The selling broker arranges for the buyer to enter into a rental agreement with a third party management company.  Pursuant to the agreement, the management company will oversee the entire project in which the unit is located.  The agreement further provides for the prorated distribution of the net operating income (NOI) after all expenses without regard to individual unit performance.  The Rental Pooling Agreement, or (RPA) is an incentive for the buyer to purchase the unit since it transfers the liability of the day-to-day operations to the management company, and spreads the risk across the project's combined ownership. The owner is still responsible for the mortgage and tax payments on the unit.

When the unit does not meet income expectations, the owner seeks to recover the losses from the broker claiming the purchase of the unit coupled with the RPA was a corporate security based on a reliance upon the management company to produce the needed income and profit expectation.

The broker claims he did not create a corporate security since the buyer was not required to enter into the RPA as a part of the agreement to purchase the condominium, and the broker was not in control of the management of the property.

Since the purchase of the condominium unit was coupled with the RPA in a manner to suggest a single investment option the buyer was, in fact, induced to invest in a common enterprise based on the expectation of others.

Since the broker encouraged the buyer to release funds based on a future return, created  the efforts of a third party RPA a securities risk was created.  [Hocking v Dubois (9th Cir. 1989) 885 F2d 1449]

Actual And Effective Control  The real question in determining when a securities risk exists is whether the investors retain actual and effective control.

If an investor is given some nominal, or insignificant, role in the management of the program unrelated to the necessary activities associated with success, but the return of the investor's capital requires others who are uniquely positioned for reasons of skill and experience to to perform the duties necessary to meet the investor's expectation the program is a securities risk.  

Consider the promoter forms a number of general partnerships to collectively conduct a farming operation.  Each partnership having its own general partner owns a separate portion of the farmland to be operated by the promoter.  Has a security been created.  

While the promoter contends the partnership interests are not securities, since all investors are general partners having accepted control of the activities of the partnership?

While general partners in name, the investors have no control over the centralized business operations of promoter.  Since each general partnership only controls a prorated share of the business operation, no one investor has effective control over any part of the operation, including their own.   This is a pooling arrangement no matter what form the ownership takes, and is, therefore, a security.

Now, consider a developer who acquires a large parcel of real estate for the development of a planned community.  The developer sell parcels within the planned development to limited partnerships without a development agreement, or promise, to make additional improvements.  Has a security been created?

The limited partnerships have complete control of the parcels acquired from the developer. Unless the developer made some promise of profit no security risk was created.  The transaction is nothing more than a sale of real estate for profit, or later development by the partnership.  [DeLuz Ranchos Investment Ltd. v. Coldwell Banker & Company (9thCir. 1979) 608 F2d 1297]

The Risk Capital Test  State and federal courts apply slightly different tests to determine when a controlled security exists in an investment program.  These tests are intended to determine whether a transaction requires securities law protection.  

The main difference between the state and federal tests revolves around the element of the expectation of profit to be received from the investment.  For a security to exist under the federal test, the investors must be induced to join the program by a promise of profit.

A state test may only require that the investor's capital be placed at risk in an activity controlled by the securities laws, whether or not a profit is expected, or intended.  Many sate laws cover more investment conduct than do the federal securities laws.  But not all state laws are as binding as the federal statute.  Be sure you understand the "at risk" rules in your state.

Exemptions To Securities Risk  A large number of investment which are securities are exempted by statute from control under the securities laws.  Be sure to determine how exemptions apply in your state.

Investment programs offered by banks and savings and loans (S & L) are exempt from securities laws, as are non-public offerings.

The non-public offering exemption is the most useful exemption for syndicators putting together investment programs which include securities risks.  The non-public offering exemption is applicable in many states. Rules typically include:

 Total investor do not exceed a certain number. (Husband & wife = 1)

 Investors have a pre-existing relationship with the syndicator.

 The investor will not resell, or otherwise distribute their interest.

