There are five key documents as part of any syndication or fund.
And we're going to go through what those five documents are,
what how they work, and why you need them and how they fit into
the whole system.
My name is Tilden Moschetti. I am a syndication attorney with
the Moschetti Syndication Law Group. A lot of times when I
have people who are brand new who have never done a
syndication or fund before, they are confused as to what the
documents are that go into what we're all putting together. How
do we build that security, when we're looking at it from a
document kind of point of view, there are five key documents
that take place before the form d and notification to the, to
the states in order to build that structure of what that
security looks like. So we're gonna go through those, the very
first one is the articles of formation or sometimes called
the Certificate of Formation. This is typically filed with the
secretary of state for the state where that entity is being
formed, you can think of it as the birth certificate of the
entity. So for an LLC, it's always the articles of
formation, Certificate of Formation, something like that,
if it's a corporation, and oftentimes, it's called the
Articles of Incorporation, almost all of them are LLC. And
so we'll just use the LLC link go here, it'll be simpler. So
the articles of formation or Certificate of Formation filed
with the SEC or MA filed with the secretary of state, it does
have several different things. First, it lets the state know,
hey, we're forming this entity. So it has a filing fee attached
to it basically sets that up, it gives them the contact
information for it as well. So hey, if you need to get a hold
of me state, this is where I am. And this is how we're who's in
charge. It'll oftentimes have what kind of business it can be
that most of the time, we can get away with just saying any
legal purpose. So if we can do that, we do it just because it's
nice and vague. And in what you're setting up is for a legal
purpose anyway. And it's nice and flexible for you. So a lot
of times that will be a part of it as well. Another piece of it
that's also very important is who is the registered agent or
the agent for service of process. What that means is that
if somebody needs to file a notice or serve notice upon
somebody, say they're starting a lawsuit, they need to be able to
have, who that person is how to actually give it well, the
articles of formation or Certificate of Formation is
visible and is available for view by the public. So they can
look at that entity, look at who that registered agent is or the
agent for service of process, and know who it is either as an
individual or an entity, so that they can give formal notice to
them. So that is number one, that is the Certificate of
Formation or articles of formation. Number two is the
operating agreement. So the operating agreement you can
think of as the rules for the road. So it is the the rules
that the opera that the entity that you formed with that
Certificate of Formation, that birth certificate, it's the
rules that it must comply with. So that's the operating
agreement. Now the operating agreement is always extensive
and informed, and basically and legalese. Because there's a lot
of things we're trying to do. We're trying to make sure that
it's very clear what happens if so the operating agreement
should be a document that if there is ever a question about
what to do when blank, that blank gets through, you know,
once you identify that blank, you can go to the operating
agreement and find the actual answer about what is supposed to
happen. We try to make that as complete as possible, but as
flexible as possible to so that way, whatever is in that blank,
there is an answer that is provided for in the operating
agreement. For a typical syndication or fun, these can be
50 to 70 pages long. So it's very extensive and it covers a
lot of stuff. So everything from who can be a member or what
happens if a member wants to go out or allocations for taxes or
who they are. It's the who's the manager and how can the manager
be paid to distributions and compensation all of those things
or if there's problems, what do we do? That's the opera The
agreement the rules for the road of the entity. The third
document is the subscription agreement. So the subscription
agreement is the document that an investor signs that says,
hey, I want to be part of this investment. It's that investor
saying, I'm gonna give you this amount of money, and you're
gonna give me this amount of interest in that LLC. And that I
want to be a part of, in exchange for all that I, as an
investor, get to be a member of that, of that company. So when
they, there are other things that take place as part of that.
