Establish a fund

First of all, if you are considering setting up an opportunity zone fund, we highly recommend consulting legal and financial advisors who understand the IRS rules and compliance regulations. We have a network of advisors that we consult for setting up opportunity zone funds. 

This program has the potential to give sharp returns to investors and to bring sorely needed investment into communities that have been marginalized. Because of the tremendous benefits of the program, it is imperative that all the investment activity be handled accurately, equitably, and in accordance with the rules. 

At some point, you will have an interest in your opportunity zone and local community investors will want to participate in the program. Have experts set up the fund so the investors can be assured of the investment and make sure investors have people to call for questions about their investment.   

Planning the fund

An opportunity fund is an investment vehicle.  Therefore, there will need to be a manager who collects money and manages the purchases and sales. These fund managers will charge fees for their services and often times the managers of the funds will have a percentage invested in the fund. 

In order to manage the fund properly, there will be broker services, bookkeeping, portfolio management, property management, legal fillings and tax filings. 

The individuals or entities managing the funds need to be accredited and trustworthy.  They should charge fair fees and they should be able to assist local community members who wish to invest.  Fund reports and distributions will occur on a quarterly or semi-annual basis. 

Setting up the fund

Most economic developers will not be directly involved with the details of setting up the fund. But, you should know the basics of how the fund is set up. 

A business entity will need to be formed most likely as an LLC or LLP. This is the corporate structure of the account. 

An account will need to be established and most local banks should be able to assist in a trust account and checking account. 

The corporate documents will need to be drawn up by an attorney. This the operating agreement that states how the fund will be managed and rules surrounding buying and selling interests. Accompanying this document will be the investor agreements.  These documents must clearly state all the duties, reporting, fees, contributions and distributions and rights of all the involved parties. 

Document filings will be one of the final steps. The opportunity zone fund documentation must be filled properly with the U.S. Securities and Exchange Commissions and the IRS.  There may also be state filings.  The legal and financial advisors will be able to properly handle compliance and filings. 

One advisor we recommend is Opportunity Zone Investments. Kyle Wiese and his team are experts in compliance and the components of setting up a fund. 

Attract investors

Now that the fund is properly setup and the documents are in order, it is time to find investors. The exciting prospect for opportunity zones is the ability of local investors as well as large institutional investors to participate in the project. 

It is important to set up community meetings to allow local investors the opportunity to participate in the program. These meetings should involve economic developers, fund managers, and developers. 

Additional Resources

IRS Q&A

https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions
https://www.irs.gov/instructions/i8996

IRS Form 8996 

https://www.irs.gov/pub/irs-dft/i8996–dft.pdf
https://www.irs.gov/pub/irs-dft/f8996–dft.pdf

Securities and Exchange Commission

https://www.sec.gov/divisions/investment/guidance/private-fund-adviser-resources.htm

Economic Innovation Group

https://eig.org/opportunityzones

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