SEC Compliance in Real Estate Joint Venture Offerings: A Practitioner's Primer

Introduction

Forming joint venture companies and raising capital is the life blood of a developer which means that you need to understand how to invest if you represent the investor and how to raise capital if you represent the sponsor side of the transaction.

Regardless, you need to understand the rules related to both situations. Below is a primer on the rules.

1. The Threshold Question: Is the JV Interest a Security?

The federal securities laws are triggered only by a “security,” but the term is read broadly. The two case lines that matter in the real estate context are Howey and Williamson.

The Howey test defines an “investment contract” — and thus a security — as a transaction involving (a) an investment of money, (b) in a common enterprise, (c) with an expectation of profits, (d) derived from the efforts of others. SEC v. W.J. Howey Co., 328 U.S. 293, 298–99 (1946). Limited partnership interests, LLC membership interests in manager-managed entities, and preferred equity in special-purpose vehicles will almost always satisfy Howey because the limited partner or non-managing member is depending on the sponsor’s efforts.

The harder question — and the one most relevant to JV practice — is the general partnership or member-managed LLC interest. The Williamson framework, developed by the Fifth Circuit in a case that actually arose out of Texas real estate joint ventures structured as general partnerships, treats a GP or member-managed JV interest as presumptively not a security, but the presumption is overcome if any of three conditions is met:

(1) the agreement among the parties leaves so little power in the hands of the partners that the arrangement is essentially a limited partnership; (2) the partner is so inexperienced and unknowledgeable in business affairs that he is incapable of intelligently exercising his partnership powers; or (3) the partner is so dependent on the unique entrepreneurial or managerial ability of the promoter that he cannot replace him or otherwise exercise meaningful partnership powers.

Williamson v. Tucker, 645 F.2d 404, 421–24 (5th Cir.), cert. denied, 454 U.S. 897 (1981). The Ninth Circuit recently reaffirmed the framework, observing that “dressing an investment contract in the trappings of a general partnership interest does not immunize that interest from the federal securities laws.” SEC v. GPC JMA, 2018 U.S. App. LEXIS 27449 (9th Cir. 2018).

The practical lesson: a sponsor cannot escape securities regulation by labeling the vehicle a “JV” or a “general partnership” if the economic and governance reality is that the passive money is relying on the sponsor’s efforts. Where the partners have limited control rights, are not real-estate professionals, or could not realistically replace the sponsor, the JV interest is a security, and the rest of this article applies.

2. Section 5 and the Most Common Exemptions

Section 5 of the Securities Act of 1933 prohibits any offer or sale of a security without registration or a qualifying exemption. 15 U.S.C. § 77e. For real estate JVs, registration is almost never economic, so the entire compliance exercise is about identifying and satisfying an exemption.

Section 4(a)(2) — the statutory private offering exemption

Section 4(a)(2) exempts “transactions by an issuer not involving any public offering.” 15 U.S.C. § 77d(a)(2). The exemption is vague and fact-intensive — turning on the number and sophistication of offerees, access to information, and the absence of general solicitation — and sponsors almost never rely on it standing alone. Rule 506 is its safe harbor and is what practitioners actually use.

Rule 506(b) of Regulation D

Rule 506(b) is the workhorse exemption for private real estate raises. 17 C.F.R. § 230.506(b). Its principal features:

• Unlimited capital raise.
• Unlimited number of accredited investors.
• Up to 35 non-accredited but “sophisticated” investors within any 90-day period (a clarification added by the November 2020 amendments).
• No general solicitation or advertising; a pre-existing substantive relationship between the sponsor (or a properly registered intermediary) and each investor is required.
• Self-certification of accredited status is permitted (subject to antifraud).
• If any non-accredited investor is admitted, the issuer must deliver Regulation A–style disclosures, including (in some cases) audited financials. Most sponsors avoid the disclosure burden by limiting the raise to accredited investors.
• Form D notice filing required within 15 days of first sale. 17 C.F.R. § 230.503.

