What is the process for debt or equity offerings for a business located in an OZ to attract investors?
In general, OZ investments are typically structured as Limited Partnerships owning subsidiary QOZB LLCs. The interests in the LP are “securities” under state and federal law and thus require compliance with securities laws, generally thru a Reg D Offering.
Equity qualifies; debt doesn’t.
It would not be terribly different from the normal fundraising process. Debt fundraising in particular would be exactly the same because debt does not get OZ benefits, so there is no compliance to worry about for those investors. Debt investors might have to consider novel legal structures to accommodate OZ compliance for the equity investors, but that is about it. On the equity side, you will need to provide comfort for those investors that your investment is compliant with the OZ rules, but the observance of the 180-day rule is entirely incumbent on the investors. You should expect to draft an operating agreement, issue a PPM with a subscription agreement, and prepare a pitch deck.
Investment in a QOF and by the fund in QOZB must be in exchange for equity and no debt in order to obtain the benefits provided in the Code. This requirement does not prohibit the fund and or the business to obtain debt, but that portion will not qualify for the OZ benefits.
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