Starting your own private fund or real estate syndication can be daunting, in part because of all of the legal complexities. Securities attorney Andrew Doup joins Fund Playbook to answer common legal questions from emerging fund managers.
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Learn how to launch your own private fund or real estate syndication with Fund Playbook. In each episode, Jimmy Atkinson shares insights on syndicating deals, raising capital, and entrepreneurship.
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Episode Transcript Summary
In this episode of Fund Playbook, Jimmy Atkinson welcomes Andrew Doup, a seasoned securities attorney at SyndicationCounsel, to address some of the most frequently asked legal questions by first-time and emerging fund managers. Whether you’re launching a real estate syndication, private equity fund, or Qualified Opportunity Fund (QOF), understanding the legal framework is critical to avoiding costly mistakes.
Drawing from his experience advising hundreds of fund sponsors, Andrew shares practical insights into entity structuring, securities compliance, investor relations, and ongoing governance.
When Does Securities Law Apply?
One of the most common misconceptions among new fund managers is misunderstanding when securities laws are triggered. Andrew explains that the moment you accept money from passive investors, you’re dealing with securities—even if those investors are friends, family, or business acquaintances.
He emphasizes that intent doesn’t matter—it’s the structure of the deal that counts. If investors are relying on the sponsor’s efforts to generate a return, it’s a security. This is where proper legal documentation and compliance become essential.
Entity Formation and Jurisdiction: Why Delaware?
Andrew recommends using an LLC structure in most fund scenarios due to its flexibility, pass-through taxation, and ease of management. For jurisdiction, Delaware remains the gold standard because of its well-established business laws and predictable court system.
While forming an entity in your home state might seem simpler, Andrew points out that sophisticated investors and institutions often expect Delaware entities, especially in multi-investor funds.
506(b) vs. 506(c): Choosing the Right Offering Type
The conversation shifts to the critical decision between Rule 506(b) and Rule 506(c) exemptions under Regulation D. Andrew breaks down the key differences:
- 506(b) allows up to 35 non-accredited investors but prohibits general solicitation. It’s often used for tight networks and repeat investors.
- 506(c) permits public marketing but requires strict verification of accredited investor status.
Andrew advises fund managers to plan their capital raising strategy upfront, as switching mid-raise can be problematic. He also highlights recent SEC guidance that offers more flexibility in verifying accredited investors, particularly for larger check sizes.
Qualified Opportunity Funds: Compliance and Timing
For those launching a Qualified Opportunity Fund, Andrew outlines the specific compliance requirements, including:
- Filing Form 8997 to defer capital gains as a QOF investor.
- Filing Form 8996 to self-certify as a QOF.
- Meeting the 90% asset test deadlines based on the fund’s formation date.
- Understanding how capital deployment timelines interact with Opportunity Zone regulations.
He warns against underestimating the complexity of QOF compliance and stresses the importance of working with experienced counsel and tax advisors to navigate IRS requirements.
Fee Structures, Promote, and Investor Alignment
Jimmy and Andrew discuss how fund sponsors typically get compensated through a combination of:
- Acquisition fees
- Asset management fees
- Disposition fees
- Promote (carried interest)
Andrew explains that while fees are common, transparency is key. Sponsors should clearly disclose all compensation structures in offering documents to avoid any perception of impropriety.
He also notes that market-standard fees vary by asset class and deal size, but sponsors should ensure that investor returns remain attractive after fees are accounted for.
Legal Costs: What to Expect
A recurring question from emerging fund managers is how much it costs to properly set up a fund. Andrew provides a realistic range:
- A simple single-asset syndication might cost $15,000 to $25,000 in legal fees.
- More complex multi-asset funds or QOFs could run $30,000 to $50,000+ depending on structure and compliance needs.
Andrew cautions against using low-cost, cookie-cutter legal services, emphasizing that proper customization and counsel can save sponsors far more in the long run by preventing legal disputes or regulatory issues.
Ongoing Compliance and Governance
Launching a fund is just the beginning. Andrew highlights the importance of ongoing corporate governance, including:
- Maintaining proper records and meeting formalities.
- Providing periodic investor updates.
- Staying compliant with state and federal securities laws post-raise.
- Preparing for potential audits or investor inquiries.
He reinforces that two principles—disclosure and consent—are a fund manager’s best tools for risk mitigation.
Live Q&A Highlights
Throughout the episode, Jimmy fields several live questions from the audience, with Andrew offering detailed answers on:
- Handling multiple closings in a fundraise.
- Whether you can convert a 506(b) raise into a 506(c).
- Best practices for verifying accredited investors without creating friction.
- How to handle capital calls and investor default provisions.
- The implications of co-GP structures and joint ventures within funds.
Final Advice for Fund Managers
Andrew concludes by encouraging fund sponsors to engage legal counsel early, even during the conceptual phase of a fund. Waiting until after investor conversations begin can create unnecessary risk.
He also recommends building a strong team—including CPAs, fund administrators, and compliance experts—to support long-term success.
Conclusion
This episode serves as a comprehensive guide for navigating the legal landscape of fund formation and syndication. Whether you’re structuring your first deal or refining your approach for future raises, Andrew Doup’s insights offer invaluable clarity on staying compliant while focusing on growth.
To learn more about Andrew and his firm, visit SyndicationCounsel.com.