Rule 506(c) — general solicitation permitted

Rule 506(c), adopted under Section 201(a) of the JOBS Act of 2012 (SEC adopting release issued July 10, 2013), permits broad general solicitation and advertising of the offering. 17 C.F.R. § 230.506(c). The trade-offs:

• All purchasers must be accredited (no non-accredited tranche permitted).
• The issuer must take “reasonable steps to verify” accredited status — self-certification is not sufficient.
• Rule 506(c)(2)(ii) lists non-exclusive verification methods: review of W-2s, 1099s, or tax returns for income-based accreditation; review of brokerage and bank statements plus a credit report for net-worth-based accreditation; or written confirmation from a licensed CPA, attorney, registered broker-dealer, or registered investment adviser.

Sponsors who want to advertise on social media, run a public website with deal terms, or speak about specific offerings on podcasts should be using 506(c), not 506(b). Sponsors who conflate the two — soliciting publicly and then taking self-certified accredited reps — are operating outside any exemption.

Federal preemption of state registration

Securities sold under Rule 506 are “covered securities” under Section 18 of the Securities Act, 15 U.S.C. § 77r, which preempts state securities registration. States retain authority over notice filings, fees, and antifraud enforcement, but cannot impose merit review on a Rule 506 offering.

Bad actor disqualification — Rule 506(d)

Rule 506(d) disqualifies an offering from Rule 506 reliance if the issuer or any “covered person” has suffered a disqualifying event. 17 C.F.R. § 230.506(d). Covered persons include directors, executive officers, general partners, managing members, 20%+ beneficial owners, promoters, compensated solicitors, and their respective directors, officers, GPs, and managing members. Disqualifying events include certain criminal convictions, court injunctions, regulatory orders, and SEC cease-and-desist orders within specified look-back periods. Pre–September 23, 2013 bad acts that would have been disqualifying are not disqualifying, but must be disclosed under Rule 506(e). Every Rule 506 offering should be papered with a bad actor questionnaire completed by each covered person and refreshed before each closing.

3. The March 12, 2025 SEC No-Action Letter on Rule 506(c) Verification

In a development that drew immediate practitioner attention, on March 12, 2025, the SEC Division of Corporation Finance issued a no-action letter to Latham & Watkins LLP confirming that a sponsor in a Rule 506(c) offering will be deemed to have taken “reasonable steps to verify” accredited status where (i) natural-person investors invest at least $200,000, (ii) legal-entity investors invest at least $1,000,000 (or $200,000 per equity owner where the entity is accredited only because each owner is accredited), and (iii) the investor provides specified written representations regarding accredited status, ability to bear loss, and the absence of borrowing for the investment. SEC Div. of Corp. Fin., Latham & Watkins LLP No-Action Letter (Mar. 12, 2025); see also SEC C&DIs 256.35 and 256.36 (Mar. 12, 2025). Industry summaries followed within a week: Gibson Dunn, SEC Provides Bright-Line Test for Investor Verification Under Rule 506(c) (Mar. 21, 2025); Morgan Lewis (Mar. 20, 2025); Kirkland & Ellis (Mar. 2025).

A precise framing matters here. The March 2025 letter is not a rule, is not a true regulatory safe harbor, and “has no legal force or effect” beyond the specific facts presented to the staff. See Lowenstein Sandler, SEC Clarifies Accredited Investor Verification for Rule 506(c) Offerings (June 2025). It is staff guidance — useful, persuasive, and likely to be relied on by counsel and platforms in shaping verification practice, but not a regulatory amendment. Sponsors who structure 506(c) offerings around the $200,000 / $1,000,000 minimum-investment formulation should still paper the file with the required written representations, monitor for the rare investor whose accredited status is genuinely in doubt despite the threshold, and recognize that the staff position could be withdrawn or modified.

That said, for sponsors who want the benefit of general solicitation, the March 2025 letter materially reduces the operational friction of 506(c) and is likely to drive an increase in 506(c) usage relative to 506(b).

