1 00:00:00,000 --> 00:00:06,000 There are five key documents as part of any syndication or fund. 2 00:00:06,390 --> 00:00:09,360 And we're going to go through what those five documents are, 3 00:00:09,480 --> 00:00:13,530 what how they work, and why you need them and how they fit into 4 00:00:13,530 --> 00:00:14,370 the whole system. 5 00:00:25,760 --> 00:00:28,850 My name is Tilden Moschetti. I am a syndication attorney with 6 00:00:28,850 --> 00:00:32,450 the Moschetti Syndication Law Group. A lot of times when I 7 00:00:32,450 --> 00:00:34,940 have people who are brand new who have never done a 8 00:00:34,940 --> 00:00:39,290 syndication or fund before, they are confused as to what the 9 00:00:39,290 --> 00:00:43,550 documents are that go into what we're all putting together. How 10 00:00:43,550 --> 00:00:46,640 do we build that security, when we're looking at it from a 11 00:00:46,640 --> 00:00:50,870 document kind of point of view, there are five key documents 12 00:00:50,990 --> 00:00:56,330 that take place before the form d and notification to the, to 13 00:00:56,330 --> 00:00:59,840 the states in order to build that structure of what that 14 00:00:59,840 --> 00:01:03,320 security looks like. So we're gonna go through those, the very 15 00:01:03,320 --> 00:01:07,910 first one is the articles of formation or sometimes called 16 00:01:07,910 --> 00:01:11,540 the Certificate of Formation. This is typically filed with the 17 00:01:11,540 --> 00:01:14,750 secretary of state for the state where that entity is being 18 00:01:14,750 --> 00:01:19,460 formed, you can think of it as the birth certificate of the 19 00:01:19,490 --> 00:01:22,940 entity. So for an LLC, it's always the articles of 20 00:01:22,940 --> 00:01:25,670 formation, Certificate of Formation, something like that, 21 00:01:26,270 --> 00:01:28,850 if it's a corporation, and oftentimes, it's called the 22 00:01:28,850 --> 00:01:32,780 Articles of Incorporation, almost all of them are LLC. And 23 00:01:32,780 --> 00:01:37,700 so we'll just use the LLC link go here, it'll be simpler. So 24 00:01:37,730 --> 00:01:41,540 the articles of formation or Certificate of Formation filed 25 00:01:41,540 --> 00:01:46,220 with the SEC or MA filed with the secretary of state, it does 26 00:01:46,280 --> 00:01:49,280 have several different things. First, it lets the state know, 27 00:01:49,310 --> 00:01:53,990 hey, we're forming this entity. So it has a filing fee attached 28 00:01:53,990 --> 00:01:58,010 to it basically sets that up, it gives them the contact 29 00:01:58,010 --> 00:02:01,730 information for it as well. So hey, if you need to get a hold 30 00:02:01,730 --> 00:02:05,870 of me state, this is where I am. And this is how we're who's in 31 00:02:05,870 --> 00:02:10,730 charge. It'll oftentimes have what kind of business it can be 32 00:02:10,940 --> 00:02:14,420 that most of the time, we can get away with just saying any 33 00:02:14,420 --> 00:02:17,900 legal purpose. So if we can do that, we do it just because it's 34 00:02:17,930 --> 00:02:22,370 nice and vague. And in what you're setting up is for a legal 35 00:02:22,370 --> 00:02:27,140 purpose anyway. And it's nice and flexible for you. So a lot 36 00:02:27,140 --> 00:02:30,410 of times that will be a part of it as well. Another piece of it 37 00:02:30,410 --> 00:02:34,430 that's also very important is who is the registered agent or 38 00:02:34,430 --> 00:02:38,780 the agent for service of process. What that means is that 39 00:02:38,780 --> 00:02:43,760 if somebody needs to file a notice or serve notice upon 40 00:02:43,760 --> 00:02:47,510 somebody, say they're starting a lawsuit, they need to be able to 41 00:02:47,510 --> 00:02:52,280 have, who that person is how to actually give it well, the 42 00:02:52,340 --> 00:02:55,850 articles of formation or Certificate of Formation is 43 00:02:55,880 --> 00:03:00,980 visible and is available for view by the public. So they can 44 00:03:00,980 --> 00:03:05,150 look at that entity, look at who that registered agent is or the 45 00:03:05,150 --> 00:03:09,650 agent for