In this module, we're going to show you how to protect yourself from the very beginning from either deals going sideways, or
making a mistake by choosing the wrong kinds of investors, you know, the investors that are just nightmares. So this is a
very simple process, there's really two different kinds of decisions that we need to make. The first decision that we have
to make is about entity types. So we'll go over what the basic entity types are. And then we'll also go through what the
structures look like. And that structures of typical syndication companies, and how they run their deals. Once you
have that in mind, you'll know how to basically build that whole framework that lets you do syndications in a much safer
way. And this really boils down to protecting you as the syndicator, from anything going wrong and protecting you from
liability. That's one of the key tenants that we want to do. Because if you ignore that, suddenly, you could be liable
for a lot of money for things that were just simple mistakes, or just acts of God that you didn't have control over.
The topic of entity selection and structures may only be interesting to lawyers. But I'll tell you, you'd be surprised how
important this is. So let me tell you a little story. And this isn't about a syndicator. But it is about commercial real
estate. So if I invite you to go ahead and Google about this as well, and look it up, look up Ghost Ship fire, and you'll see
the articles that pertain to it. So here's what happened. In 2016, there was a series there was a bunch of buildings that
was owned by one woman in the Bay area of California. And she owns like I said about 20 buildings, and one of those
buildings was known as the ghost ship. Now she had rented out that, that building, and she knew that the people who were
living there really weren't supposed to be living there they were supposed to be doing. I believe it was supposed to be an
office building. And she knew that they were doing something more like co-habit, dating, living and something like that.
Well, in 2016, there was a huge fire at this building known as the Go ship, which had been was being used for like a big party,
people were unable to escape through the exits that didn't have the proper fire doors 36 people died to severely injured
out of that. So catastrophic debts. Now, why this relates to structure is because she owned all 20 of those buildings in her
trust. Now a trust is just another entity type, just like the other entities, we're gonna go over today that you wouldn't
use a trust for syndicating. But she decided to put all of her properties just inside of her trust and thought she was
protected. She doesn't own 20 buildings anymore. So that's why this is so incredibly important. So let's get right into it and
discuss what is what the basic entity types that we're talking about are. So we've got a few different choices that you could
make. Now, if you chose to put everything under your own name, you will be basically acting as a sole.
Pro PRI tour,
you'll be acting as a sole proprietor, that is just you, there is no liability protection. And and that's all
it is. And there's more detail in the notes for here. We've given you a handout as part of this module that breaks us down
into a table similar to what I'm drawing right here. But for our purposes, I'm gonna go through it a little bit faster than the
level of detail that's there. So there's a sole proprietor then there is a partnership. This is two or more people coming
together for a common enterprise. Then there is your limited liability partnership. And then there is your limited
life. ability company. And finally there are corporations. Now, you may be asking, Well, what about S corporations versus
C corporations? Well, S corporations versus C corporations are not specific kinds of corporations, their
ways of being taxed. And so we'll talk about taxes, just very, very briefly here. But that's why it doesn't say S corp
versus C Corp. So let's just look at a few little things that that kind of call this out. And as I go through the start
thinking about what makes most sense for you, in terms of number of people involved, the asset protection, the
maintenance,
and governance and taxes.
Because at the end of the day, there's probably one entity type that makes the most sense for you. So when it comes to sole
proprietor we're talking about there's one person, and that's you Everything is under you your name, your social security
number, or an EIN that it's assigned specifically to you as a person, there is no asset protection whatsoever, in a sole
proprietor. In terms of maintenance, and governments, though, it's very, very simple. There may be you have to do a
DBA, or doing business as filing with your local municipality. But that's it. And then in terms of taxes, this all goes on your
individual taxes, you don't have a choice about that.
Now, let's talk about partnerships. Partnerships are always two or more people, there is no there's no asset
protection for the general partner, that's the people doing all of the work for but there is a limited amount for
for limited partners.
The governance is actually pretty easy. There is not a lot that you need to do for a partnership, but check with your
local state, if this is something of interest to you. And then in terms of taxes, you probably are going to be paying
as a partnership. Then there is your LLP, which also requires would be two or more people. And now there's some asset
protections for the general partner, and good asset protection for the the limited partners. So why would you
choose a partnership over an LLP, really, it comes down to cost of filing, and then this the difficulty of governance
governing it. There can be some moderate amount of maintenance that needs to be taken place on the LLP in order to keep it
valid, and you will be taxed as a partnership. Now we get to the LLC, and the LLC can have just one person. But in order for it
to have the best kind of level of asset protection, really do it should be, you know, two or more people in the same sort of
format where you have someone acting like a general partner, so that would be your managing members of the LLC in order to
manage it. And then and we'll talk about managed, member managed versus manager managed LLC is in just a bit. So one or
more people for an LLC. It has it has good asset protection and also easy to moderate
governance.
Not very difficult, but there is some work to be done. Again, check with your local state or where you're going to be filing.
Now we'll have specifically what those things are, what the dates are that you're going to have to send things in I make elections,
that sort of thing, and then also what those filing fees are. In terms of taxes, though, now it starts being a little bit
more interesting. You have a choice of either being taxed as a partnership
or an S Corp
which should you choose partnership or an S corp? Well, that's one of those questions where I'm gonna say you should
probably should talk to your accountant. Because once we start getting into how those distributions happen, the answer
changes radically, whether there's somebody should be doing a partnership or an S corp, what makes the most sense for them.
