Can a private individual solicit funds from investors?

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Latest post 10-23-2010 4:50 PM by Taxagent. 3 replies.
  • 10-23-2010 2:44 PM

    • VJS
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    Can a private individual solicit funds from investors?

    Can an individual run ads, or otherwise solicit for investors/partners for a start-up business that involves investing in real estate?

    Are there any local/state/or federal laws governing such activity? I've gotten conflicting information from attorneys on this issue and want to be sure of my actions so I do not inadvertently make a mistake.

  • 10-23-2010 4:12 PM In reply to

    Re: Can a private individual solicit funds from investors?

    Have a little patience. Posting the same question twice because you didn't get an answer right away is annoying. The other one will be deleted by the moderators.

    VJS:

    Can an individual run ads, or otherwise solicit for investors/partners for a start-up business that involves investing in real estate?

    The obvious answer to that is yes.

    Whether you can be successful at it or not is impossible to predict.

    VJS:
    Are there any local/state/or federal laws governing such activity?

    Yes.

    There are tax laws, there are state laws regarding the formation of partnerships, corporations and LLCs, There are business registration laws. Depending on the number of investors there may be securities and exchange laws.

    Best way to approach this is to find a lawyer who specializes in real estate limited partnerships and plunk down some money on his desk for a well researched professional opinion.

    And please keep all your discussion on this and related topics in one thread.

    • The right of the people 
    • to keep and bear arms,
    • shall not be infringed.
  • 10-23-2010 4:47 PM In reply to

    Re: Can a private individual solicit funds from investors?

    I would not be so fast with "the obvious answer to that is yes" because methods of soliciting inventors are heavily regulated, and the regulations are strongly enforced. This laws aim to protect persons from a vast variety of money scams. There are both state and federal laws on this topic.

    Many solicitations must be done by a licensed person, like a stock broker or real estate broker. Many solicitations must be registered with the SEC before the solicitation is made, including public company offering and private placements.

    Many regulations arise from soliciting the sale of securities. Securities is broadly defined.

    Here is a link to a discussion on private placements of securities.

    http://www.seclaw.com/docs/pplace.htm

    Many regulations arise from brokering loans; if you are not a licensed broker, then you should not be soliciting investors for real estate loans. Many regulations arise from brokering equities.

    If you are looking purely for investor/lenders, (not partners) the risk is higher. Generally, the risky area is soliciting investors and lenders, either as direct investor lenders or as members of an LLC or as shareholders of a corporation; the area less regulated is soliciting partners, managers and other "insiders." Once a person is an "insider" you may solicit them for investments, as long as the all the investors are insiders, i.e. there are no outsiders.

     

    I would suggest you use a lawyer to be sure you comply with the regulations, or to be sure do not solicit in a manner that falls with in a regulatory area.

    HatTrick

  • 10-23-2010 4:50 PM In reply to

    Re: Can a private individual solicit funds from investors?

    VJS:
    Are there any local/state/or federal laws governing such activity?

    Yes. If, as it apppear, you are soliciting passive investors, the sale of the interests in this investment is a sale of a security. You will thus need to comply with federal and state securities laws. Under federal law, the general rule is that a security must be registered with the federal Securities and Exchange Commission (SEC) prior to being offered for sale to the public, and there are rules that govern how the sale may be offered. Registration with the SEC is a time consuming and very expensive process. There are, however, exemptions available from registration for certain kinds of offerings. You will want to make sure you meet one of those exemptions. In addition, depending on how you do the sale of the securities, you may need a security broker's license. I suggest you see a securities lawyer for help with these issues.

    There are of course, federal, state and local laws to consider as well. You will want advice from a tax lawyer on how to set it up so that you pay the least tax you can legally.

    Depending on your state's laws and how the investment is structured, there may be a need for you to have real estate brokers license. You will need to be sure that your ads comply with federal and state laws on truth in advertising. You will want to have a well written set of agreements and governing documents that spell out exactly how the investment will work. A business or real estate attorney can help you with these parts of it.

    I realize that I'm suggesting you see at least 3 attorneys, and most people upon hearing that think that's overkill. But paying for that advice before you jump in to it is far, far cheaper than paying these lawyers to fix a mess that you find yourself in later because you didn't do it right. I know—I've seen plenty of people after they've gotten themselves into a mess that could have been avoided had they consulted me or some other attorney BEFORE they started business.

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