service of process, and know who it is either as an 46 00:03:09,650 --> 00:03:13,520 individual or an entity, so that they can give formal notice to 47 00:03:13,520 --> 00:03:17,990 them. So that is number one, that is the Certificate of 48 00:03:17,990 --> 00:03:22,580 Formation or articles of formation. Number two is the 49 00:03:22,610 --> 00:03:26,240 operating agreement. So the operating agreement you can 50 00:03:26,240 --> 00:03:31,610 think of as the rules for the road. So it is the the rules 51 00:03:31,610 --> 00:03:34,940 that the opera that the entity that you formed with that 52 00:03:34,940 --> 00:03:38,060 Certificate of Formation, that birth certificate, it's the 53 00:03:38,060 --> 00:03:41,570 rules that it must comply with. So that's the operating 54 00:03:41,570 --> 00:03:45,110 agreement. Now the operating agreement is always extensive 55 00:03:45,110 --> 00:03:49,340 and informed, and basically and legalese. Because there's a lot 56 00:03:49,340 --> 00:03:52,850 of things we're trying to do. We're trying to make sure that 57 00:03:52,850 --> 00:03:58,040 it's very clear what happens if so the operating agreement 58 00:03:58,040 --> 00:04:01,670 should be a document that if there is ever a question about 59 00:04:01,730 --> 00:04:07,130 what to do when blank, that blank gets through, you know, 60 00:04:07,160 --> 00:04:10,640 once you identify that blank, you can go to the operating 61 00:04:10,640 --> 00:04:14,210 agreement and find the actual answer about what is supposed to 62 00:04:14,210 --> 00:04:19,130 happen. We try to make that as complete as possible, but as 63 00:04:19,130 --> 00:04:24,710 flexible as possible to so that way, whatever is in that blank, 64 00:04:24,800 --> 00:04:28,370 there is an answer that is provided for in the operating 65 00:04:28,370 --> 00:04:33,020 agreement. For a typical syndication or fun, these can be 66 00:04:33,050 --> 00:04:37,700 50 to 70 pages long. So it's very extensive and it covers a 67 00:04:37,700 --> 00:04:43,730 lot of stuff. So everything from who can be a member or what 68 00:04:43,730 --> 00:04:48,590 happens if a member wants to go out or allocations for taxes or 69 00:04:48,740 --> 00:04:51,800 who they are. It's the who's the manager and how can the manager 70 00:04:51,800 --> 00:04:56,690 be paid to distributions and compensation all of those things 71 00:04:56,690 --> 00:05:00,170 or if there's problems, what do we do? That's the opera The 72 00:05:00,170 --> 00:05:04,670 agreement the rules for the road of the entity. The third 73 00:05:04,670 --> 00:05:08,690 document is the subscription agreement. So the subscription 74 00:05:08,690 --> 00:05:12,710 agreement is the document that an investor signs that says, 75 00:05:12,710 --> 00:05:17,270 hey, I want to be part of this investment. It's that investor 76 00:05:17,270 --> 00:05:20,870 saying, I'm gonna give you this amount of money, and you're 77 00:05:20,870 --> 00:05:28,700 gonna give me this amount of interest in that LLC. And that I 78 00:05:28,700 --> 00:05:32,450 want to be a part of, in exchange for all that I, as an 79 00:05:32,450 --> 00:05:38,750 investor, get to be a member of that, of that company. So when 80 00:05:38,750 --> 00:05:42,350 they, there are other things that take place as part of that. 81 00:05:42,350 --> 00:05:46,340 So there's this identification of an exchange of money for 82 00:05:46,340 --> 00:05:51,650 units in the LLC. But also we have some warranties that are 83 00:05:51,650 --> 00:05:56,480 being made that that the company that the offering of the 84 00:05:56,480 --> 00:06:00,020 security itself was compliant with the rules to make sure 85 00:06:00,020 --> 00:06:03,500 that's everything, everybody is clear about what happened, that 86 00:06:03,500 --> 00:06:06,800 the investor was given a private placement memorandum, which 87 00:06:06,800 --> 00:06:09,980 we'll talk about in just a minute, things like that, that 88 00:06:09,980 --> 00:06:15,440 all goes into a subscription agreement. The fourth document 89 00:06:15,470 --> 00:06:18,740 is the investor