Direct Participation Programs
A direct participation program (DPP) is a special type of security that allows investors to participate directly in the flow-through tax benefits of the underlying business. DPPs are most commonly used for real estate and energy investments and are typically structured as limited partnerships, with one general partner and multiple passive limited partners.
FINRA Rule 2310 sets out the conditions under which a member or associated person may participate in a public offering of a DPP. All of the following conditions must be met:
- • Suitability. The program must establish and fully disclose standards of suitability. A member or associated person may not recommend a DPP transaction to a person without reasonable grounds to believe the investment is suitable for that person. (The suitability requirements do not apply to DPPs that are, or will be, listed on a national securities exchange.)
- • Disclosure. All material facts about the program must be adequately and accurately disclosed and provide a basis for evaluating the program. Prior to executing a purchase transaction in a DPP, a member or associated person shall inform the prospective purchaser of all pertinent facts relating to the liquidity and marketability of the program.
- • Organization and offering expenses. Org