Syndication with only 1 investor?

[Samuel S.]

Hey BP folks,

For those who are fluent in this type of arena, could you please me know if I am missing anything? (I apologize for the length)

I have an investor (just one) looking to get involved in REI, who is self employed. Say he rolls over x amount into a solo401k/SDIRA/ROBS, then invests the funds into my LLC. My LLC will then go and purchase RE. This would not be considered a syndication, correct? Since I wouldn't be pooling funds, but rather just having 1 investor fully fund my LLC?

Also for the compensation, I understand that my investor would be receiving the distributions via his retirement fund and not personal bank account, but would I still be able to receive normal compensation? (depending on how my investor and I decide to structure the payouts)

Last question: I understand any debt financed income inside a retirement account is subject to UBIT (with the exception of solo 401k), but if I got debt financing in the name of my LLC, would the income distributed to my investors retirement account not be subject UBIT?

Would really appreciate any feedback! 

[Jonathan Twombly]

It's still a syndication even if there is only one investor.  One of my deals is set up that way.

You need to be careful because what you are proposing (all syndications are) is a securities deal.  You are selling him a security, because you are doing the work and he is making a passive investment into a company over which he has no control.  

There may be other ways to structure the deal to make it not a security, but that would be more akin to a partnership, in which he has some decision rights.  It depends on what he wants.  If he wants passive income tax treatment, then his rights have to be limited or it stops being passive.  If you want him to be active, he will have to forego passive tax treatment, but you won't have a securities issue on your hands.

If he is going to be a truly passive investor, then you need to make sure he is accredited, and consult with a real securities lawyer about structuring the deal properly, providing the right disclosures, and all the other things you need to do to be compliant and keep the SEC off your back.  You will need to make sure he is accredited so that you can do this offering under an exception to the securities laws; otherwise your life could become very difficult.