Syndication - Is a PPM required for 3 or less outside investors?

[Scott Mac]

I had a fellow syndicator in Massachusetts tell me that a PPM is not required for 3 or fewer investors.

1.   Is this correct for the SEC if it's multi-state, and would it fly in a Texas only offering?

2. Would it make any difference if it was an LLC or Tenets in Common offering?

3.  If it is true, would not having a PPM increase the sponsors exposure in a lawsuit in any way?

4.  Also, If it's true, are there any states to avoid this in?

If anyone has any input on this it would be appreciated.

Thanks, 

Scott Mac....

Austin, TX.

[Amy Wan]

@Alina Trigub thanks for the tag.

Generally, PPMs are not required where you take funds from accredited investors only—they’re technically only required where you’re taking funds from even one non-accredited investor. That being said, even institutional deals that are accredited investors only have PPMs because its good practice and, as you mentioned above, the lack of one increases one’s exposure.

I’ve never heard of any rule that says fewer than 3 investors don’t require a PPM. Securities law doesn’t look at number of investors, but whether something is or is not an investor contract (aka security).