Securities Licenses and Real Estate Licenses for Reg D Syndications
Tilden Moschetti: One question I
often get from syndicators who
are doing their first
syndication is whether or not
they need a license, a real
estate license, a securities
license, any sort of license in
order to do a syndication or put
together a fund? Well, we're
going to answer that question in
this video.
My name is Tilden Moschetti. I
am a securities attorney with
the Moschetti syndication Law
Group. We specialize in
Regulation D Rule 506b and 506c
offerings in order to raise
capital for your business or for
real estate. When I have clients
who are new to grid syndication
or putting together a fund,
oftentimes they'll ask me if
they need a license from the
SEC, or FINRA or a real estate
license to do real estate
syndication? The short answer is
no. So you do not need a license
in order to do those things. So
let's break it out into
securities licensing, and then
real estate licensing, and then
we can go through those, and
maybe you'll decide to get a
license and maybe you will
decide not to. So in the
securities licensing,
oftentimes, having a securities
license is an additional
problem, rather than a benefit.
Now, under Regulation D, rule,
506b and 506c, that sponsor of
that security. So that's you the
syndicator, or the fund
organizer, putting it together,
is automatically allowed to sell
its own security. So you're
already allowed to go and sell
all the securities yourselves,
you do not need a broker dealer.
In order to do that, you need to
follow the rules, obviously, of
the SEC regulations that say
that you can't have non
accredited investors unless it's
a 506b offering and then up to
35. But then you can't advertise
all those things need to be
complied with. But you as a
sponsor can do the advertising.
Now, why did I say that it was
actually more difficult if you
do have a licensing? Well, the
problem comes down to what we
call suitability, whether the
investment itself is suitable
for the job that it's being
hired to do. So is your
investment in very best
interests of that investor. Now,
broker dealers deal with
suitability all the time, and
they make sure that the
investments that they put their
clients into are suitable, but
your investment may not actually
be suitable for a specific
person. And you may not know the
know that that is the case, it
may be a perfectly great
investment. But if you're, if
your investment is simply just
waiting for this gigantic cash
flow at the end of 10 years, and
you were trying to sell this
security to somebody who was 90
and really just needed that cash
flow, right, they needed monthly
checks, well, the investment
isn't suitable for that person.
But you wouldn't necessarily
know that as the sponsor, a
broker dealer would need to know
that. So if you had a securities
license, you would need to know
that. And it'd be a problem if
you sold it to that nine year
old person, because it then had,
you're not meeting that
suitability problem. So when I
have clients who do have
securities license, really the
challenge becomes distancing
themselves from their their
securities license itself,
making it very, very, very clear
that you were acting in this in
the capacity of a sponsor, and
not in the capacity of an RA or
a broker dealer, or anything
like that, that you're making no
claims about suitability
whatsoever, and have no input on
whether it is suitable or not.
And so it's a lot of work to
actually separate the two and
it's not perfect when it's done.
Because if they knew you, as a
broker dealer, there's still the
chance that they relied on your
information, because you were a
broker dealer. That's the
information on why a securities
license would be a little bit
more challenging than not having
one at all. So not required to
have a securities license to
sell your security. When it
comes to real estate licenses.
That's a little bit different
story. So the answer is no. If
you're doing a real estate
syndication, you do not need to
have a real estate license.
However, the real estate license
can help you in a lot of ways.
It most importantly, it can
change your fees. So the work
that you do as a real estate, a
salesperson or a real estate
broker can be used and you can
get those fees that you would
generate from things like buying
real estate or selling real
estate State or being a property
manager. Now it needs to
obviously be disclosed that
you'd be acting in that capacity
as part of the syndication. But
you as an agent or a broker
would be hired by the
syndication itself. In order to
perform those activities, we
also make sure to put in
language that makes it very
clear that we're you not the
broker, that you might have
gotten a higher price for the
sale of the property. Or you
might have gotten a lower price
for the purchase of the
property. If it had been some
other agents or some other
salesperson that gets rid of the
argument later down the road of
somebody saying, well, we could
have made a lot more if we hired
my friend Suzy. It doesn't
matter, because we've already
described that we're hiring you.
And we're also saying that, you
know, it's possible that the
rates would have been higher,
but we're going to be hiring the
salesperson anyway. So at least
long before the money ever came
into your hands into the
syndication. It was already
disclosed and discussed with the
investors. So they knew at least
that it was going on. So I like
to have my investors to have my
syndicators have a real estate
license if they're doing real
estate syndication, because it's
an opportunity for them to get
increased feeds. And as long as
they do good, competent work,
that's a win for everybody
because then you know the real
estate better than anyone else,
and you can sell or buy the real
estate that you need to do. So I
hope that helps answer the
question about licenses and you
doing a Regulation D Rule 506b
or 506c syndication. If you're
putting together a syndication
or fun, feel free to call my
office and set up a time for us
to talk and we can go through
your own situation and see if I
am a good fit to help you do
that next deal and the next
deals thereafter to accomplish
your goals.