Syndications vs. Joint Ventures

[Brian Geiger]

Please tell me if I'm right about this. 

A Syndication is when you have investors that are silent partners in the deal. They are receiving a return solely off the knowledge and work of the general sponsor. Because of this, it is an investment contract (due to investors receiving equity in exchange for capital) that needs to be registered with the U.S. Securities Exchange Commission.

A joint venture is not entirely passive because the investors who put up funds must have an active part in the deal. The private investor and the investor that found the deal are working together to get the deal done. This is all spelled out in a JV agreement. Because of this, the group is not required to register the investment with the SEC.

Am I missing any thing, is this accurate? Your thoughts

[Chris Levarek]

@Brian Geiger This is correct. The grey area still occurs when those active investors in a joint-venture are not actively involved. Typically 3-4 investors on JV agreement can be easy to justify an active role for all investors, however if you get to around 10 investors working together on a JV agreement gets a little tricky to make that claim. Bigger you go, the more you are going to need the correct vehicle or less investors are going to have contribute more capital.

There are companies and people who will do the paperwork to ensure the active roles are documented and the legalities are followed. In fact as an example to avoid a "piercing of the coprorate veil", LLC's require annual meeting minutes to be documented in a similar manner for a paper trail demonstrating the LLC is an actual company. I would always consult an attorney before setting up any kind of partnership.

Additionally, perhaps listen to this podcast episode on Whitney Sewell's "The Real Estate Syndication Show" episode 374 : "Mitigating the Risks of Partner Disputes to setup a Successful Joint Venture with Jeff Lerman". Really goes into the difference between JV and syndication as well as some of the components to be aware of.