Chapter 17

Question 1

At dissolution, priority for settling accounts

Answer 1

1. secured creditors
2. general creditors
3. limited partners
4. general partners

Question 2

Managed offering

Answer 2

underwriter may form a syndicate by soliciting other BD’s to sell the securities

Program sponsor -> managing underwrite -> syndicate ->public

Question 3

Non-managed offering

Answer 3

sponsor hires a wholesaler to market the program

Program sponsor -> wholesaler -> BD -> public

Question 4

DPP

Answer 4

A business venture designed to pass through both income and losses to investors

Question 5

Examples of DPP’s

Answer 5

Limited Partnerships
General Partnerships
Subchapter S Corporation
Joint Ventures

Question 6

Advantages of DPP

Answer 6

• flow through of income and expenses
• limited liability
• tax credits
• tax deductions

Question 7

Disadvantages of DPP

Answer 7

• lack of liquidity
• GP’s approval may be required to sell
• limited voting power
• effects of tax law changes
• increased tax complexity

Question 8

Subscription Agreement

Answer 8

Suitability determination is accomplished via this document

LP are not accepted until the GP signs

Question 9

Ways to “endanger” limited status

Answer 9

• lending their name
• firing employees
• hiring employee
• negotiating contracts

Question 10

Private Placement

Answer 10

Securities qualify for an exemption from registration

-Reg D offering to an unlimited number of accredited investors, no more than 35 non accredited investors

Question 11

Recourse Loan

Answer 11

loan to the partnership for which the limited partner is responsible

Question 12

Real Estate Programs

Answer 12

• Raw Land
• New Construction
• Existing
• Low Income (Government Assisted)

Question 13

Raw Land

Answer 13

• no depreciation deductions
• little to no periodic income
• large potential capital appreciation upon sale
• no tax advantages
• financing and carrying cost are largest expenses
• riskiest form of REI

Question 14

New Construction

Answer 14

• main goal is capital appreciation with some cash flow in future
• use of leveraging
• long duration
• risks of overbuilding, cost overruns, long duration, changes in economy, govn’t and tax laws

Question 15

Existing Properties

Answer 15

• formed primarily to purchase existing commercial properties and apartments
• predictable and high degree of certainty
• immediate cash flow
• depreciation allwances
• risk of problematic tenant issues

Question 16

Government-Assisted Housing

Answer 16

• qualify for tax credits
• some income to partnership
• historic lack of appreciation potential
• high risk of foreclosure
• high maintenance costs

Question 17

Types of Oil and Gas Programs

Answer 17

• Exploratory programs
• developmental programs
• balanced programs
• income program

Question 18

Exploratory Program (Wild Catting Program)

Answer 18

• drilling in unproven areas
• high risk, high potential
• no return can be determined until they are actually drilled
• significant tax advantages
• suitable for investors seeking passive write-offs and also willing to assume high degree of risk

Question 19

Developmental Program

Answer 19

• leases required to drill in proven areas
• high deductible
• lower risk and return that wildcatting

Question 20

Balanced program

Answer 20

Combination of exploratory and developmental program

Question 21

Income Program

Answer 21

• acquires in already producing wells
• cash flow oriented
• produces passive income
• depletion allowance
• suitable for clients who are someone risk averse and are seeking to diversify a stock or bond portfolio with an income objective

Question 22

Four basic types of sharing arrangements

Answer 22

1. Functional Allocation
2. Overriding Royalty Interest
3. Reversionary or Subordinated Working Interest
4. Disproportionate Sharing