Tilden Moschetti: I described in
a previous module how we

syndicators operate underneath
the regulatory framework from

the SEC and state law. But we
also operate under another

framework to Fortunately, this
one is our own design, it is the

operating agreement. Now, just
like with a PPM, a lot of

syndicators make a mistake of
just pulling an operating

agreement off the internet and
trying to do it themselves. This

too, is a really big mistake,
and it can definitely cost you.

So the problem with doing it in
the ppm is, you've said

something that's kind of
contradictory and confusing and

doesn't really and portrays the
wrong thing. And the SEC gets

upset about it in a operating
agreement, because it's the

rules of the company, you
actually can sabotage the entire

thing, bring the whole
syndication crashing down into a

pile of rubble, work in just
eliminate any liability

protection that you thought you
had, because it was an LLC. So

let's go through the operating
agreement, and its partner the

subscription agreement.

Just like we're governed by a
series of laws, an LLC is

governed by its own specific
laws in the place where those

laws are defined, is in the
operating agreement. You are at

the beginning, the only signer
in the operating agreement, you

are your partners, are the
originators of the operating

agreement. So I bring that
important point now, because

we'll talk about in detail how
the subscription agreement

relates to the operating
agreement in just a few minutes.

So let's first go through what
an operating agreement has, what

it is, and then we'll switch
over to the subscription

agreement. So like I said
before, an operating agreement

is the rules for the company, it
defines the way everything has

to take place. Now, good
operating agreement looks like

this, it's got every single
thing in it, so that when

anything happens, or when it's
ever it's time to do something,

you always have a place to go to
that has the very specific rules

for how to do it. So let's go
through the different parts of

an operating agreement. First
off, we like to talk about the

formation details. So here we're
talking about the name of the

LLC, the address that it's
there, sort of what the purpose

of the LLC is, which relates to
the articles that were filed

previously, establish the LLC.
All of those general details,

who to notify who to where books
and records are kept all those

general ideas about what the LLC
is, it sort of is the foundation

that sets it up. The next
section that I like to put way

up front is whether this is
going to be a manager managed

entity, or a member managed
entity. We talked about that in

the structure section, structure
module here in in the first

section, but this is the talking
about it in detail about how

that works in the operating
agreement itself. So are you

ma'am manager managed? Or are
you member managed, I like to

call it out because it's very
important. And it's sets the

tone for everything else. The
next section I like to go

through is members and different
and different classes of

members. So I like to identify
what a member is. And then I

like to identify what the
different classes there are, if

there are different classes. So
sometimes you'll have a class

you'll have your A shares or B
shares. They're not actually

shares remember their membership
units. But that's how people

oftentimes think about them in
their head. So these are just

different classes of people that
we've we've identified. And

these different classes may have
different rights,

responsibilities, distribution
amounts, and voting rights.

Which leads us to our next
section, which is voting rights

and how that takes place. Now in
a manager managed entity, there

still is voting. Most of the
time when I put together a a

manager managed, LLC for myself
for a deal that I'm syndicating.

I like to give some voting power
to my members. I think they like

it because they feel empowered.
And then it really is something

that I would just, I'm just more
comfortable philosophically

having them have the right to
have a say in it. The main thing

that I want them to have the say
on is, should we have a capital

event, I want their buy in to
say when it's time to sell or

not.

The next section that we have is
that of manager compensation.

This is where you put in all
those fees that we talked about.

This is where you identify what
those fees are, and where and

how to get them paid. So this is
your asset management fees. If

you have construction fees,
however, you're doing property

management, all those kinds of
things. This is the place where

you give the manager the right
to get those that compensation.

The next section is capital
contributions. Now, how is it

that you receive money for from
your investors? So are you do

you have sort of limits that
you're taking on? How does it

go? Does it go into a specific
count? How are you doing those

initial capital contributions?
Secondarily, how do you do any

additional capital cons,
contributions that are needed?

