Series 22 key terms

An investment structure, typically a limited partnership, that lets investors share directly in the cash flow and tax consequences of an underlying business such as oil and gas drilling or real estate.

A business with one or more general partners who manage it and are personally liable, and limited partners who contribute capital, hold no management role, and risk only what they invested.

The person or entity that manages a limited partnership, makes day-to-day decisions, and bears unlimited personal liability for the partnership's obligations.

A passive investor in a limited partnership whose liability is generally capped at the amount of capital contributed, and who must not take part in management.

A document a purchaser signs to agree to buy units of a program, confirming representations about the investor's eligibility, financial status, and acceptance of the offering's terms.

A judgment that a specific program fits a particular customer's financial profile, tax situation, risk tolerance, and objectives, documented before a recommendation is made.

An investor meeting income, net worth, or professional criteria set by securities rules, permitted to buy unregistered private placements with reduced disclosure protections.

SEC rules that exempt certain private offerings from full registration, allowing sales mainly to accredited or limited numbers of sophisticated investors under Rules 504, 505, and 506.

The sale of securities to a limited group of investors without a public offering, typically relying on an exemption from registration and sold through an offering memorandum.

The disclosure document for a private placement that describes the program, its risks, fees, use of proceeds, and the interests being sold.

The investigation a firm performs on a program's sponsor, assets, and legal structure to confirm the offering's claims and identify risks before selling it.

A program that raises money before specific properties or projects are identified, so investors cannot evaluate the actual assets at the time they commit.

A transaction combining several limited partnerships into a single larger entity, often converting limited partner interests into shares of a corporation or new partnership.

A DPP that funds drilling, development, or production of oil and gas wells, passing through income, deductions, and depletion to investors.

An ownership stake that carries the obligation to pay a share of drilling and operating costs as well as the right to a share of production revenue.

A share of production revenue that carries no obligation to pay operating or drilling costs; it is carved out of the working interest's proceeds.

Expenses of drilling a well that have no salvage value, such as labor and fuel, which are generally deductible in the year incurred for tax purposes.

A tax deduction that reflects the using up of natural resources such as oil, gas, or minerals, computed by either the cost or percentage method.

Tax rules that generally bar using losses from passive investments such as limited partnerships to offset wages, interest, or other active and portfolio income.

Tax limits that restrict deductible losses to the amount an investor has economically at risk in the activity, including contributed cash and certain borrowed amounts.

A DPP that invests in property development, rental, or mortgage lending, producing rental income, gains on sale, and depreciation-based tax shelter.

A DPP that buys equipment such as aircraft or railcars and leases it to users, passing lease income and depreciation through to investors.

Sales charges and organization expenses deducted from an investor's capital at the time of purchase, reducing the amount actually working in the program.

Costs of forming the partnership and marketing the offering, often paid from investor funds and limited by caps stated in the offering document.

The process of assembling investors and capital to fund a program, often led by a sponsor that earns fees for putting the deal together.

The individual or firm that creates a program, arranges its financing and marketing, and often serves as or controls the general partner.

The extent to which program units may be sold or assigned; DPP interests are usually illiquid and restricted, with limited or no secondary market.

The firm that maintains the record of unit holders, processes transfers, and issues or cancels certificates for a program's securities.

State securities statutes that require registration or exemption of offerings and licensing of salespeople, in addition to federal requirements.

The formal disclosure document for a registered offering, containing the program's business, risks, fees, financial statements, and investor suitability standards.

The record capturing a customer's identity, finances, tax bracket, investment experience, and objectives, forming the basis for suitability and supervision.

The customer's stated goals, such as income, growth, or tax shelter, which determine whether a direct participation program might be appropriate.

Procedures required by anti-money-laundering rules to verify each new customer's identity using name, address, date of birth, and an identification number.

A written notice to the customer after a transaction stating the security, amount, price, and other trade details, required to be delivered at or before settlement.

A demand for additional money from limited partners beyond their original commitment, permitted only when the partnership agreement provides for it.

The rule governing member participation in direct participation programs, covering suitability, compensation limits, due diligence, and disclosure obligations to investors.

The risk that an investor cannot sell a position quickly at a fair price; DPP units often lack a market and may need to be held for years.