Capital Partnership: is it actually a syndication?

Question

I currently have an LLC with a partner. I have found a couple deals that will require outside capital to make them work. (Our LLC would bring half, one other guy would bring half) Because of that we are looking to bring in another acquaintance of mine to be help fund the deal. From everything that I am reading, if we were to just take his money, and he has no day to day role in the deal, we are technically doing a syndication, as he would be considered a limited partner.

Every podcast talks about using partnerships and outside money. How do people do this without technically offering a security? Is the only way to make it a loan that is paid back with interest?

Thanks

Tanner

Every podcast talks about using partnerships and outside money. How do people do this without technically offering a security? Is the only way to make it a loan that is paid back with interest?

Thanks

Tanner

Tanner McGrew · Answer

All of that is exactly what I have been seeing, so I am glad I'm not crazy.

I wonder how extensive the role has to be to be considered legitimate? Like, director of landscaping!

Thanks for the info!

Taylor L. · Answer

Google the Howey Test if you'd like more info about what determines whether you're offering a security. A securities attorney can give you specific advice as to whether you are offering a security and would need to do all of the appropriate disclosures & paperwork to fall under Reg D rule 506 (b) or (c).

In this case it sounds like you likely would need to use an exemption in order to remain in compliance. Some investors like @Ari S. will make sure their partners have an active role in the deal, and therefore they are able to structure the deals as JVs. Would your investor/potential partner be open to taking an active role in some aspect of the investment?