In yesterday’s episode, we discussed the private placement memorandum (PPM), and today, Gene Trowbridge is with us again, this time to review the details of an operating agreement. We know that the PPM is the story of the deal and that it should be written in simple-to-understand language. According to Gene, the operating agreement is then the ‘rules of how we are going to implement the story’. In this show, Gene begins by providing an overview of what the operating agreement, or company agreement as it’s called in Texas, includes. He then dives into the pertinent articles that all passive investors should pay attention to.
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Gene Trowbridge and Jonathan Nieh, founding partners of the top syndication firm Trowbridge Law Group LLP have a legal team with over 50 years of combined experience in real estate syndication and the practice of real estate securities law. Over this time Gene and his partners, in several past firms and currently, have helped clients raise close to $5.0 billion dollars in offerings by empowering entrepreneurs to raise capital legally. To learn more about Trowbridge Law Group LLP, visit our website at www.trowbridgelawgroup.com or follow us on Facebook, Instagram, or Twitter.
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We learn about the memorandum agreement and the factors that can influence the objectives of a deal. Gene also draws our attention to the capital call provision in the operating agreement and why this is a crucial article to note. Along with this, Gene outlines the reason he would not recommend including a mandatory capital call provision. Other articles we discuss cover the rights and duties of the manager, distribution agreements, and the liquidity clause. Furthermore, Gene shares some of the non-negotiables he places in his operating agreements, and why he recommends you have these too. If you want to get the most out of this episode, you can follow along on our YouTube channel to see the document that Gene refers to through the conversation. Be sure to tune in today!
Key Points From This Episode:
- Defining an operating agreement and an overview of its contents.
- What the ‘nature of business’ section of the operating agreement entails and why Gene keeps it short.
- Factors that influence the objectives of the operating agreement.
- Understanding the different classes of membership with an example from Gene’s draft.
- Exploring the capital call provision and why Gene thinks there should not be a mandatory capital call.
- A look at article 3: Terms for a manager making an advance.
- Different distribution stipulations that can be outlined in the operating agreement.
- Possibilities for different manager compensation structures, as outlined by article 5.
- Why it’s crucial to understand the rights and duties of the manager.
- Beware of boilerplates — You should understand a deal fully after reading the documents.
- Outlining the rights and obligations of members with Gene’s suggests for what they should be.
- Some of the causes that could lead to a manager being removed.
- Article 11: The liquidity clause and why investors should pay special attention to it.
- Why it’s crucial to look at the dispute resolution clause in the operating agreement.
- The rigid clause that Gene has in his documents that have never been disputed.
- An overview of the exhibits included in the operating agreement.
- Reasons that the operating agreement might change over the course of a deal.
- Final things operators should be aware of to operate effectively.
[bctt tweet=”All the times, one of the objectives is to give the passive investor an opportunity to invest in real estate without the day-to-day management. — Gene Trowbridge” username=”whitney_sewell”]
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About Gene Trowbridge
As the founding partner of Trowbridge Law Group LLP, Gene Trowbridge’s law practice concentrates on the syndication of commercial and investment real estate, through both debt and equity, representing over 400 clients. The median offering size is $2,000,000. His practice writes offerings under Rule 506b and 506(c), of Regulation D. Gene, is a former syndicator, who for ten years raised investor capital through the broker-dealer community and because of this, he can communicate with his clients on both the technical and the practical aspects of state and federal securities laws. He is also a long-time CCIM and CCIM Senior Instructor and has won numerous awards for his teaching ability. His book It’s a Whole New Business! is really a “how-to” manual on real estate syndication.
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