| Phase | What happens |
|---|---|
| Offering package | Sponsor sends the documents to review |
| Diligence | You evaluate the business and the terms |
| Accreditation | Plan certifies status in the entity section |
| Subscription | Documents executed in the plan's name |
| Funding | Wire sent from the plan account |
| Recordkeeping | Executed documents retained, reporting begins |
What arrives when a company is raising capital?
A complete offering package usually contains four things: a private placement memorandum describing the business, the offering, and the risks; a subscription agreement, which is the contract by which you commit; a governing document such as an operating agreement, shareholder agreement, or note; and an accredited investor questionnaire. Some rounds arrive with far less, particularly the smallest ones, and a thin package is itself information about how the round has been organized.
Read all of it before anything is signed. The private placement memorandum is where the sponsor states what the company intends to do with the money, and the governing document is where you find what your position actually entitles you to once the money is in. Those two answer different questions, and only the second one governs after closing.
What should you review before committing plan capital?
Two separate reviews are running at once here, and both deserve time.
The first is the business. You are evaluating whether the company can do what it says, which means reading the financials, testing the assumptions behind the projections, understanding the market the company intends to serve, and forming a judgment about the people running it.
The second is the terms. Start with what the plan is actually buying, since a common share and a preferred share in the same company can return very different amounts on the same sale. Find out whether another class gets paid ahead of yours in an exit, and what happens to your position when the company raises again. Then look at the ongoing obligations: whether the plan can be called on for additional capital, whether the interest can be sold or transferred, and what financial information the company commits to providing each year.
Having an attorney review the documents before you sign is worth the cost. Private placement documents are drafted by the company's counsel to protect the company, and the provisions that matter most to a minority investor are rarely the ones written in plain language. Plan holders skip this step more than any other, and it is the step where an hour of professional time returns the most.
One eligibility question belongs in this phase as well, because it can end the analysis. Your plan cannot invest in a company where you or a disqualified person holds a controlling stake or an officer role, so confirming there is no overlap between the company and your own circle comes before the business evaluation is worth finishing.
How does your plan certify accreditation?
Your personal accredited investor status flows through to the plan, so the entity qualifies when you do. On the questionnaire, complete the entity section rather than the individual section, and select the category that fits a retirement plan, commonly Employee Benefit Plan. Where a form offers no obvious category, the sponsor's counsel can identify which one applies, and how the look-through works differs slightly by plan type.
Most offerings accept self-certification. Some require third-party verification of your personal status, in which case the sponsor will specify the documentation they need.
How does the plan get named as the investor?
Your plan entity is the subscriber, and it appears on the company's records under its own name. An IRA LLC shows up on the capitalization table as R-Cap Holdings, LLC. An IRA Trust appears as Foresight Investment Trust. The longer formal styling that names the trustee alongside the trust is a real property convention and is not typically used here.
You execute the documents in your authorized capacity, as manager of the LLC or trustee of the trust or plan, which is what makes the entity rather than you the contracting party. The subscription agreement asks for the entity name, entity type, EIN, and authorized signer, and completing those fields correctly is the step that carries the plan's ownership through to the company's records.
Sponsors sometimes ask for supporting documentation, most often the operating agreement, trust agreement, or EIN confirmation letter. Having those ready shortens this phase considerably.
How does the money move?
The wire originates from your plan's own bank account, sent once the sponsor confirms the executed subscription has been accepted. You initiate it yourself, which is the practical value of signing authority over plan funds when a round is closing on the sponsor's schedule rather than yours.
The funds must come from the plan account. Personal funds do not enter this transaction at any point, including for expenses connected to it.
What happens after the position is funded?
Retain the fully executed subscription agreement, the governing document, and the wire confirmation in your plan records. These establish what the plan owns and on what terms.
Reporting follows the company's structure. A pass-through company issues a Schedule K-1 each year reporting the plan's share of income, which you should review with your CPA to determine whether UBIT applies. Corporate dividends are commonly reported on Form 1099-DIV, which should be retained with your plan records. For the annual value your plan reports, the sponsor's stated value is normally accepted, so there is no independent appraisal to arrange.
How long does the whole process take?
The paperwork moves quickly. Once you are satisfied with the documents and ready to sign on the plan's behalf, execution and funding can happen the same day, since you control the plan account and no third-party approval is required.
The review is where the time goes, and it should. Reading the offering carefully, getting counsel through the documents, and answering your own questions about the business is measured in days or weeks depending on the deal. That pace is set by you rather than by any process constraint.
Next Steps
A plan holder who has identified an offering worth pursuing needs a plan structure that holds the position and funds it directly. To determine which structure fits the placements you expect to make, use the Plan Finder.