4. The November 2020 Harmonization Amendments

The SEC’s November 2, 2020 release — Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets, SEC Release No. 33-10884, effective March 15, 2021 — rationalized the exempt-offering framework in several ways that directly affect real estate sponsors:

• Regulation A Tier 2 cap raised from $50 million to $75 million; secondary sales cap from $15 million to $22.5 million. 17 C.F.R. § 230.251.
• Regulation Crowdfunding cap raised from $1.07 million to $5 million, with investment limits for accredited investors removed. 17 C.F.R. § 227.100.
• Rule 504 cap raised from $5 million to $10 million. 17 C.F.R. § 230.504.
• Rule 506(b) clarification: the 35-non-accredited-investor cap now applies within any 90-day period.
• New Rule 152 replaced the prior five-factor integration test with a general principle and four non-exclusive safe harbors, and supplied definitions for when an offering “commences” and “terminates or completes.” 17 C.F.R. § 230.152. The integration analysis matters whenever a sponsor runs a 506(b) raise and then pivots to 506(c), or runs concurrent raises out of related entities.
• New Rule 241 permits generic “test-the-waters” solicitations of interest before an issuer commits to a particular exemption.

See McGuireWoods, SEC Simplifies the Exempt Offering Framework (Nov. 2020).

5. The August 2020 Accredited Investor Definition Expansion

Effective December 8, 2020, the SEC amended Rule 501(a) to expand the definition of “accredited investor.” SEC Release No. 33-10824, Accredited Investor Definition (Aug. 26, 2020); SEC, Amendments to Accredited Investor Definition — Small Entity Compliance Guide (Dec. 7, 2020). The amendments added new categories based on professional certifications and designations (including holders of FINRA Series 7, 65, and 82 licenses); included “knowledgeable employees” of private funds as accredited investors with respect to investments in those funds; and expressly codified LLCs as eligible entity accredited investors (subject to the entity tests already in the rule).

The income-and-net-worth-based tests for natural persons did not change. For real estate sponsors raising from a sophisticated but not necessarily wealthy investor base — for example, deal professionals at brokerages or investment firms with Series 65 or Series 7 licenses — the rule now provides a clean accreditation theory that previously required reliance on the older entity-aggregation analysis or net-worth representations the investor might not actually meet.

6. Antifraud — Always Applicable, Always

Exemptions exempt registration. They do not exempt antifraud liability.

Rule 10b-5, 17 C.F.R. § 240.10b-5, prohibits material misstatements or omissions in connection with the purchase or sale of any security. Every PPM, every investor deck, every email to a prospective investor, every verbal pitch on a Zoom call, and every projection in an Excel model is subject to Rule 10b-5. Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), reaches fraud in the offer or sale of securities even without a purchase. Private rights of action under Section 10(b) and Section 12(a)(2) of the Securities Act add a layer of investor remedies.

The single most consequential consequence of antifraud liability in private offerings is the responsibility to update offering materials when the facts change between the date of the deck and the date of subscription. A sponsor who circulated projections in January, learned in March that the anchor tenant was about to vacate, and continued to take subscriptions in April off the January projections has a Rule 10b-5 problem regardless of which exemption is being used.

7. Form D and Blue Sky Notice Filings

A Form D must be filed with the SEC within 15 days after the first sale in the offering, with amendments required for material changes. 17 C.F.R. § 230.503. The federal filing is online via EDGAR.

State notice filings — though preempted as to substantive registration for Rule 506 offerings — must still be made on the state-by-state schedule.

For an offering with Texas investors, the Texas blue sky filing for a Rule 506 offering is a copy of the Form D plus a fee of one-tenth of one percent of the aggregate offering amount, capped at $500, filed via the NASAA Electronic Filing Depository (EFD) within 15 days of the first sale in Texas. Texas State Securities Board, Filing Requirements for Regulation D Offerings in Texas (current guidance). Missouri’s notice filing is similar in concept, though the fee structure differs; counsel should confirm the current Missouri Securities Division filing matrix for each raise.

8. The Investment Company Act of 1940

A single-asset real estate JV is rarely an “investment company” under the 1940 Act, because the JV is investing in real estate rather than in securities. But pooled vehicles — multi-asset funds, mezzanine debt pools, REIT-like aggregators, and certain securitization structures — can fall within the definition. The 1940 Act prohibits an investment company from operating in interstate commerce without registration unless an exclusion applies. 15 U.S.C. § 80a-3(a).