So there's this identification of an exchange of money for
units in the LLC. But also we have some warranties that are
being made that that the company that the offering of the
security itself was compliant with the rules to make sure
that's everything, everybody is clear about what happened, that
the investor was given a private placement memorandum, which
we'll talk about in just a minute, things like that, that
all goes into a subscription agreement. The fourth document
is the investor questionnaire. Now, the investor questionnaire
actually technically isn't required required in quotes, but
it is a darn good idea. So the investor questionnaire serves
two purposes. First, especially under Rule 506 B, what do you
have a non accredited investor, the non accredited investor must
be sophisticated. So this questionnaire helps us with that
sophistication part. There is a survey, there's a couple
questions that establishes that the investor is saying that
they're a a sophisticated investor, that they know what
they're doing when they make this investment, that helps the
syndicator or the fund manager, because if there's ever a
problem, they can always present that document that's that
basically outlines all a good faith basis for establishing
that the investor is indeed a sophisticated investor. The
second rule that the investor questionnaire for is for is for
compliance and ease of use. So what it does is it lets us, you
know, pay our taxes, lets us file are make distributions,
because it has the investor, it lists your investors name, you
know, if they're doing it under an entity, it's got social
security numbers, it's got information for the Know Your
Customer laws, like driver's license number, things like
that. So that way, when it comes tax time or distribution time,
you've got one easy place to look where the document lives.
Now, the fifth one is the private placement memorandum.
Now you can think of this as the biggie the big kahuna and the
big dog. This is the document that basically sets up all the
reasons that this is a legitimate investment for
somebody to invest it. Now, it's not the legal paperwork in terms
of the operating agreement or the actual rules. But what it
is, is it's the required disclosures and declarations
being made by the sponsor of the security to the investor. So
part of it is the terms of the offer. So the terms of the offer
is how distributions happen, what's the membership price,
what are we investing into all those things that take place in
it.
It also is doing other things that are very important as well.
So it's making mandatory disclosures, disclosures, like a
investor, you know that these are risky, right? You know, that
you could lose all your money, it's a fact you need to know it.
And it will also go through more specific instances of what other
risks are inherent in the investment. Because no matter
what, there are always inherent risks in any investment. This,
the other part of it is, is it makes a disclosure of any
conflicts of interest. Because there are also always inherent
conflicts of interest, because you've got a sponsor, who is
making money off of basically having an investor take care
come into the investment, and so that they can pay distributions
to that. So they're making money off of that, but they're also
acting as a fiduciary at the same time. So based on that
there's always a conflict of interest. Now conflict of
interest are okay, but they need to be disclosed and disclosed
and disclosed. So it's very apparent what those conflicts of
interest are. So that way nobody ever can say, hey, you never
told me that you were getting paid a commission or you never
told me that you You're investing in this property
yourself, or whatever it is, those different conflicts of
interest. We're trying to make sure that all the risks, all the
conflicts, everything gets told to the investor. So ultimately,
they can make a determination whether this investment is
suitable for their own purposes. They're the ones at the end of
the day, making that determination, and to make a
determination for suitability for their own purposes. They
need all of the information. And that is the point of the private
placement memorandum. Wow, that's the five big documents
all that take place before the forum D ID state notices. As you
can see, there's a lot of inner workings that are going on. So
my name is Tilden Moschetti. I am a syndication attorney with
the Moschetti Syndication Law Grop. We help people put
together these documents, we put them together for syndicators
and fund managers, because it's part of the compliance it's part
of how you structure it. On top of all these documents, we also
help our syndicators and fund managers really do whatever is
needed in order to help them be successful in their security
offering. Sometimes that's going through materials like marketing
materials and helping them identify what what sort of
disclaimers need to be there. Whatever we can do to help make
our syndicators and fund managers successful is in
everybody's best interest. That's what we all want at the
end of the day. And that's why that's why syndicators and fund
managers hire us, we're great at that. We can help them make
decisions that are sound rational, compliant with the
rules, but also based on the best practices have somebody
who's actually done a lot of deals for themselves, which is
me, and somebody who's also overseen and given a lot of
interaction and advice about the inner workings of the offerings
that my clients are making more than just putting together the
legal documents. If we can help you do the same thing. We'd love
to talk with you. Give me a call, send me a message and
let's do that.