 Investor solicitation of investors does not involve public advertising.

Remember, when in conflict Federal law, or the more protective application, will likely prevail.  Be sure you understand through  qualified counsel the securities laws in you state.





CHRONOLOGY OF AN LLC



A chronology of the activities the syndicator undertakes depends on the type and purpose of the syndication, but will generally includes the following duties and disclosures:



Research available investment properties and select the property to be purchased.

A written analysis of the property, including a physical description, preliminary title report and a detailed operating statement.

Acquiring control of the property for in the name of the syndicator through the use of a purchase agreement,  purchase option or with appropriate escrow instruction.  The purchase agreement must include a vesting provision allowing the syndicator to assign purchase rights.

Open an escrow to initiate performance of the purchase agreement.  The syndicator is named as the buyer in escrow, not the LLC.

Exercise the proper due diligence by validating  all the conditions in connection with the purchase of the property.

Begin financing inquiries required by the purchase agreement.

Prepare an Investment Circular prepared by a legal authority experienced in syndicate formation to solicit investors.

Prepare the Subscription and Operating Agreement which will be used to take receipt of the investors' contributions.

Syndication members enter into a property management agreement with the syndicator for the operation of the property.

Upon execution of all the syndication's formation documents the  purchase can be completed.

In escrow the syndicator assigns the purchase rights to the LLC. This is followed by the close of escrow and delivery of the property to the syndicate.

Deliver closing documents to each member followed by the appropriate state filings and disclosures.

Deliver closing documents to each member followed by the appropriate state filings and disclosures.

It is important to remember that the syndicator's duties and responsibility go far beyond the perfunctory activities of syndicate formation and management. It is imperative the syndicator have a clear view of the market in which the property is located, and the relative value of the property in the overall market mix. The syndicator also needs to understand how the members will benefit from the tax implications and the advantages offered to the syndicate members.



STRUCTURING AND DOCUMENTING

THE LLC

Formation, Contributions And Distributions  Formation and funding of limited liability company generally requires four documents: two to form the LLC, and two to fund the syndication.

Formation documents.



The articles of organization, or similar document, drafted in accordance with the laws of the State.

The operating agreement which sets forth the operational details of the syndicate such as income and profit sharing distribution, voting and buyout provisions.

Funding documents



The investment circular  is the result of the syndicator's due diligence effort and duty to disclose the material aspects of the investment

The Investment Circular And Subscription Agreement The investment circular, sometimes refered to as the prospectus of offering memorandum, is the offering of shares in the LLC presented to the investors, and would include:

Investment Circular

The objectives of the LLC, including copies of  the operating and subscription agreement.

Qualification of the Syndicator.

A description of the duties of the syndicator and manner compensation.

A full description of the property to purchased, and the manner in which the property will be operated.

The operating budget, and proposed earnings.

A full description of the property to purchased, and the manner in which the property will be operated.

The operating budget, and proposed earnings.

A full disclosure of the risk.

Subscription Agreement

Contains the offer to invest and the investors disclosures demonstrating financial suitability to invest pursuant to state statute.

The receipt and acknowledgement of the disclosures made by the syndicator in the investment circular.

Operating Agreement

While the operating agreement is a separate document it is usually signed by the investor along with the subscription agreement. This document defines the relationship of the parties, and outlines the rights and responsibilities of the manager as well as the syndicate members. An operating agreement should include:

Purpose and objectives of the syndicate.

Member contributions and distributions as to income and profit from financing and sale.

Defines class of membership.

Outlines compensation considerations for for officers, management and professional services.

Member contributions and distributions as to income and profit from financing and sale.

Provides for the assignment of interest, termination of membership and buyout options.

Provisions for the dissolution of syndicate operations.



INVESTOR PROCEEDS

Assignment Value And Funding  Consider the LLC that is capitalized with $500,000 -- $400,00 of which is in cash contributions by the investors, and $100,000 as consideration for the value of the assignment of the syndicator's purchase rights.  