So that one is better to ask a your personal account, who knows, though, who knows your situation, and what you're doing
much, much better than we could possibly do on a module. In terms of corporations, we can also just have one person. In
most jurisdictions, there is good asset protection, though slightly different than in an LLC. But the maintenance of them
tends to be fairly complex, you need to have a board of directors, that board of directors may not do anything,
but they need to be there, they need officers and there needs to be all these rules that need to take place. Now, while your LLC
will have an operating agreement, your corporation will have bylaws. Typically the things that are required for a
corporation to stay active as and look like a real company in order to get that asset protection that you want.
There's just more things you have to do regular minutes have to be taken from board meetings, etc. So they're just more
complex, it's not to say that it's not a, it's not the best choice because it could be if you need a very specific kind of
governance in order to look right for investors than a corporation is a perfect way to set up. A REITs are always set
up as corporations in one of their main entities. And then a lot of times they have other different structures in those
other entities as well. Also, if you're going to be issuing shares, rather than membership units, so typically for like a
blind pool, you'll do it as a corporation, because it's a little bit easier to manage what that looks like. And then taxes
is either your S corp
or C Corp.
So again, look at the handout and to really kind of see what would make the most sense for your situation, and kind of
write out what's important to you, you know, if you've got more than one person, well, you're not going to be doing a
sole proprietor. And you probably shouldn't do a sole proprietor anyway. Most of the time, you're going to be
choosing between either an LLC and a corporation. So let's go and talk about common structures. And we'll see how
this plays out a little bit clearer. So, like I said, in a there are two kinds of LLCs. There are is a manager managed.
And this is just background, we need to have the rest of the conversation. And there is member managed and it's probably
self evident. But an LLC that's managed or managed is managed by a manager manage an LLC that's member managed is managed by its
members. What that means is all the regular decision making that takes place is either going to be made by the manager or the
member. Now in the typical structure that we do, typically we are using, there are two different layers of entities. So
we have your cindicator entity.
And I'm going to just draw that and there is your hopes already drawing the picture. And there is your investment entity And
almost always, you will use these kinds of structures.
So our syndicator entity is typically either an LLC or a corporation, I generally don't see anything other than those, I
guess it could be an LLP in certain situations. And, but normally a syndicator themselves is formed as either an LLC or a
corporation, because they want to get the advantage of asset protection, then your investment, and today, that is
almost always an LLC, it's rare that it's anything other than analysis. So let's go into the different kinds of structures.
So it all starts with you.
You are a syndicator.
So most are structured like this, as the syndicator, you have formed a syndication entity
in order to do your deals
and when you find that entity, you when you find that you're the investment that you're going to do, you put together another
entity that is called your investment entity
which your investors all invest into.
Now, whether this is manager managed, or member managed is, is really up to you. Typically, it will be a manager manage
entity. So that all the decision making about how the investment is run will primarily be made by you. Now you may very well
decide things like when it's time to sell or things like that should be made by all of the investors. That's perfectly
reasonable. And I do that most of the time, those kinds of decisions. But the decisions about who to choose as a
property manager, or are those kinds of things those typically I just leave to management. And I don't bring in the the the
investors.
So this is the most common structure, this is probably what you're going to be doing 95% of the time, is a manager managed
investment entity with the syndicator entity as the manager. I will give you a little background on why we
don't do it this way. So let's say there is a great property.
And here's you as the syndicator. And so you start syndicating this property, you find some investors to come into
the property, well, midway through one of these investors gets mad. And he decides that the way this entity is being run
is just terrible. And so he sues the entity and he sues you because you are the manager. So you can see that there is no
asset protection whatsoever on this. And now you need to respond to this lawsuit. The other thing that can happen is
if there is somebody external, who slips and falls on the property, they're going to sue the entity and they're going to
sue the manager of that entity which could be you. So we are trying to avoid that that isn't a good solution for you. We want
to give you as much protection And as possible now, the and that's why we set it up with the syndication entity. So let's go
back up here. Alright, so this here, if there's a problem on the entity, well, they can sue the entity, and they can sue the
manager, but they can't sue the manager of the manager. So that's why you have that cindicator entity there to act
as a buffer between you and your investors. So you may be asking, Well, that's all well and good. But what about those situations
where there's multiple properties that I'm going to be syndicating? It's very simple. It looks basically like this.
So here's your cindicator entity. Now, in this case, so say we've got two buildings, I will still third building.
So you've got these three buildings that you want to invest in? How do you do that, so that you can make it
something that is easy for your investors.
To come into? Well, all we do is we put together a single investment entity
that you are the manager of em, because it's just it's not a property of an entity. It's just a, it's just the entity itself.
And then each of these is its own property entity. And then your investors, they invest in this investment entity. And
that's the typical structure for what we do in in a pool situation. To make sense. So here's how to start thinking
about what makes the most sense. First off, there's no reason to not go ahead and get started in file, that syndicator entity. As
soon as you're think I'm definitely going to be putting a deal together. There are a lot of times costs that are
associated with not only putting it together, but many jurisdictions have taxes that apply in the first year for
entity for the minimum maintenance. So do know that if you decide Yeah, I'm gonna go for it, I'm going to put this
together, it is possible that you're going to be paying some costs. But it also is the way I like to see it, it's raising
your hand to the universe saying, I'm gonna do this, I'm gonna make money, I'm gonna put together some syndication. So to
me, it's like taking massive action towards your future. So I think it's a good thing in order to form it right away, but you
need to decide for yourself whether that makes sense. So, I would first form this indicator entity and as you start looking
for properties, then you can start looking then when you identify something, you can put together the right investment
entity or property entity as it see as would make the most sense for you. So make that decision, decide what entity type makes
the most sense for you, and then start thinking about okay, well that's how I would structure this deal, probably in terms of
making it a man manager managed entity managing one property happens most of the time for for new syndicators. In the next
module, we are going to talk about how to find investors for your syndication deal.