Recently, we were asked: “I know someone who does deals with the same group of investors over and over and just uses a limited partnership agreement without a subscription agreement, PPM, or securities notice filings. Can I do that?”
The answer is: If all investors are accredited, no PPM is required, but it is highly recommended if you have more than 3-4 investors whom you know very well.
Additionally, there are some intrastate securities exemptions that may not require a disclosure document (PPM) if all investors, the property and the syndicator are from the same state, and such exemptions may or may not have a notice filing requirement (where you file something with the securities regulators claiming the exemption).
But if that’s not the case, your acquaintance may have the benefit of the “good deal” exemption, which means if nothing goes wrong, no one complains and there are no ramifications.
But it’s not your original investors you need to worry about. Rather, it’s their successors or heirs, who don’t care about you or the deal; they only want the money and they want it now. They’ll look for securities violations to force you to give the money back (a “rescission”).
Think of this like owning a house without insurance; sure, you can do it, but it would be unwise. And if you get in trouble, the investors and your reputation will likely suffer irreparable damage.