What happens when that when
there is that need? Who can

identify it? This is also called
a capital costs. So this isn't a

good thing by any means,
necessarily, unless it's already

foreseen? Well, we're gonna
finish this phase, and then this

is going to happen where we need
this capital. Most of the time,

this is a very negative thing,
but you got to identify it, and

having it well spelled out in
the pipe in the operating

agreement, is where it belongs,
because you're gonna need it, if

you need to do it, you will get
a lot of complaints if you have

to do a capital call. Now,
fortunately, they are very rare

if you do things, right. So but
if you do need it, you want to

have it nicely spelled out. The
part that's correlated with that

is what happens if there is a
capital call in one of your

investors doesn't give the
amount of money, additional

capital that is needed? Does it
dilute them? Or does it become

like an interest that they owe?
What is what is that mechanism

to do it? This needs to be in
the operating agreement. And to

spell out what that consequence
is. The next section, probably

the favorite section is
distribution. So how do

distributions get paid? In what
order? If there's a capital

event? does return of capital
get paid out? Or not? What is

that order of things, the order
of payments, the different

classes? How does it all take
place? The next section is what

happens in a dissolution of the
of the agreement. So at some

point, this entity is going to
be done, you will have

distributed all the money. And
just we like to put out some

nice formal, this is what
happens in a dissolution. The

last section that's important in
a operating agreement, besides a

lot of other that we haven't
talked about here is are you

going to have a right of first
refusal on sale of shares. Now

we've talked about before that
you can't really sell the

shares. I mean, there's no real
market to sell those shares

those membership units in this
LLC. But when a member does want

to do that, it is permissible if
it's allowed in the operating

agreement. And a lot of times
we'll put in a right of first

refusal. Most of the time, the
right of first refusal will look

like this first to the manager
or the company and or the

company, that the manager can
make a decision to buy it for

themselves. Or the company can
get it in order to basically buy

back just like a, like you hear
about stock buybacks. It's the

exact same thing. So the company
can buy back those shares. If it

has the cash to do it. Perhaps
you'll even do it as part of a

capital call that takes place.
If that happens if there's some

sort of election in order to do
it. You could do it that way.

The next tear on the right of
first refusal is the is normally

the members themselves. And so
we set a price if the price is

that a third party makes a
bonafide offer then anybody in

the who's in the syndication can
also can buy it out at that same

price on an under certain
timelines. So those are the

elements that are very, very
common in an operating

agreement. So let's talk about
some scription agreements. So a

subscription agreement is what
we call an ancillary document to

the operating agreement itself.
So let's go to a diagram about

how this exactly works. So
you've got this operating

agreement here. Right, so you
have this operating agreement,

it's all really good. You've got
your signature here, make it

look like it's all official. And
you and say, your partner you

both signed the operating
agreement. Right. So now it's

time to add investors in to
this, to this operating

agreement? Well, we've got these
investors here who want to do

that. Now the operating
agreement is already done, it's

kind of closed, it's already
identified what your units are.

But it hasn't done anything to
your I'm not, I'm having them

not smile, because they don't
know what they're gonna do. So

they, they don't have a
mechanism in order to go into

that operating agreement. So but
there actually is a way to solve

this. And that way, is through
the subscription agreement. So a

subscription agreement is signed
by each of the investors. And

what it does is it binds the
investor with that agreement to

the operating agreement. So it
makes all of them subject to all

the rights and responsibilities
of that operating agreement. For

example, capital calls are a
perfect example. Nobody wants to

make them. But they've signed a
subscription agreement that

says, hey, I'm a part of this,
my money's a part of this, I get

the benefit from it, because
I've got a subscription

agreement, but I've also got the
downside, and the risk that's

associated with it as well. So a
subscription agreement contains

a few sections, it has reps and
warranties. And these are, these

are the big the biggies. So the
reps and warranties that I like

to put in there are that they
got the PPM, read it, under

understood it, and had an
opportunity to discuss with

their attorney that they if it's
a 506c, which is mostly what I

do, if it's a 506c, they say, I
am an accredited investor. I am

an accredited investor. So that
way, then if there's any kind of

that they did it by any sort of
fraud, it's sort of like, well,

they are the ones committing the
problem here. They're saying

they're an accredited investor,
that they are adopting the

operating agreement. And then I
also like to put an

acknowledgement about transfer
because it's kind of a big deal.

Lastly, I like to give a
questionnaire and the

questionnaire really is more for
my convenience rather than

anything else. The
questionnaires purpose is to

say, give me all of the
information in one place, so I

don't have to look for it
anywhere else. So give me all of

your address, your phone number,
your social security number for

taxes, how you're being done,
give me the you know, who are

the signers who's necessary to
contact give me all that

information. So that way, I've
got it in one place, and what

better place than the
subscription agreement itself.

All right, so, let's see. The in
our next module we are going to

talk about now that we've gotten
our subscription agreement

signed. How do we are ready? How
do we now take this PPM and this

investment that we've put
together a whole framework we

put together how do we take it
and market it to the world? How

do we find investors? How do we
show it to the world? And how do

we talk about our investment we
did all this work to get all

that done. Now we need to get
people to actually subscribe

right. So in our next module, we
are going to go through the

marketing of the investment