Syndication Law & The Private Placement Memorandum Attorney What Happens When an Investor Wants to Exit Early in Your Reg D Syndication Or Fund?
Running a syndication or fund can be a tricky process, especially when an investor wants to withdraw their money before the conclusion of the venture. This scenario can occur due to various reasons, such as a life event or as part of a redemption. It's crucial to understand how these situations are managed and what legal implications they might have.
The Securities and Exchange Commission (SEC) places restrictions on resale to prevent investors from creating a market themselves. However, investors can sell their own shares, units or any investment denomination. This process is often part of redemption or could be an independent event.
In the absence of redemption, an operating agreement can include a right of first refusal. This right enables an existing investor to offer their units to a third party before selling them. The manager's approval is required for the new investor to enter the fund.
Whether a right of first refusal exists or not, the manager has the authority to approve or disapprove new investors. This process requires significant coordination with the investor wishing to sell their units to ensure compliance with the operating agreement and the best interests of all investors.
If a third party is involved, an agreement is usually written between the two parties, which the manager approves. It's important not to panic when these situations arise because there are solutions available. Consulting a syndication attorney can offer further guidance.
Read more about the SEC and Reg D - The SEC And It’s Reg D: https://www.moschettilaw.com/sec-reg-d/
Read more about real estate syndication - What Is Real Estate Syndication?: https://www.moschettilaw.com/what-is-real-estate-syndication/
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