Ohio Blue Sky Laws For Commercial Real Estate Syndication

By - December 17, 2024 - Uncategorized

Commercial real estate syndication requires compliance with a number of laws, including blue sky laws. These laws help ensure transparency when offering securities, which builds trust with investors, helps protect their investments, and contributes to successful syndications. When you need to make sure your syndication is compliant with blue sky laws in Ohio, contact Stevens Law Firm.

What Are Blue Sky Laws?

Blue Sky laws are state-level laws that govern the offer and sale of securities. They aim to protect investors from fraudulent investment schemes by requiring syndication sponsors to disclose specific information. These laws also help ensure fair practices when selling securities as well as provide ways for investors to take legal action in the event of fraud or misrepresentation. Additionally, blue sky laws help protect syndicators from lawsuits and foster trust with investors.

Ohio’s Blue Sky Laws

In Ohio, blue sky laws are included in a section of the Ohio Securities Act, in Chapter 1707 of the Ohio Revised Code. The laws direct the registration, offering, and sale of securities within the state. Key scenarios in which blue sky laws apply include:

1. Out-of-state sponsors targeting Ohio investors: When a syndication offering is made to Ohio residents, Ohio’s blue sky laws apply, even if the sponsors are located outside of the state.
2. Ohio-based projects: Regardless of where a syndication’s sponsors or investors are located if the property is located in Ohio, the syndication must follow Ohio’s securities regulations.
3. Interstate offerings: Offerings that involve Ohio and other states must be in compliance with Ohio-specific laws and federal securities laws.

If you’re involved in a real estate syndication, the team at Stevens Law Firm can help ensure you’re following all applicable federal and state laws and regulations.

Understanding Blue Sky and Real Estate Syndication

Ohio law classifies real estate syndications as securities because they typically meet the following criteria:

1. Investors contribute money to the syndication.
2. Funds are pooled for a common enterprise.
3. Investors expect to make a profit.
4. The sponsor drives the project’s success.

As a security, the syndication must comply with blue sky laws in Ohio. Failing to do so can result in penalties, legal disputes, and fines.

Registration Requirements for a Securities Offering

In Ohio, most securities need to be registered (or fall under an exemption) before they can be offered or sold. This gives investors access to information about the potential risks and rewards of the investment so they can make an informed decision.

Registering a security starts with potentially filing specific forms with the Ohio Division of Securities. Applicable registration fees may also be required. Finally, the state may review any submissions to make sure they are in compliance with Ohio’s securities laws.

Exemptions from Registration

Under certain circumstances, real estate syndication sponsors are exempt from the full registration process. Common exemptions may include:

1. Private placement exemption, for offerings sold to a limited number of accredited investors.
2. Intrastate offering exemption, for offerings involving Ohio property and Ohio residents.
3. Isolated transaction exemption, for one-time offerings to a small number of investors
4. Institutional investor exemption, for offerings targeted at insurance companies, banks, or similar businesses.

Even with exemptions, syndicators may still need to file certain notices or disclosure documents. To learn more about registration requirements, contact Stevens Law Firm today.

Disclosure Requirements for Syndicators

Disclosures are another key component of blue-sky laws. To meet the disclosure requirements in Ohio, syndicators must provide a range of information about the investment opportunity. This brings transparency to the offering and helps investors make informed decisions. As a syndicator, you may be asked to provide information like:

1. Project overview, including the location of the real estate, its purpose, and the timeline for the project.
2. Management team, including the sponsors’ qualifications and helpful background information.
3. Financial projections, including expected income and anticipated costs.
4. Investment terms include the ownership structure, how the profits will be split, and the exit strategy.
5. Risk, including unforeseen expenses, market fluctuations, and property management challenges.

Failing to disclose this information or providing misleading information can lead to lawsuits, regulatory penalties, and other serious consequences. Our team can help make sure you disclose all necessary details about the offering.

Anti-Fraud Provisions

Anti-fraud provisions forbid deceptive practices in securities offerings. Syndication sponsors are prohibited from providing information about the real estate investment that’s false or misleading, omitting essential details that investors need to make informed decisions, and engaging in deceptive practices to defraud investors. The Ohio Division of Securities investigates suspected fraud, and violations can lead to penalties like fines and criminal charges.

Licensing Requirements for Sponsors and Brokers

Blue Sky laws require some sponsors or individuals who solicit investors to get a broker-dealer license or an issuer agent license. Individuals selling securities as a broker or dealer may need to be registered as a broker-dealer, while sponsors who directly solicit investments may need to be registered as issuer agents. These licenses help ensure that the people who are raising money are qualified and committed to ethical standards. Sometimes, sponsors can bypass licensing requirements if they conduct offerings privately or only solicit accredited investors. At Stevens Law Firm, we can help determine which license, if any, you need to obtain.

Filing Requirements in Ohio

Even when offerings qualify for exemptions, they’re typically still required to file with the Ohio Division of Securities. These filings help ensure there is a record of the offering. One common filing is notice filing for Regulation D, which is required for federal exemptions. Filings must be accurate and meet specific deadlines. Our team can assist with filings to help the process go smoothly.

Penalties for Non-Compliance

Failing to comply with blue sky laws related regulations in Ohio can have severe consequences, such as:

1. Civil penalties, like fines, restitution to investors, and recission of the transaction.
2. Administrative actions, like suspension or prohibition of securities offerings, or having an exemption revoked.
3. Criminal charges for fraudulent activities can lead to time in prison and a damaged reputation.

Non-compliance can break your investors’ trust, damage your relationships with financial institutions, and limit future opportunities in syndication. Make sure you’re compliant with all blue sky laws by receiving legal guidance from Stevens Law Firm.

Risk Mitigation for Real Estate Syndicators

Be proactive in reducing risk by reaching out to Stevens Law Firm. Attorney Drew Stevens is experienced in Ohio securities laws and can help keep you compliant with all applicable rules and regulations. Our team will help you prepare thorough disclosures to make sure investor materials and agreements are up to date, and accurate, and include all necessary details. If you need help filing for registration or an exemption, we can help you do so while meeting the given deadlines. Additionally, our team can help you mitigate risk by reviewing your syndication’s compliance status and offering guidance for any concerns that arise.

Why Is Compliance So Important?

Compliance with blue sky laws and relevant regulations offers more than just legal protection; it helps set you up for long-term success. Remaining compliant helps build trust with accredited investors and encourages investments. It also supports your reputation as a credible syndicator. When you properly manage syndication, you can attract repeat investors and demonstrate that you’re ready for greater business opportunities. Compliance also helps your company avoid lawsuits and fines.

Get Legal Support For Your Syndication

At Stevens Law Firm, we offer a variety of services to help you navigate blue sky laws and the Ohio Securities Act. From drafting offering documents and disclosures to registering your offering to building risk mitigation strategies and more, we’ll help you bring transparency to your offerings, build trust with investors, and help you succeed in real estate syndication. Contact us today to learn more about our services.

Book a Consultation

See how Attorney Drew Stevens and Stevens Law Firm can support your real estate goals. Contact us today to request a consultation.