Is a PPM Needed to Raise Capital From Passive Investors?

[Stephen Pearse]

I'm closing on my first syndication next month and I've run into contradicting beliefs. It is a smaller deal- 15 units, $1,025,000 price, raising $50,000 from 5 passive investors. The questions is, do we need a PPM?

Up until now I have always been told that a PPM is needed for any sort of syndication. My partner and I were referred to an attorney who claims that the term "syndication" would only apply to deals bigger than ours and that we don't need that much documentation. He says that we can have a 3-7 page disclosure and file an M11 with New York State and be ok. I'm worried that our operating statement would list the passive investors as members of a JV, meaning that they can't be passive and that we wouldn't pass the Howey Test without a PPM.

If anyone has any insight on whether a PPM is absolutely necessary or not would be extremely helpful.