The three exclusions sponsors rely on:

Section 3(c)(1): up to 100 beneficial owners; no public offering

15 U.S.C. § 80a-3(c)(1). The 100-owner cap is counted carefully — look-through rules apply to certain investing entities, and a misstep on counting can blow the exclusion.

Section 3(c)(5)(C): the real-estate exclusion

Section 3(c)(5)(C) excludes issuers “primarily engaged in… purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” 15 U.S.C. § 80a-3(c)(5)(C). A common shorthand calls this the “real-estate-mortgage exclusion,” but that framing is loose.

The substantive content of the exclusion lives in SEC staff no-action positions, not in the statute itself. The staff has imposed a 55%/80%/20% asset composition test: at least 55% of the issuer’s assets must consist of “qualifying interests” (mortgages and other liens on, and interests in, real estate); at least 80% must consist of qualifying interests plus “real-estate-type interests”; and no more than 20% may consist of unrelated assets. See, e.g., SEC No-Action Letter to Redwood Trust (Aug. 15, 2019), and the line of earlier staff positions building the framework. Sponsors whose vehicles cannot meet that composition test cannot rely on 3(c)(5)(C), full stop, and need to fall into 3(c)(1) or 3(c)(7) (or restructure).

Section 3(c)(7): qualified-purchaser vehicles

15 U.S.C. § 80a-3(c)(7); 15 U.S.C. § 80a-2(a)(51)(A). Available where every beneficial owner is a “qualified purchaser” — a natural person owning at least $5 million in investments, or an entity owning and investing on a discretionary basis at least $25 million. Up to roughly 1,999 investors can be admitted before Exchange Act Section 12(g) registration is triggered separately. For large family-office or institutional raises, 3(c)(7) is the standard exclusion.

9. Broker-Dealer Registration — Section 15(a) and the “Finders” Problem

Section 15(a) of the Securities Exchange Act, 15 U.S.C. § 78o(a), requires anyone effecting transactions in securities to be registered as a broker-dealer with the SEC. Transaction-based compensation paid to an unregistered person for raising capital is a Section 15(a) violation, and the SEC has been aggressive about enforcing it against the “finders” who orbit private real estate sponsors.

The issuer’s safe harbor — Rule 3a4-1

Rule 3a4-1 provides a non-exclusive safe harbor for officers, directors, and employees of the issuer (the “associated persons” of the issuer) who participate in sales without registering. 17 C.F.R. § 240.3a4-1; SEC Release No. 34-22172 (June 1985). The four conditions:

1. The associated person is not subject to a statutory disqualification under Section 3(a)(39).
2. The associated person receives no transaction-based compensation, directly or indirectly, for the capital-raising activity.
3. The associated person is not at the time an associated person of any broker-dealer.
4. The associated person meets one of three alternative activity prongs (institutional-investor focus, limited public-offering-only activity, or limited intermittent participation in offerings).

Sponsors raising their own capital through their own principals can comfortably operate within Rule 3a4-1. The trap is paying transaction-based compensation — equity points, success fees, percentage of capital raised, “consulting fees” tied to closings — to outsiders who help with the raise.

No general “finders” exemption exists

There is no general “finders” exemption permitting unregistered persons to receive transaction-based compensation for capital raising. The SEC published a proposed exemptive order on October 7, 2020 contemplating a two-tier “Tier I / Tier II” finders framework, but the proposal was never adopted. See DarrowEverett LLP (2022); Vicente LLP (Oct. 2025). The SEC’s Small Business Capital Formation Advisory Committee held an interactive conference on the still-unadopted proposal on July 22, 2025; as of this writing, no exemption has issued.

The practical implication: sponsors who pay anyone outside the issuer’s own principals on a transaction basis for raising capital are exposed. Counsel should confirm that any external capital-raiser is registered with FINRA (or operates under a registered broker-dealer’s umbrella), and the engagement should be documented before solicitation begins.

