Several laws and SEC regulations are in place to protect investors, many of which are reflected in the LPA.
In the context of a private placement, you should know that “subscription” refers to an investor’s legal agreement to purchase securities, such as shares, from a company in a private offering. This is formalized in what’s called a subscription agreement, which serves as a legally binding contract between the investor and the issuer. Within this agreement, investors typically make representations and warranties regarding their status as accredited investors and acknowledge the risks associated with the investment.
Through this process, LPs gain legal rights to transparency, financial reporting, and communication from the sponsor throughout the investment’s life. Below is a list of several formal legislative measures that establish clear legal rights for passive investors.
SECURITIES ACT OF 1933
As one of the primary laws enacted to protect investors from fraud, the Securities Act of 1933 requires that investors receive all financial and other significant information regarding the investment product (security) and prohibits “deceit, misrepresentations, and other fraud in the sale of securities.” [1] Losses incurred due to the “nondisclosure of material information” could be a reasonable foundation for an investment fraud claim. [1]
SECURITIES EXCHANGE ACT OF 1934
This act is an extension of regulatory oversight against securities fraud. It states that companies like private placement firms with unregistered securities offerings under an exemption from registration, such as Reg D, are not required to undergo the full registration process typically associated with public offerings before offering securities. [1]
INVESTMENT ADVISERS ACT OF 1940
The Investment Advisers Act of 1940 stipulates that investment advisory firms must register with the SEC “if they have at least $100 million in assets under management.” While this act provides a layer of protection against investment fraud, its direct application to sponsors of private placements may vary depending on whether the sponsor is acting as an investment adviser, as defined under the Act, and the nature of their relationship with the limited partners (LPs). [1]
DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT OF 2010
In response to the 2008 financial crisis, this act introduced broad reforms across the economic system to implement protections for retail investors. Congress aimed to improve federal securities laws to “better reflect the risks in the modern securities markets.” [1]
LIABILITY
Certain shareholder rights can vary from state to state. Generally speaking, LPs benefit from limited liability, meaning they are not legally or financially liable for any recourse actions related to the private placement deal beyond their capital commitment. In terms of losses, passive investors’ liability in the LP position is limited to the amount of their investment. You could compare this to the amount of risk you would have to take if you purchased and ran an entire apartment community alone. [2] Sponsors are afforded tax advantages, such as depreciation and interest, from which passive investors may also potentially benefit, depending on their individual tax situations and the specific terms of the investment. For example, if a resident living in an investment property wanted to claim negligence of the sponsor after slipping and falling in the clubhouse, limited partners would not be implicated or held responsible for any damages.
CONNECT WITH AN INSTITUTIONAL REAL ESTATE OWNER/OPERATOR
BAM Capital partners with accredited investors who want to enjoy passive income and all the other benefits of multifamily private placement. As the private equity arm of The BAM Companies, BAM Capital has been focusing on buying the most profitable assets and staying disciplined in its investment thesis. BAM Capital’s investment strategy aims to create forced appreciation while mitigating investor risk. To date, the brand has successfully managed over $1.7 billion in assets across ~9,000 apartment units.
Remember that no investment is without risk. Before making financial decisions, consult your investment advisor and schedule a call with a BAM Capital investment team member.
Disclaimer: All investments carry risk, including potential loss of capital. This content is for informational purposes only and is not financial, legal, or investment advice, nor an offer or solicitation to buy or sell any security. Consult an independent advisor for personalized guidance and contact BAM Capital for details on current offerings. BAM Capital and its representatives are not fiduciaries or investment advisors. The information provided is general and may not reflect individual financial goals. Any financial terms, projections, or forward-looking statements contained herein are hypothetical in nature and should not be interpreted as guarantees of future performance or safety. Such statements reflect Bam Capital’s opinion and are subject to market fluctuations, economic conditions, and investment risks. Past performance does not predict future results. BAM Capital and its affiliates do not guarantee the accuracy or completeness of this information. Bam Capital offers investment opportunities under Rule 506(c) of Regulation D exclusively for accredited investors as defined by the SEC. Verification of accredited investor status is required prior to participating in any investment.
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SOURCES:
[1]: Zamansky, LLC. (2023). “7 Laws, Rules and Regulations That Protect Investors in the United States.” https://www.zamansky.com/7-laws-rules-and-regulations-that-protect-investors-in-the-united-states/#:~:text=Investment%20Advisers%20Act%20of%201940&text=Along%20with%20the%20Securities%20Act,investors%20in%20the%20United%20States.
[2]: BAM Capital. (2025). “Who owns the property in a syndication?” https://www.bamcapital.com/who-owns-the-property-in-a-syndication/
