Selling Agreement

A program distribution involves a sponsor, a dealer-manager and several retail broker-dealers selling to their own customers. Which contractual arrangements govern the relationships?

1. A.A single master agreement signed by the sponsor and every participating firmWrong. The retail firms are not in contract with the sponsor.
2. B.Separate agreements between the sponsor and each retail broker-dealerWrong. That bypasses the dealer-manager, which is the party the sponsor contracts with.
3. C.A partnership agreement to which each selling firm becomes a partyWrong. The partnership agreement governs the program's partners, not its distributors.
4. D.A dealer-manager agreement with the sponsor and selling agreements beneath itCorrect. The distribution runs through a chain of two distinct contracts.

Why: There are two distinct contracts: the dealer-manager agreement between the sponsor and the dealer-manager, and the selling agreements between the dealer-manager and each participating broker-dealer. The retail firms are not in contract with the sponsor, which is why their compensation and obligations come through the selling agreement rather than directly from the program. Keeping the two separate matters because a term the sponsor agreed with the dealer-manager does not automatically bind a selling group member. Had a retail firm dealt directly with the sponsor without a dealer-manager, a single agreement between them would do the work of both.

In a direct participation program distribution, the dealer-manager is best described as:

1. A.The bank that holds subscription funds in escrow until the contingency is metWrong. That is the escrow agent, a separate party with no role in organising the selling effort.
2. B.The broker-dealer that contracts with the sponsor and organises the selling groupCorrect. It signs the dealer-manager agreement and allocates retail participation among other firms.
3. C.The sponsor's affiliate that manages the program's properties after closingWrong. That is the program's asset manager, whose work begins where the distribution ends.
4. D.Any selling group member that places units with its own retail customersWrong. That describes an ordinary participating firm, of which there may be dozens.

Why: The dealer-manager is the broker-dealer that organises the selling effort on the sponsor's behalf. It signs the dealer-manager agreement with the program sponsor, recruits other broker-dealers into the selling group, allocates retail participation among them, and maintains the books and records of the distribution. It also carries a due diligence role, since it is the firm closest to the sponsor. None of that describes an ordinary selling group member, which simply places units with its own customers under a selling agreement.

An investor reviewing a limited partnership offering wants to know exactly how the general partner will be compensated and how income, loss, capital gain and cash distributions will be divided among the partners. Which document fixes those terms?

1. A.The agreement of limited partnershipCorrect. That document fixes compensation and every allocation and distribution term.
2. B.The subscription agreement signed by the investorWrong. It records the commitment and representations of the investor, not the economics of the program.
3. C.The annual Schedule K-1 furnished to each partnerWrong. It reports what was allocated for a year rather than establishing how allocations are made.
4. D.The dealer agreement between the sponsor and selling firmsWrong. That paper governs selling compensation, a different subject from partner allocations.

Why: The agreement of limited partnership is the constitutional document of the program. It identifies the types of partners, states the capital contribution obligations, sets the allocation of income, loss, capital gain and cash distributions, and fixes the compensation of the general partner. Other documents in the offering describe or report on those terms but do not establish them. Changing any of that economics means amending the partnership agreement, which is one of the matters the limited partners may vote on.

A firm is finalizing selling agreements for an upcoming offering and needs to determine what price and concession information must be disclosed to participating dealers. What must the principal confirm under Rule 5160?

1. A.Confirm the required price and concession disclosure under Rule 5160 is included in the selling agreementsCorrect. Rule 5160 requires disclosure of price and concessions specifically within selling agreements connected to an offering.
2. B.Nothing, as long as participating dealers are FINRA members in good standingWrong. A dealer's membership standing does not substitute for the required price and concession disclosure in the selling agreement.
3. C.Nothing, because Rule 5160 applies only to offerings under $10 million in sizeWrong. This invents a size threshold that has no basis in Rule 5160's disclosure requirement.
4. D.Nothing formal, since price and concession terms may be communicated informally as the deal progressesWrong. This is the exact trap the question describes; Rule 5160 requires this information be disclosed in the selling agreements themselves.

Why: Rule 5160 requires disclosure of price and concessions in selling agreements connected to an offering. The principal must confirm this required disclosure is included in the selling agreements provided to participating dealers, not treat pricing terms as information shared only informally or upon request.