10. The Investment Advisers Act of 1940

Sponsors charging management or acquisition fees on pooled investment vehicles may be “investment advisers” within the meaning of Section 202(a)(11) of the Advisers Act, 15 U.S.C. § 80b-2(a)(11). Three positions commonly available to real estate sponsors:

Private fund adviser exemption

Section 203(m), 15 U.S.C. § 80b-3(m), and Rule 203(m)-1, 17 C.F.R. § 275.203(m)-1, exempt an adviser solely to qualifying private funds with less than $150 million in regulatory assets under management. The exemption is “exempt reporting adviser” treatment, not full exemption — Form ADV Parts 1A and certain disclosures are still required.

Venture capital adviser exemption

Section 203(l), 15 U.S.C. § 80b-3(l), and Rule 203(l)-1 exempt advisers solely to qualifying venture capital funds. The technical definition of a “venture capital fund” is narrow and rarely fits a real estate sponsor.

Real estate activities exclusion

Where the sponsor’s activities relate solely to real estate (not securities), the sponsor may fall outside the “investment adviser” definition entirely. This is fact-intensive and usually requires careful structuring — for example, ensuring that the JV holds direct title to real property rather than securities of property-owning subsidiaries, and that the sponsor’s compensation is tied to real estate management rather than to securities advisory services. State investment-adviser registration regimes may apply even where the federal Advisers Act does not.

11. The Corporate Transparency Act and FinCEN Reporting

31 U.S.C. § 5336 requires most “reporting companies” — including the great majority of JV entities, special-purpose LLCs, and parallel investment vehicles formed for a real estate offering — to file a beneficial ownership information (“BOI”) report with FinCEN.

A critical caveat as of mid-2026: enforcement of the Corporate Transparency Act and the applicability of the BOI reporting rule to U.S. domestic reporting companies have been in flux throughout 2024 and 2025, driven by federal-court injunctions, FinCEN interim guidance, and on-again/off-again deadlines. Counsel should verify the current FinCEN posture for each transaction before relying on any specific filing deadline or exemption. For deals closing now, the prudent default is to assume reporting is required, to gather the information necessary to file at formation, and to retain the ability to file promptly once FinCEN’s posture is settled.

Conclusion

The federal compliance overlay on a private real estate offering is a small fraction of the work it takes to underwrite, structure, and close a deal — but it is the fraction with the worst downside if it is skipped. A clean Rule 506(b) or 506(c) offering, with a properly papered Form D, accredited verification or accredited reps appropriate to the exemption, a Rule 506(d) bad-actor sweep, an antifraud-disciplined PPM, the right 1940 Act exclusion, no transaction-based compensation paid outside the issuer, and a CTA file ready for FinCEN, is a deal that will not generate a securities problem.

The deals that do generate securities problems generally share one of a small number of features: a sponsor who paid an unregistered finder, a deck that materially misrepresented a tenant or a debt yield, a 506(b) raise that drifted into general solicitation, a JV labeled a “general partnership” that fails the Williamson test, or a pooled vehicle that quietly accumulated more than 100 beneficial owners while claiming 3(c)(1). Each of those problems is preventable with the discipline outlined above.

For sponsors structuring a raise or for counsel to investors in an existing vehicle who want a second set of eyes on the offering compliance file, KraftNeeld LLC handles private securities work in connection with real estate offerings in Texas and Missouri.

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Citations

Federal Statutes

• Securities Act § 4(a)(2), 15 U.S.C. § 77d(a)(2)
• Securities Act § 5, 15 U.S.C. § 77e
• Securities Act § 17(a), 15 U.S.C. § 77q(a)
• Securities Act § 18, 15 U.S.C. § 77r (NSMIA preemption)
• Exchange Act § 15(a), 15 U.S.C. § 78o(a)
• Investment Company Act § 3(a), 15 U.S.C. § 80a-3(a)
• Investment Company Act § 3(c)(1), 15 U.S.C. § 80a-3(c)(1)
• Investment Company Act § 3(c)(5)(C), 15 U.S.C. § 80a-3(c)(5)(C)
• Investment Company Act § 3(c)(7), 15 U.S.C. § 80a-3(c)(7); 15 U.S.C. § 80a-2(a)(51)(A) (“qualified purchaser”)
• Investment Advisers Act § 202(a)(11), 15 U.S.C. § 80b-2(a)(11)
• Investment Advisers Act § 203(l), 15 U.S.C. § 80b-3(l) (venture capital adviser exemption)
• Investment Advisers Act § 203(m), 15 U.S.C. § 80b-3(m) (private fund adviser exemption)
• Corporate Transparency Act, 31 U.S.C. § 5336

