The Legal Documents You Need Before Raising A Dollar

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by PPM LAWYERS
The Legal Documents You Need Before Raising A Dollar

Before you raise a single dollar, make sure your legal documents are airtight — here’s exactly what you need to stay compliant and confident.

Raising capital is an exciting milestone for any entrepreneur, syndicator, or fund manager — but it’s also a legal minefield if you’re not prepared. One of the most critical early steps in the process is having the right legal documents in place before you approach investors. Missing even one essential document can expose you to regulatory violations, investor disputes, or worse: SEC enforcement action.

This article outlines the legal documents you need before you raise money, why each one matters, and how they work together to protect you, your business, and your investors.

Why Legal Documents Matter In Capital Raising

Before diving into the specific documents, let’s clarify the “why.” When you raise capital from investors — whether for a real estate deal, fund, or startup — you’re likely offering securities. That means you’re subject to securities laws.

Without the proper legal documentation, you risk:

  • Violating federal or state securities regulations
  • Misleading or confusing investors
  • Personal liability for omissions or misrepresentations
  • Losing credibility with potential capital partners

Well-drafted legal documents ensure transparency, compliance, and protection. They set expectations and clearly define the terms under which capital is being raised.

Your PPM (Private Placement Memorandum): The Cornerstone Document

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The Private Placement Memorandum (PPM) is the foundation of any legal capital raise. This document explains everything an investor needs to know before investing — from the risks and terms to the business model and exit strategy.

A proper PPM includes:

  • Offering Terms: How much you’re raising, minimum investments, use of proceeds.
  • Investor Qualifications: Typically accredited investors under Reg D (506(b) or 506(c)).
  • Risk Disclosures: Legal language that spells out the financial and operational risks.
  • Management Background: Bios of the team, relevant experience, any legal history.
  • Legal Disclaimers: SEC-compliant language to prevent misinterpretation.

Why it matters: The PPM protects you from investor lawsuits and establishes credibility. If you’re ever audited by the SEC or sued by an investor, your PPM is your first line of defense.

Operating Agreement Or Partnership Agreement

For real estate syndications, investment funds, or joint ventures, you’ll need a governing agreement such as:

  • Operating Agreement (for LLCs)
  • Limited Partnership Agreement (for LPs)

These documents define:

  • Voting rights and control
  • Profit distributions
  • Sponsor fees and duties
  • Exit procedures
  • Dispute resolution terms

Why it matters: This document governs how your entity operates and how money flows. Investors will want to know who controls what — and what happens if things go wrong.

Subscription Agreement

The Subscription Agreement is what investors actually sign when they agree to invest.

It typically includes:

  • Confirmation that the investor received and read the PPM
  • Investor’s commitment amount
  • Representations and warranties (e.g., accredited status)
  • Acceptance terms (how and when they are admitted into the deal)

Why it matters: This is the binding agreement that legally brings investors into your deal. It confirms their understanding and commitment.

Investor Questionnaire

An Investor Questionnaire is used to verify that an investor meets legal qualifications — especially if you’re raising under Rule 506(b) or 506(c).

It includes:

  • Questions confirming accredited or sophisticated investor status
  • Acknowledgments of investment risks
  • Disclosure of financial background (optional but often helpful)

Why it matters: Under Reg D exemptions, you are legally required to ensure your investors qualify. This document helps prove that you did your due diligence.

Form D Notice Filing

If you’re raising money under Regulation D (506(b) or 506(c)), you’ll also need to file a Form D with the SEC — typically within 15 days of your first sale.

Key facts:

  • Filed electronically via EDGAR
  • Includes basic details about your offering and exemptions claimed
  • Must also be filed in many state securities offices (Blue Sky filings)

Why it matters: It formalizes your exemption from SEC registration. Failing to file Form D can draw unwanted regulatory attention.

Entity Formation Documents

Before raising capital, you should have a properly formed business entity (e.g., LLC, LP, C-Corp) with:

  • Filed Articles of Organization/Incorporation
  • EIN (Employer Identification Number)
  • Registered agent information
  • State registrations (if applicable)

Why it matters: Investors expect your deal to run through a legitimate business structure — not a personal account. Plus, this shields you from personal liability.

Marketing Disclaimers And Disclosures

If you’re using pitch decks, websites, or webinars to attract investors (especially under 506(c)), include proper legal disclaimers:

  • “This is not an offer to sell securities…”
  • “Past performance does not guarantee future results…”
  • Links to or references to the full PPM

Why it matters: These protect you from claims of misleading advertising and help keep your general solicitation efforts compliant.

Timeline For Assembling Your Documents

Here’s a rough roadmap for when you should have these documents ready:

Week Task
Week 1 Form entity, retain securities counsel
Week 2-4 Draft PPM, Operating Agreement, and Subscription Documents
Week 4-5 Finalize disclosures, disclaimers, and pitch deck
Week 5-6 File Form D, begin investor outreach (if using 506(c))

Never wait until investors are already interested to begin this process. Starting without documents in hand is like trying to fly a plane while building it.

DIY Vs. Legal Counsel: Don’t Cut Corners

It can be tempting to download templates or cobble together documents yourself — but this can create major legal gaps. Every offering is different, and investor expectations are rising.

A skilled capital raising lawyer can:

  • Customize your PPM to your business model
  • Ensure compliance with Reg D and Blue Sky laws
  • Help you structure your entity and investor terms properly

Bottom line: Cutting corners with legal docs can cost you far more later.

Final Thoughts: Raise Capital The Right Way

Getting your legal documents in place before raising capital is not just smart — it’s non-negotiable. Whether you’re syndicating a multifamily deal, launching a venture fund, or raising for your startup, having the right paperwork gives you confidence, protects your reputation, and keeps regulators off your back.

✅ Book a Free Strategy Call to Get Your Legal Docs in Place
Book a Free Strategy Call to Get Your Legal Docs in Place