questionnaire. Now, the investor questionnaire 90 00:06:18,740 --> 00:06:23,330 actually technically isn't required required in quotes, but 91 00:06:23,330 --> 00:06:27,080 it is a darn good idea. So the investor questionnaire serves 92 00:06:27,080 --> 00:06:31,730 two purposes. First, especially under Rule 506 B, what do you 93 00:06:31,730 --> 00:06:35,810 have a non accredited investor, the non accredited investor must 94 00:06:35,810 --> 00:06:41,000 be sophisticated. So this questionnaire helps us with that 95 00:06:41,000 --> 00:06:44,600 sophistication part. There is a survey, there's a couple 96 00:06:44,600 --> 00:06:48,710 questions that establishes that the investor is saying that 97 00:06:48,710 --> 00:06:53,810 they're a a sophisticated investor, that they know what 98 00:06:53,810 --> 00:06:57,350 they're doing when they make this investment, that helps the 99 00:06:57,350 --> 00:07:00,440 syndicator or the fund manager, because if there's ever a 100 00:07:00,440 --> 00:07:03,530 problem, they can always present that document that's that 101 00:07:03,530 --> 00:07:08,270 basically outlines all a good faith basis for establishing 102 00:07:08,270 --> 00:07:13,190 that the investor is indeed a sophisticated investor. The 103 00:07:13,190 --> 00:07:17,180 second rule that the investor questionnaire for is for is for 104 00:07:17,180 --> 00:07:21,920 compliance and ease of use. So what it does is it lets us, you 105 00:07:21,920 --> 00:07:26,900 know, pay our taxes, lets us file are make distributions, 106 00:07:27,050 --> 00:07:31,250 because it has the investor, it lists your investors name, you 107 00:07:31,250 --> 00:07:33,860 know, if they're doing it under an entity, it's got social 108 00:07:33,860 --> 00:07:37,790 security numbers, it's got information for the Know Your 109 00:07:37,790 --> 00:07:41,900 Customer laws, like driver's license number, things like 110 00:07:41,900 --> 00:07:46,040 that. So that way, when it comes tax time or distribution time, 111 00:07:46,220 --> 00:07:50,270 you've got one easy place to look where the document lives. 112 00:07:50,870 --> 00:07:54,920 Now, the fifth one is the private placement memorandum. 113 00:07:55,190 --> 00:07:58,460 Now you can think of this as the biggie the big kahuna and the 114 00:07:58,460 --> 00:08:04,460 big dog. This is the document that basically sets up all the 115 00:08:04,460 --> 00:08:08,990 reasons that this is a legitimate investment for 116 00:08:09,020 --> 00:08:13,460 somebody to invest it. Now, it's not the legal paperwork in terms 117 00:08:13,460 --> 00:08:17,390 of the operating agreement or the actual rules. But what it 118 00:08:17,390 --> 00:08:21,500 is, is it's the required disclosures and declarations 119 00:08:21,680 --> 00:08:26,840 being made by the sponsor of the security to the investor. So 120 00:08:26,870 --> 00:08:31,310 part of it is the terms of the offer. So the terms of the offer 121 00:08:31,310 --> 00:08:34,550 is how distributions happen, what's the membership price, 122 00:08:34,730 --> 00:08:38,420 what are we investing into all those things that take place in 123 00:08:38,420 --> 00:08:38,600 it. 124 00:08:39,920 --> 00:08:43,460 It also is doing other things that are very important as well. 125 00:08:43,640 --> 00:08:48,230 So it's making mandatory disclosures, disclosures, like a 126 00:08:48,230 --> 00:08:51,770 investor, you know that these are risky, right? You know, that 127 00:08:51,770 --> 00:08:55,970 you could lose all your money, it's a fact you need to know it. 128 00:08:56,150 --> 00:09:00,320 And it will also go through more specific instances of what other 129 00:09:00,320 --> 00:09:04,100 risks are inherent in the investment. Because no matter 130 00:09:04,100 --> 00:09:09,260 what, there are always inherent risks in any investment. This, 131 00:09:09,290 --> 00:09:12,920 the other part of it is, is it makes a disclosure of any 132 00:09:12,920 --> 00:09:18,140 conflicts of interest. Because there are also always inherent 133 00:09:18,140 --> 00:09:22,160 conflicts of interest, because you've got a sponsor, who