The cash investors receive Class A priority membership interests in the LLC, representing an 80% ownership interest in the LLC, Valued at $400,000.

The syndicator's contribution of $100,000 to the LLC is not in cash, but in the form of an assignment  of his right to purchase the property.  Since the syndicator's contribution is not in cash, the syndicator will receive a subordinated Class B membership interest.  The value of the contribution of the purchase rights represents a 20% ownership participation in the syndicate.

Ownership of the property to be purchased and vesting will be in the name of the LLC, not the members, or the syndicator.  The members own the LLC, not the property.

From the cash contributions, $340,000 will be used to complete the purchase requirements of the property. The remainder of is distributed in the following ways:

$30,000 to fund a reserve account for the purpose of providing for the immediate and future operational costs of the property.

$30,000 to paid to the syndicator in the form of a promotional fee as compensation for the formation of the syndication.

Syndicator's Earnings  The syndicator's compensation is earned in the following ways:

Management services as described in the Operating Agreement during the operational period of the syndicate. During the LLC's ownership period the syndicator manages the property and receives a management fee.

Ownership Interest in the form of Class B interest distributed as income, sale or refinance proceeds.

 

SYNDICATOR

  PARTICIPATION



Member Distribution  The syndicators promotional interest of $100,000 is typically received as a Class B subordinated interest.  The subordinated interest is important to the integrity of the relationship.  While The syndicator may, in fact. subscribe to the syndicate with cash as a Class A member, Class B shares are subordinated in order to provide for a guaranteed distribution made to the Class A members before any distribution is made to the Class B shares   For example an operating agreement may provide for the distribution of annual income to all members, both Class  A and B. However, there my be a stipulation that Class B share distributions will be subordinated to the first right of Class A shareholders to receive a distribution in an amount up to an annualized amount representing a 9% return on their investment.  The remainder, if any,  may then be distributed to the Class B shareholders at the same rate, or to all shareholders as to their percentage interest depending on the provisions of the agreement.

Management  The syndicator is usually designated in the operating agreement as the manager of the LLC and compensated for these services in accordance with the operating agreement.  Compensation for management services may be a fixed rate, or based on a percentage of the the syndicates gross revenue.  Duties might include the authority to execute agreements to buy, sell, finance and lease the property.  Additional management responsibilities include contracting for supplemental and vendor services deemed appropriate and necessary to maintain the income stream and increase the future value of the syndicate's asset.  

Services  The syndicator may, in due course, deliver services other than those specifically provided for in the formation and management of the partnership assets.  While unlicensed principals are normally prevented by law from receiving percentage based compensation, a licensed real estate agent may also receive a commission in the course of entering into the purchase agreement  that is later assigned to the syndicate in exchange for a subordinated interest in the partnership. This fee is paid by the seller of the property and distributed to the agent/syndicator outside the formation agreements of the LLC.  The licensed syndicator may also receive percentage based compensation for selling, leasing and refinancing the property if these services are not made a part of the management agreement. Be sure that al percentage based income not provided for specifically by agreement, or through distribution of the partnership subscription proceeds is properly disclosed in the LLC documents.





TAX ASPECTS OF SYNDICATOR EARNINGS

Order, Type & Method Of Compensation  The order in which the syndicator engages in the purchase and formation activities will determine how the syndicator's interest will be taxed. It is particularly important that the syndicator obtain the services of a qualified attorney in the area of LLC formation prior to the purchase of the property in order to determine the tax implications since the outcome can be either taxable in the year of formation, or tax-exempt.  The type and method of compensation will be subject to the same considerations.  Be sure to form your intent in the most tax advantageous way with the advise of competent professionals.





