|Re: securities||<– Date –> <– Thread –>|
|From: David Mandel (dlmandelrcip.com)|
|Date: Sat, 27 Sep 1997 00:28:37 -0500|
Kate Nichols wrote: >I just got back from talking to two lawyers today. They asked me how >cohousing groups handle LLC's and securities. It is my understanding that we >are in possible violation of security laws when the original members ask >people to put in money towards a unit to become members, especially when they >don't have a significant development plans to disclose to prospective >members. We are in the state of Washington. >. Has anyone had to address this issue in Washington ? One lawyer suggested >we talk to a securities lawyer in Seattle and the state Attorney General's >office. > >The lawyer asked if we would be a 504 or a 505 tax (code?) In California, you would be in violation of real estate (not securities) law if you purported to be selling an interest in real estate before passing through several stages of state approval. It sounds as if the situation is similar in Washington. The good news is that there are many existing communities in Washington so you can get precise information from them (which is not to say that they necessarily did it right and just didn't get caught), but in any event, talking to them should help, and you shouldn't have to reinvent the wheel. That is why most groups form an LLC or limited partnership when they need to start collecting serious money. Group members (and perhaps others) are investing in a development project over which they will have some defined level of control until it is built and sold -- at which time the investors receive their principal and return (if they're lucky). But they have no guarantee of a unit or even the right to buy a unit. If all goes well, of course, the money invested by members can be recycled into a down payment, but if the project fails, all that initial investment is at risk of being lost. This needs to be carefully disclosed to all investors. For extra credit, here's a bonus answer. How do you think this investment prospect sounds to a potential resident with low income and few or no assets -- in other words, everything to lose. Perhaps adopt an accounting system and define your return on investment such that different members can invest widely varying amounts. A good discussion about legal entities to use at different stages took place at the conference. Soon you should be able to get notes. Good luck, David Mandel, Sacramento
securities NKaten947, September 26 1997
- Re: securities David Mandel, September 26 1997
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