is 134 00:09:22,160 --> 00:09:26,270 making money off of basically having an investor take care 135 00:09:26,540 --> 00:09:30,230 come into the investment, and so that they can pay distributions 136 00:09:30,230 --> 00:09:33,350 to that. So they're making money off of that, but they're also 137 00:09:33,350 --> 00:09:38,270 acting as a fiduciary at the same time. So based on that 138 00:09:38,300 --> 00:09:41,690 there's always a conflict of interest. Now conflict of 139 00:09:41,690 --> 00:09:46,100 interest are okay, but they need to be disclosed and disclosed 140 00:09:46,100 --> 00:09:50,000 and disclosed. So it's very apparent what those conflicts of 141 00:09:50,000 --> 00:09:55,130 interest are. So that way nobody ever can say, hey, you never 142 00:09:55,130 --> 00:09:59,030 told me that you were getting paid a commission or you never 143 00:09:59,030 --> 00:10:01,880 told me that you You're investing in this property 144 00:10:01,880 --> 00:10:05,870 yourself, or whatever it is, those different conflicts of 145 00:10:05,870 --> 00:10:09,920 interest. We're trying to make sure that all the risks, all the 146 00:10:09,920 --> 00:10:14,690 conflicts, everything gets told to the investor. So ultimately, 147 00:10:14,840 --> 00:10:18,800 they can make a determination whether this investment is 148 00:10:18,800 --> 00:10:22,910 suitable for their own purposes. They're the ones at the end of 149 00:10:22,910 --> 00:10:27,050 the day, making that determination, and to make a 150 00:10:27,050 --> 00:10:30,560 determination for suitability for their own purposes. They 151 00:10:30,560 --> 00:10:35,090 need all of the information. And that is the point of the private 152 00:10:35,090 --> 00:10:39,860 placement memorandum. Wow, that's the five big documents 153 00:10:39,920 --> 00:10:43,850 all that take place before the forum D ID state notices. As you 154 00:10:43,850 --> 00:10:47,780 can see, there's a lot of inner workings that are going on. So 155 00:10:47,810 --> 00:10:51,590 my name is Tilden Moschetti. I am a syndication attorney with 156 00:10:51,590 --> 00:10:55,190 the Moschetti Syndication Law Grop. We help people put 157 00:10:55,190 --> 00:10:58,820 together these documents, we put them together for syndicators 158 00:10:58,820 --> 00:11:02,930 and fund managers, because it's part of the compliance it's part 159 00:11:02,930 --> 00:11:07,430 of how you structure it. On top of all these documents, we also 160 00:11:07,430 --> 00:11:11,810 help our syndicators and fund managers really do whatever is 161 00:11:11,810 --> 00:11:15,590 needed in order to help them be successful in their security 162 00:11:15,590 --> 00:11:19,970 offering. Sometimes that's going through materials like marketing 163 00:11:19,970 --> 00:11:24,320 materials and helping them identify what what sort of 164 00:11:24,320 --> 00:11:27,980 disclaimers need to be there. Whatever we can do to help make 165 00:11:27,980 --> 00:11:32,240 our syndicators and fund managers successful is in 166 00:11:32,240 --> 00:11:35,060 everybody's best interest. That's what we all want at the 167 00:11:35,060 --> 00:11:38,930 end of the day. And that's why that's why syndicators and fund 168 00:11:38,930 --> 00:11:42,890 managers hire us, we're great at that. We can help them make 169 00:11:42,890 --> 00:11:46,040 decisions that are sound rational, compliant with the 170 00:11:46,040 --> 00:11:49,460 rules, but also based on the best practices have somebody 171 00:11:49,460 --> 00:11:52,880 who's actually done a lot of deals for themselves, which is 172 00:11:52,880 --> 00:11:56,780 me, and somebody who's also overseen and given a lot of 173 00:11:56,780 --> 00:12:01,700 interaction and advice about the inner workings of the offerings 174 00:12:01,700 --> 00:12:05,810 that my clients are making more than just putting together the 175 00:12:05,810 --> 00:12:09,950 legal documents. If we can help you do the same thing. We'd love 176 00:12:09,950 --> 00:12:14,090 to talk with you. Give me a call, send me a message and 177 00:12:14,090 --> 00:12:14,810 let's do that.