INVESTOR SELECTION

The proper identification and selection of investor participants in the beginning may save a lot of heartache in the end. Try to limit the number of subscribers and balance the contribution of subscription interest as close as possible. It is also extremely important to anticipate future funding requirements in advance. Each investor must understand the potential of a capital call should additional contributions later be required to fund unexpected cash flow needs of the syndicate. For this reason the individual's financial capabilities, and future credit worthiness, is important to the stability of the syndicate.  

A group of investors from comparable backgrounds is more likely to form a smooth running investment program.  Similarity between investors avoids inconsistent investment goals. Points of investor uniformity to consider include: 

Geographic uniformity.

Age.  Remember that younger investors are more likely to accept greater risk

Education

Prior investment experience.  

A Client Profile sheet to be completed by each subscriber and the syndicator that includes:

Personal Information  Name. address, occupation and marital status

Financial Information  Employment and investment income, insurance and other cash assets

Investment Background  Other partnership assets and real estate owned

Investment Expectations  Additional income, tax shelter needs and long term goals

Professionals Advisors  Accountant, attorney, real estate consultant and bank references

Education  Level of education for both subscriber, and spouse, if applicable

Special Interests  Find out something about the personal life of the subscriber

Personality  Positive and decisive. Negative and evasive; or passive

Build your partnership upon a foundation of clear understanding.  Be absolutely certain that each subscriber is financially and emotionally suitable for the LLC program.  The syndicator should avoid investors who are:

Unsuitable for long term investment

Suspicious or nit-picking

Controlling





TRUST DEED & MORTGAGE  INVESTMENT

General Observations  Generally, the LLC formed to invest in trust deeds and mortgages do not differ greatly from the syndicate formed to purchase real estate.  However, the syndicator should maintain an awareness that group investment in these instruments engage an everchanging application of securities laws.

Most syndicates investing in the ownership of existing real estate will only undertake duties and responsibilities which avoid a securities risk. The LLC formation rules which apply to real estate acquisition, generally apply to the purchase of trust deeds and mortgages.

An investment group formed to purchase an existing trust deed, or mortgage, should not be a securities risk provided the instrument is a fixed asset of know value secured by property with greater value. However, the securities risk associated with the purchase of trust the trust deed and mortgage is less certain. Brokers packaging trust deed and mortgage investment must maintain an awareness of changes in local statute.







FORMS

General Observations  The purpose of the investment circular si to explain the nature of the investment program and the consequences for a potential investor.  The most effective circulars demonstrate the syndicator is prepared, completing a thorough and well-organized investigation of the property's suitability for investment.

The table of contents and narrative sections from a typical investment circular are included here.  The bold-face items in teh checklist represent the table of contents for the circular. The underlying copy lists the items which should be considered for inclusion.







CHECKLIST FOR THE INVESTMENT CIRCULAR





INTRODUCTION TO THE INVESTMENT CIRCULAR

States the name and address of the limited liability company (LLC), explains the objectives of the investment program and identifies the manager

THE REAL ESTATE                              

Fee Simple/Leasehold

Location

Present use

Acreage/square footage

Condition of improvements

Neighborhood elements

RISK FACTORS

All group investments involve a degree of risk.  Members' ability to transfer their interest in the LLC is restricted.  Assignment of shares may trigger property tax a tax liability in come states.  Changes in economic conditions may affect income and profits.  Tax benefits, and treatment of the LLC as a partnership for tax reporting, are subject to Internal Revenue Service (IRS) regulation.  Member may default on their obligation to make future capital contributions.



