Syndication - LLC question

[Huy N.]

Hi fellow expert!

I'm putting together my 1st syndication deal and getting very confused as of how do you hold the property.

I'm raising the 25% down payment from 4 people to purchase a package of 5 single family house. 75% will be finance by a commercial banker. I heard the recent podcast that you suppose to have your operating LLC and holding LLC to be separated but i'm not sure how it get done exactly without upsetting the bank? Do you buy property under your operating LLC then later on transfer it over to your holding LLC? is your holding LLC suppose to be a multi member LLC or single? If it is multi member LLC, how do you handle taxes? do you have to file tax separately for a multi member LLC? if it is single LLC, how do you prove to your passive investors that they legally have equity in the project?

Thank you!

Huy

[Fred T.]

DISCLOSURE: I am NOT a Licensed Attorney, CPA, SEC Advisor and I AM NOT offering professional advise with this post. As with all legal matters, it is strongly urged with you consult with an Attorney, CPA and other related Licensed Professionals prior to acting on any information offered through a general forum of discussion.

I do not believe there is a limit to members of an LLC not do I believe that was the question to begin with. SEC and Entity Formation do not intermix. Each "Member" of the LLC has to make some form of contribution to that LLC to be a Member pursuant to the Operating Agreement which does not violate any SEC Rules...at least none I have read so maybe someone can enlighten me with the SEC Handout, Publication or Guide number that contradicts that statement.

With that said, you do want to have some form of a relationship with those Members before incorporating them into your business...and if you are just offering a stock position, then you will have to file appropriate Public Offering documents with the SEC.

SEC comes into play when you are soliciting funds from individuals you don't know personally or that you don't have a substantive relationship with PRIOR TO you approaching them. That can be a General Solicitation to a Forum, Solicitation to a Meetup, REI Club, a website you may erect and solicit or a CL ad you may put out into the world to name a few of the most common avenues. There are 2 new sections, with regard to solicitation, that have formed from the Jobs Act which may be worth while for you to research...Regulation D / rule 506 exemptions: 506(b) and 506(c).

SEC guidance has established the principle that approaching specific individuals about a securities offering is not a general solicitation if, before the individuals are approached, they have a substantive relationship with the person approaching them. A relationship is "substantive" if, based on a past business relationship with an offeree, the offeror can form a belief that the offeree currently has such knowledge and experience in financial and business matters that the offeree is capable of evaluating the merits and risks of the prospective investment.

So the main question becomes, do you have a substantive relationship with the individuals you are approaching and if you don't, then consulting with an SEC Attorney is advisable to determine what you have to do before you endeavor upon your solicitation./