Federal Regulations

• Regulation D — Rule 503 (Form D), 17 C.F.R. § 230.503
• Regulation D — Rule 504, 17 C.F.R. § 230.504
• Regulation D — Rule 506(b), 17 C.F.R. § 230.506(b)
• Regulation D — Rule 506(c), 17 C.F.R. § 230.506(c)
• Regulation D — Rule 506(d) (bad actor disqualification), 17 C.F.R. § 230.506(d)
• Rule 152 (integration), 17 C.F.R. § 230.152
• Rule 241 (test-the-waters), 17 C.F.R. § 230.241
• Regulation A — Rule 251, 17 C.F.R. § 230.251
• Regulation Crowdfunding — Rule 100, 17 C.F.R. § 227.100
• Rule 10b-5, 17 C.F.R. § 240.10b-5
• Rule 3a4-1 (issuer’s broker exemption), 17 C.F.R. § 240.3a4-1
• Rule 203(l)-1 (venture capital fund definition)
• Rule 203(m)-1 (private fund adviser exemption), 17 C.F.R. § 275.203(m)-1

SEC Releases and Staff Guidance

• SEC Release No. 33-10824, Accredited Investor Definition (Aug. 26, 2020) (effective Dec. 8, 2020)
• SEC Release No. 33-10884, Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets (Nov. 2, 2020) (effective Mar. 15, 2021)
• SEC Release No. 34-22172 (June 1985) (adopting Rule 3a4-1)
• SEC, Amendments to Accredited Investor Definition — Small Entity Compliance Guide (Dec. 7, 2020)
• SEC Division of Corporation Finance, Latham & Watkins LLP No-Action Letter (Mar. 12, 2025)
• SEC Compliance and Disclosure Interpretations 256.35 and 256.36 (Mar. 12, 2025)
• SEC No-Action Letter to Redwood Trust (Aug. 15, 2019) (Section 3(c)(5)(C) asset composition framework)
• SEC Proposed Exemptive Order, Notice of Proposed Exemptive Order Granting a Conditional Exemption from the Broker Registration Requirements of Section 15(a) of the Securities Exchange Act of 1934 for Certain Activities of Finders (Oct. 7, 2020) (not adopted)

Case Law

• SEC v. W.J. Howey Co., 328 U.S. 293 (1946)
• Williamson v. Tucker, 645 F.2d 404 (5th Cir.), cert. denied, 454 U.S. 897 (1981)
• SEC v. GPC JMA, 2018 U.S. App. LEXIS 27449 (9th Cir. 2018)

State Authority

• Texas State Securities Board, Filing Requirements for Regulation D Offerings in Texas (current guidance)

Secondary Authorities

• Gibson Dunn, SEC Provides Bright-Line Test for Investor Verification Under Rule 506(c) (Mar. 21, 2025)
• Morgan Lewis client alert on the March 12, 2025 no-action letter (Mar. 20, 2025)
• Kirkland & Ellis client alert on the March 12, 2025 no-action letter (Mar. 2025)
• Lowenstein Sandler, SEC Clarifies Accredited Investor Verification for Rule 506(c) Offerings (June 2025)
• McGuireWoods, SEC Simplifies the Exempt Offering Framework (Nov. 2020)
• DarrowEverett LLP, finders-exemption analysis (2022)
• Vicente LLP, finders-exemption update (Oct. 2025)
• SEC Small Business Capital Formation Advisory Committee, conference on finders proposal (July 22, 2025)