Build Your Real Estate Empire Through Syndication

In the United States, in order to raise capital by offering securities to the public, a company must register with the SEC through an initial public offering (i.e., IPO). Registering for an IPO is a time consuming and costly process. And once registered, ongoing reporting is required, adding to the cost of being a public company. The cost of an IPO is why many companies turn to private offerings to raise capital.

For private capital, the SEC provides exemptions from registration under Regulation D of the Securities Act to facilitate capital raising. The original intention of these exemptions was to be able to provide companies with the ability to raise capital through private channels such as friends, families and business associations to be able to raise money without the expense of going public. However, with the recent passage of the JOBS Act, businesses can now raise capital through general solicitation or advertising under one of the private exemptions, provided certain conditions are met.

An important criteria when evaluating potential investors is their Accredited Investor status. An Accredited Investor is defined as an individual with a net worth of at least $1 million (not including primary residence) or makes a minimum of $200,000 per year (or $300,000 per year as a married couple). Most exemptions limit the number of Non-Accredited Investors you can subscribe to 35. In addition, when raising money from Non-Accredited Investors, the disclosure requirements become more burdensome. As a general rule, we do not recommend raising money from Non-Accredited Investors.

Generally, you can raise money from an unlimited number of Accredited Investors. Under Rule 505 and Rule 506 of Regulation D, there is a limit to 35 Non-Accredited Investors over a 12 month period.

Depending on the exemption, there are certain offerings that don’t have a maximum limit. However, the Crowdfunding rules limit a maximum of $1,070,000 in a 12-month period.

Many types of securities can be offered including equity, debt or a hybrid security. Equity can take the form of stock in a corporation, membership or partnership interests in LLC’s or LLP’s, or other types of ownership interests. Debt offering regular distributions can take the form of notes, certificates, debentures, etc. Hybrid securities can include equity with an income component or debt with a profit-sharing component.