Series 22 Exam Lesson 2 Vocabulary, Part I 2023

Lesson 2: Essential Vocabulary, Part I

Direct Participation Program (DPP)

Sometimes this is just referred to as a “program”. It offers the entire process through economic events and tax burdens. It can be set up in different ways, such as a limited partnership, a limited liability company (LLC) or an S corporation. They can be created as a legal entity to manage interests in a variety of fields, including agriculture, ranching, fossil fuels, minerals, real estate, securities investments, etc. It does not include things like real estate investment trusts, IRAs, tax sheltered annuities, and the separate accounts of insurance companies.
A sponsor is an entity that directly or indirectly provides any management service to a DPP. They can be a general partner or another entity that has been contracted to do so.

1031 Exchanges
This is a kind of exchange that allows your clients to trade in certain kinds of properties with realizing a capital gain or loss. These properties have to be of the same kind and have to be used for investing. It has to be real estate. It cannot be any other kind of security, such as stocks, bonds, etc.

Boot
This describes a property received that was not a like kind property. This creates a partially tax-differed exchange. Not all of it will be tax deferred.

Agent
This is a representative of an issuer or a broker-deaerl who assists them in buying or selling securities, such as stocks or bonds.

Affiliate
This is a person who has some influence or control over a broker-dealer (FINRA member) or is controlled by such a broker-dealer. This can include a person who has or can get a 10% or more voting interest in a member, a partner or director of a member, immediate family members of a member,

Triple Net Lease
A net lease is where the landlord and the tenant share the operating costs of a property. There is single net, double net, and triple net. The higher the number, the more things the tenant is responsible for. A triple net lease usually means base rent, plus taxes, plus maintenance and insurance payments.

Securities
This is a category of investments. These can be any of the following kinds of investments: shares of stocks (common and preferred), partnership interests, ownership interests, notes, bonds of all kinds, debentures, currency, interest, etc

Master Tenant
In the case of a master tenant, the trust leases to the entire larger property to a single master tenant. The tenant then acts as a middleman and runs the property, creating sub-leases to other people who want to lease part of the property.

Cash Flow
This is the money that is provided from operating a business after you subtract your expenses, but before deducting anything for depreciation. Expenses can be things like overhead, salaries, maintenance, insurance, etc.

Limited Partner vs. General Partner
This is a person who is investing in a limited partnership. They bring capital to the table, and in return, they get an economic interest in the partnership. They limited in how they can influence the partnership. They cannot influence the operations of the partnership or influence any of the general partners. If they do this, they lose their limited partner status and become a general partner.

Dissenting Limited Partner
This is a person who disagrees with having a partnership merge with another limited partnership.

Limited Partnership vs. Limited Liability Partnership

A limited partnership is an unincorporated direct participation program that is created when limited partners work with one or more general partners. There are state regulations that govern these kinds of partnerships.
A limited liability partnership is a partnership that gives the partners protection from having the liability of the whole company. It can only be formed by professional organizations, such as attorneys or accountants.

Limited Partnership Agreement
This is the legal document that creates a limited partnership. It defines what the business purpose of the partnership is and what the terms and conditions of the partnership are, such as how profits and losses will be shared, who has what voting rights, compensation of partners, recording keeping requirements, and the different rights that different kinds of partners may have.

Substitute Limited Partner
Once a limited partner buys an interest in a partnership, this interest cannot be transferred unless a general partner gives approval. If the general partner approves, the original limited partner can transfer his or her interest to the substitute limited partner.

Subscription Agreement
This is a legal document that allows a limited partner to subscribe to purchase interest in a limited partnership or shares in exchange for a certain contribution of capital.