Raising capital through syndication is one of the most effective ways to fund real estate or business ventures—but it’s also one of the riskiest if you don’t follow securities laws. Many new syndicators jump into deals without fully understanding what it means to sell securities, how to choose the right SEC exemption, or how to legally market an offering
Below are the most common legal, compliance, and strategic mistakes syndicators make,along with insights on how to avoid them so you can raise capital legally and confidently.
What Are the Most Common Legal Mistakes Syndicators Make?
Most syndicators who run into legal trouble do so because they misunderstand securities law. In nearly all private offerings, the investors are passive, which means you are selling
Securities — even if the structure is an LLC or joint venture. Using the wrong exemption or advertising improperly can put your entire project at risk.
Top Legal Mistakes:
1.Failing to Recognize They’re Selling Securities
2.Using the Wrong or No SEC Exemption
3.Ignoring “Bad Actor” Rules
4.Improper Marketing or General Solicitation
5.Taking Money from Unverified or Ineligible Investors
How to Avoid Them:
- Understand the difference between active partners and passive investors
- Choose the correct exemption (Rule 506(b), 506(c), Reg CF, or Reg A+)
- Verify all investors under Rule 506(c)
- Avoid public advertising unless your exemption allows it
- Work with experienced securities counsel before raising funds
What Are the Most Common Compliance and Documentation Mistakes?
Even if you’ve selected the right exemption, compliance doesn’t end there. You must still provide full disclosures, create proper offering documents, and file required notices. Missing these steps can cause problems with both investors and regulators.
Top Compliance & Documentation Mistakes:
6. Inadequate or Misleading Disclosures
7.Weak or Incomplete Operating Agreements
8. Commingling Investor Funds
9. Failing to File Form D and State Blue Sky Notices
10. Poor Recordkeeping and Investor Communication
How to Avoid Them:
- Always issue a customized Private Placement Memorandum (PPM)
- Keep investor funds in a separate account until conditions are met
- File Form D with the SEC within 15 days of the first sale
- Submit all required state filings on time
- Maintain accurate investor records and provide regular updates
What Are the Most Common Strategic or Business Mistakes Syndicators Make?
Legal compliance alone doesn’t guarantee success. Many syndicators fail because they don’t have a plan for attracting and retaining investors. They rely on misinformation, underestimate the cost of legal work,or believe that a great deal will sell itself.
Top Strategic & Business Mistakes:
11. Relying on Misinformation or Unqualified Advisors
12. Underestimating Legal and Compliance Costs
13. Believing “If You Build It, Investors Will Come”
14. Not Creating a Database of Pre-Vetted Investors
15. Not Understanding Deal Structures or Capital Stack Basics
How to Avoid Them:
- Educate yourself on syndication structures and investor expectations
- Build a long-term database of qualified investors before launching a deal
- Budget for legal, accounting, and compliance costs
- Seek advice only from qualified securities professionals
- Develop an investor communication plan to build lasting relationships
Why It Matters: Raising Capital the Right Way
Syndication is not just about finding deals— it’s about doing them legally and ethically. A single mistake in structure, marketing, or documentation can jeopardize your offering and your reputation.
At Syndication Attorneys PLLC, we help entrepreneurs, syndicators, and fund managers structure their offerings and raise capital legally under Regulation D, Regulation CF, and Regulation A+. From creating Private Placement Memorandums to filing Form D and advising on investor communications, we guide you through every stage of the process.
If you’re planning to raise money for your next project, visit www.SyndicationAttorneys.com to schedule a consultation and learn how to structure your syndication the right way—before you take investor funds.
Schedule a call with us today: Click Here