THE REAL ESTATE

Number of units to be sold and amount of investment in each

Future recapitalization of the investment may be required

Syndicator may exchange purchase right for Class B membership









INVESTMENT GOALS

Income, profits or losses, and tax benefits will result form operation and eventual resale of the property.  Members will benefit from group ownership of real estate, without responsibility of management

USE OF PROCEEDS

Cash towards purchase price

Closing costs

Fees, or other reimbursement due syndicator

Reserves

ACQUISITION OF THE PROPERTY

Purchase agreement description

Terms of agreement

Vesting

Contingencies & Options

Return of investor funds if LLC is not completed

Insurance requirements

Financing Disclosure

OPERATION & MANAGEMENT

Property management agreement

Banking arrangements

Operating history of the property

Income and expense summary

Cash flow & capital gain model

Priority & subordinated interests

Cash distributions

Audit provisions

MANAGER'S COMPENSATION

Disclosure of all earning & profits to be received by manager

Interest of manager in other transactions

Commission payments

Promotional interest

Fees pursuant to sale & refinance

Fees from purchase financing

Ownership interest in property to be acquired

ASPECTS OF THE LLC

description of the LLC

Liability limitations

Avoid corporate attributes for tax preservation









SYNDICATOR QUALIFICATION

Describe the educational and business background of the syndicator, and previous experience in real estate e syndication



REPORTING

To delivered on acquisition of property

Copy of operating agreement

Copy of closing statement

Balance Sheet

Annual reports

LLC OPERATING AGREEMENT

Terms of the agreement

Restrictions & rights of members

Restrictions on transfer of interest

Death of a member

Management provisions

Distribution of earnings

Future capital requirements

Power of attorney for the manager

GOVERNMENT REPORTING (AS REQUIRED)

Annual report to Secretary of State ( if required)

Annual report to Department of corporations ( if required)





TAX ACCOUNTING

LLC to report as a partnership

Taxation of members interest

IRS 1065 & K1 requirements

Attorney for LLC









EXHIBITS

Articles of organization ( if required)t

Operating agreement

Subscription agreement

Income & Expense summary

Insurance recap

Plot map

Area map

Independent fee appraisal (if used)







Subscription Agreement  The purpose of the Subscription Agreement is to obtain the investors commitment, an acknowledgement of the risk and to insure the investor meets the suitability requirement.

The table of contents and narrative sections from a typical investment circular are included here.  The bold-face items in teh checklist represent the table of contents for the circular. The underlying copy lists the items which should be considered for inclusion.







Operating Agreement  The operating agreement is a very flexible agreement but should contain the following elements



Terms and conditions for the FORMATION of the LLC

Provision for initial and future CAPITAL CONTRIBUTIONS AND DISTRIBUTION OF FUNDS

Methods for meeting the ACCOUNTS AND ACCOUNTING needs of the syndicate

The means for ASSIGNMENT OF INTEREST & MEMBER SUBSTITUTION

TERMINATION OF MEMBERSHIP INTEREST

PURCHASE OPTION PURSUANT TO A MEMBERS INTEREST

VALUATION AND PAYMENT OF A MEMBERS INTEREST

LIMITATIONS ON MEMBERS' AUTHORITY

VOTING procedures and mandates

DISSOLUTION OF PARTNERSHIP AND DISTRIBUTION OF CAPITAL

MISCELLANEOUS PROVISIONS





PERFORMANCE MODELS

"Income & Expense Summary" And The "Cash Flow & Capital Gain Model"  Refer to the "Real Estate Investment Guide & Field Reference Manual" for the preparation of these models. The credibility of your investment program will depend on the careful preparation of these illustrations. Validate your observations with the third party opinions of other real estate.professionals. Investors with considerably less experience will be relying on your judgment, so insure that your purchase decision is clearly supported by the data. And, finally, minimize the return expectation of your investing partner.  Bold predictions for success simply enhances the potential for suspicion and confrontation within the group. Most investors are not looking for glorious returns, but simply a market return commensurate with the risk.

The table of contents and narrative sections from a typical investment circular are included here.  The bold-face items in the checklist represent the table of contents for the circular. The underlying copy lists the items which should be considered for inclusion.





BUILDING A FORTUNE
Yes. Fortunes have been built beginning with nothing more than one person willing to organize the dreams of a few. That person can be you. So get started . Make the commitment by telling your family and friends about your plans.  Organize a professional team of advisors.  Then go into the market place and build your fortune.

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