There's a syndication myth out
there that you need to know

about that myth is called the
"Syndication LLC". The

"Syndication LLC" is not true,
it is a pathway to an SEC,

securities violation and civil
and criminal penalties. We're

going to talk about what that
myth is and how to recognize it.

And what's exactly wrong with it.

That "Syndication LLC", let's
talk about how it's being

described. And then we can go
into the details about what's

wrong with it. So the story goes
something like this, you buy a

piece of real estate

say 10 units of real estate. You
identify it. And then you say to

yourself, Okay, off the top, I
am going to take 20% of the

equity. And maybe I'll put down
5% of cash and the rest of it is

your syndication, entity's
profit. And then the rest of it

comes in form of equity. From
other investors, maybe in 10%

increments. So you have,
sensually a bunch of pieces of

the pie like that. So you've got
this thing, and this is the

syndication, LLC. So how it's
being described is okay, you

find these investors, they come
in and on paper, that's how it's

being described on paper, you
need to make sure that everybody

has voting rights. And as some
sort of control, the

descriptions that you hear about
it also go on to say, it doesn't

matter how you actually do it.
And this is the huge problem

with it, it doesn't matter how
you actually do it, it just

needs to be this way on paper.
And I've heard it also described

as complying with the Investment
Company Act. As an aside, the

Investment Company Act is not
the right regulation for this.

And especially if this is real
estate, it's already not part of

the Investment Company Act at
all. But the where it is a

problem is this part here. So
each one, you may be giving

investors, a partial ownership
shares, and you may be giving

them those voting rights. But
it's much more critical is not

the fact that on paper that they
have these voting rights, but

there's an understanding that
you're in control of the whole

property. It's not the on paper
that's critical. It is important

that it's correct and proper on
paper. But it is also just as

critical that in fact that your
investors have control and

owning REITs if you're going to
be complying with this, in one

of my other videos, we went
through the difference between a

joint venture and a syndication.
That here a joint venture is

where you've got partners coming
together, where the decisions

are really being made together.
And I emphasized in that video,

that it's important that most
all of the decision makers, all

of the people have that joint
venture have a very active part

and be active, inactive thing.
Some of the myth that's out

there about the syndication LLC,
is that it doesn't actually need

to be active that it can be
passive, which is completely

untrue. The courts have found
time and time again, that when

something is set up as a
syndication LLC, it's not a

syndication LLC, it's a security
and a security requires there to

be a PPM. It requires that if
it's going to either be

registered or it needs to fall
into one of the exemptions. It

doesn't matter what number of
rights that you give, it's what

number of rights the investor
themselves feels like they have

if there is a tacit
understanding that the investor

doesn't isn't participating and
isn't an active part of the

decision making. It is not a
syndication LLC, properly called

a joint venture. It's not it is
a security which must be

registered or fall under one of
the exemptions so big takeaway

here is don't fall prey to
listening to people on the

internet about how you should
legally structure something. And

with the side understandings,
there is not a shortcut around

following the rules. Trying to
make a shortcut is a long is a

long cut to getting what you
want. But it's a shortcut to

ending up in jail or civil
penalties. Yes, it may not

happen right away. But at some
point one of your investor is

going to is going to file a
complaint, and all the holding

up of your operating agreement
in the world saying, Oh, but it

says here, my investors have
voting rights isn't gonna help

you worth a darn, it's going to
end you up in big, big trouble,

the big trouble because they
didn't actually feel like they

have those rights. It may say
that on paper. But if there was

an understanding amongst all of
your investors, and if one is

making a complaint, the others
are going to be right behind

when they find out that they can
get a piece of their pound of

flesh as well, by saying, yeah,
exactly know, the understanding.

He told me that I wasn't going
to be active at all. In fact, we

never had meetings, I never made
a single decision, you're going

to end up in big trouble if you
try and go that way. If it's a

joint venture, however, and
everything is good, then

everything's good. But what's
being described as a syndication

LLC is completely and 100%
Wrong. So that is a joint

venture, which requires active
participation. Everything else

must be either registered with
the SEC or fall under one of the

exemptions in order to be
compliant. Hope that helps. My

name is Tilden Moschetti. I am a
syndication attorney with the

Moschetti Syndication Law Group.
If we can help you stay in

compliance and not fall victim
to these kinds of nonsense that

you see on the internet. Please
feel free to give us a call