DIY Offering Documents: 3 Gaps That Surface Later

You're ready to do an offering and you already have a set of offering documents. Maybe you drafted them yourself from a template. Maybe you used an AI tool. Maybe an attorney prepared them, one who doesn't work in securities every day. Either way, the documents look complete— PPM with risk factors, subscription agreement, operating agreement, everything a syndication is supposed to have. Today I want to walk you through the 3 things that are most often missing from documents like that. These aren't obvious errors. They're things that are absent and they stay invisible until the deal runs into a situation the documents were supposed to handle. My name is Kim Lisa Taylor. I'm a securities attorney and the founder of Syndication Attorneys. We've worked with close to 500 clients and have written offerings for over $4 billion in private capital. And a meaningful part of what we do is reviewing documents that were drafted somewhere else— a template, an AI tool, a prior deal. The first thing to understand about offering documents: their existence tells you nothing about whether they will work. Documents fail in 2 ways. They could say something wrong, and that's usually findable, or they can be silent about something your deal will eventually need. And that's the failure nobody catches because you can't see what isn't there. Let me walk you through the 3 gaps we find most often. Gap 1, the securities filings never happened. A securities offering isn't just documents, it's documents plus filings. When you raise money under Regulation D, you file a Form D with the SEC within 15 days of your first sale. That's the federal side. Then there's the state side. Every state where an investor lives requires its own notice filing, what's called a blue sky filing, typically within 15 days of the first sale in that state. Different forms, different fees, one filing per state. If your investors live in 12 states, that's 12 filings. When you draft your own documents, there's no one in the process whose job it is to make those filings. The template doesn't file anything, and neither does the AI tool. And if the person who prepared your documents didn't put filings in the scope, nobody did them. We've seen plenty of situations where a sponsor has done 5 or 6 raises with documents in place for everyone, and not a single Form D or Blue Sky notice had ever been filed. The documents existed. The offering was never actually made compliant. I go deeper on blue sky filings in a separate video, but for now, the check is simple. For each offering you've done, can you produce the Form D confirmation and the state filing confirmations? If you can't, start there. Gap 2, the corporate structure. This one does the most long-term damage because the structure gets locked in at formation before the first dollar comes in. The following four problems come up over and over. First, individuals named as managers. Your LLC's manager should generally be an entity, a separate management LLC, not you personally. When your name personally is the manager, you're personally on the hook for the company's obligations, and there's no clean way to bring in a partner or to compensate a team or replace a manager without amending everything. Templates default to putting a person's name in the manager blank because. That's the simplest thing to do. It's simple. It's also wrong for most syndications. Second, member-managed versus manager-managed. When you form an LLC, you elect one or the other. In some states, right on the formation document. A member-managed LLC means every member is legally a managing member. Each one can open bank accounts and contractually bind the company. That's the right structure for a true joint venture where everyone is actively involved in generating their own profits, but it's a wrong structure when you have passive investors. And if you chose it because that's what the template you were given, your governing document doesn't actually match how your deal operates. Third, tax consequences. The wrong entity or structure choice has tax implications for you and your investors. Here's one that surprises people. The ownership interest you take as the manager, your share of future profits, can be wholly taxable in the first year if the structure isn't set up right. Specifically, if your management interest isn't made subordinate to the investor interests. That's a tax bill on money you haven't received. Your investors can have tax consequences too. A template doesn't run that analysis. Nobody ran it. Fourth, sponsor compensation that only happens at the end of the deal. Some self-drafted structures don't build in any payments to the sponsor until the deal is sold. That sounds investor-friendly, but in practice it means you're running the deal for years with no cash flow from it, and the temptation appears to take money out in ways the documents don't authorize. Fees during the whole period are what keep you from starving to death. While you do the work. If the documents don't provide for them, you can't legitimately take them. Gap 3, the language inside the offering documents. This is where silence hurts the most. Every deal sooner or later hits one of these situations. The question is whether your documents already have an answer. Here's some typical situations. The waterfall and investor splits. I don't mean the baseline case. I mean the edge cases. What happens when cash flow doesn't cover the full preferred return in a quarter? Does it accrue? Compound? At what rate? If the language only handles the good quarters, the first bad quarter turns into a dispute about what the document meant. Capital calls. The property needs a new roof. Insurance doubled. You need more money from your members. Does your operating agreement have a capital call provision? How it's triggered, what happens to members who don't contribute. If it's silent, you have no compliant way to ask your investors for another dime. Reopening the offering. You close the raise, 6 months later you want to bring in a new round for a different improvement or admit new members. Do your documents permit reopening, raising in tranches? Or admitting a new class of interests. If they don't address it, you're either stuck or improvising outside your own paperwork. Raising additional funds from third parties. Sometimes the answer isn't your existing members. It's new money from outside, a loan from a private lender, a new equity partner. Can the manager do that? On what terms? If the documents don't say, every option could be a fight. And transfer of interests. An investor dies and their interest goes to their heirs. An investor divorces and it goes to an ex-spouse. An investor just wants out. What do your documents say happens? Who approves the transfer? Is there a right of first refusal? And what rights does the new holder get? The documents are what govern that moment, and template documents are routinely silent on it. Here's how I think about all this. Your operating agreement is your business constitution. It's the governing document for how you promise to run the company. It's a contract between you and your investors. If you don't follow it, you've breached the contract. You can't act outside it the same way a president can't act outside the Constitution. Every distribution you make, every dollar you take, every new investor you admit either has been authorized in that document or it hasn't. A governing document like our Constitution isn't judged by how it reads on a calm day. It's judged by whether it has an answer when something unusual happens. That's exactly how your documents get judged too, by the bad quarter, the capital call, the heir who shows up with an attorney, or an investor that dies. So judge your self-drafted documents by one standard. Were they designed around your deal? Your structure, your compensation, your exit, or somebody else's. If you want to check your own documents, here's a brief test. Pull your filing confirmations from the SEC's EDGAR database and the Nassau website where state filings are recorded. Look at who's named as manager and whether your LLC's election matches how the deal actually runs. Then search your operating agreement for 4 things. Capital calls, reopening, third-party funds, and transfer of interest. If any of those come back empty, you've found a gap. If you'd rather have that review done properly, or you're setting up a new offering and want the structure designed before the documents are drafted, come to a free consultation. We'll talk about your situation and how we can help you avoid these gaps. Look for the link in the description. syndicationattorneys.com/schedule. Subscribe for more content like this and get notified when we post a new video.