| When you pool money from private lenders, | | | | |
| you're putting funds together from two or | | | | One of the things I've taught my students and |
| more different private lenders. | | | | continue to stress is that you shouldn't be |
| | | | pooling money from private lenders unless you |
| You obviously need to look at doing something | | | | make sure you're in compliance. |
| different where your state's paperwork is | | | | |
| concerned. This means you will need to file | | | | In order to be in compliance with your home |
| paperwork with your state and provide a | | | | state's securities laws, you'll need to find |
| disclosure document to your potential private | | | | the proper exemption, filing or registration |
| lenders. | | | | option and comply with its requirements. |
| | | | |
| In Ohio, for example, we have what is known | | | | The following is some general information on |
| as 6(A)1 filing. This filing allow for | | | | staying in compliance with your state's |
| pooling private lenders' money in running | | | | requirements. |
| your real-estate investment business. | | | | |
| | | | When you use an exemption to bring in private |
| This filing also allows advertising and | | | | lenders, you are making an offer and sale of |
| unlimited private lenders. | | | | a security. It's important to understand |
| | | | that an offer to sell is usually treated the |
| Remember, securities laws and regulations | | | | same as a sale when it comes to securities |
| vary from state to state and the Federal SEC | | | | compliance. |
| has its own set of laws and regulations. | | | | |
| | | | Two key concepts to understand when you sell |
| Pooling money occurs when you combine funds | | | | securities are that there are exempt |
| from two or more different private lenders. | | | | securities and there are exempt transactions. |
| | | | Whether you're selling stock, equities, |
| You should use or form a new business entity. | | | | borrowing money, or debt, these are treated |
| You should choose a corporation which could | | | | as securities. An exempt security usually |
| be an S-corporation or an LLC. Some states | | | | means a security issued by a governmental |
| have different filings available depending | | | | agency or authority. |
| upon whether you have a corporation or an | | | | |
| LLC, and LLC's are sometimes treated as | | | | An exempt transaction refers to the sale of a |
| partnerships. Most states won't allow you to | | | | security not issued by a government agency |
| pool money when you're operating as a sole | | | | that has been given an exemption under state |
| proprietorship or DBA. | | | | law (or federal law) because of the nature of |
| | | | the security and how it's sold. |
| You cannot use your state's exemption for | | | | |
| real-estate transactions, similar to Ohio's | | | | Many of my students are basing their |
| 3(H) exemption, when you pool lenders | | | | compliance on the exemptions in their states |
| together. You can not use this particular | | | | that are similar to the one in Ohio found |
| exemption because there is no paperwork | | | | under 3(H): |
| involved. In Ohio, you must "upgrade" to the | | | | |
| 6(A)1 form, which allows pooling. All states | | | | Ohio Revised Code, Chapter XVII, Title |
| have similar paperwork levels. | | | | 1707.03(H) The sale of notes, bonds, or other |
| | | | evidences of indebtedness that are secured by |
| You should use one of your state's filings | | | | a mortgage lien upon real estate, leasehold |
| that allow for pooling money. As an example, | | | | estate other than oil, gas, or mining |
| Ohio has a number of these filings available, | | | | leasehold, or tangible personal property, or |
| such as a 6(A)1. | | | | which evidence of indebtedness is due under |
| | | | or based upon a conditional-sale contract, if |
| These filings require you to fill out | | | | all such notes, bonds, or other evidences of |
| paperwork, informing the state regulator | | | | indebtedness are sold to a single purchaser |
| about your business and what you're doing. | | | | at a single sale, is exempt. |
| It usually requires you to disclose | | | | |
| information to your potential private | | | | Remember, these are still securities, and the |
| lenders, which is for your benefit as well as | | | | sale of these securities can be exempt under |
| your private lenders' benefit. | | | | securities laws in Ohio. Compliance with the |
| | | | offer and sale of these securities is still |
| You'll pay a fee to your state regulator when | | | | required. |
| you file your paperwork. | | | | |