Category: Securities Issues

SMALL BUSINESS FUNDRAISING IDEAS-AVOIDING COMPLEX SECURITIES REGULATIONS

By , February 2, 2017 10:25 am

The latest issue of the ABA journal called Business Law Today has an article entitled Small Business Fundraising Ideas–Avoiding Complex Securities Regulations.  This is a subject every LLC lawyer needs to know in depth.  The article is copyrighted, so I can’t provide you with a link to it.  But consider subscribing to the above ABA publication.  It often contains articles of great value to LLC lawyers.

WHEN IS A MEMBERSHIP IN AN LLC A SECURITY?

By , January 20, 2017 10:14 am

Anytime any of the members of an LLC you are forming for your clients are non-managers or otherwise significantly passive as to LLC management, you have to be concerned about possible federal and state securities law issues.  The post under the link below discusses a 10th circuit December 2016 case on this issue.  Here’s the link:

http://www.lexology.com/library/detail.aspx?g=492c7caa-1251-4acd-bfcd-ff7b6f436d71&l=7TFZC3H

LAW JOURNAL ARTICLE ON PERFECTING SECURITIES INTERESTS IN SERIES LLCS

By , September 27, 2016 10:04 am

Except in very narrow circumstances, I believe lawyers shouldn’t advise their clients to use series LLCs; and I believe that if they do, they should provide their clients with detailed warnings about the attendant risks.  However, if they do advise them to use series LLCs, they should be aware of the issues addressed in the newly published article cited below, and they should warn their clients about these issues.

35-SEP Am. Bankr. Inst. J. 22
American Bankruptcy Institute Journal
September, 2016
Lien on Me
HOW ARE SECURITY INTERESTS IN SERIES LLC ASSETS PERFECTED, AND IS IT EVEN POSSIBLE?
Bryan Cave LLP
Kansas City, Mo.
Copyright © 2016 by American Bankruptcy Institute; Michelle M. Masoner, Brian M. Devling, Mark G. Stingley

Series limited liability companies (LLCs) are a form of alternative entity in which multiple series are incorporated into a single LLC. Under the series LLC structure, a master LLC (a “series LLC”) may create separate series to hold separate assets, and each series may have different ownership and management structures. By the statutes enabling them, the various series are meant to be protected from the liabilities incurred by other series within the company. As series LLCs are more commonly used, certain questions inevitably arise regarding how to transact businesses with this type of structure. In the commercial lending context, one of the most important considerations is the proper method for obtaining and perfecting a security interest in the individual series’ assets as collateral for financing.

INCOME INEQUALITY

By , June 30, 2015 8:12 am

In connection with my LLC formation practice, I sometimes have to provide clients with advice and documents that will protect them from liability under federal and state securities laws if these clients want to grant LLC memberships to passive investors.  (Any such grant can raise serious securities law issues.)

Thus, to keep up in the field of securities law rules governing “private placements” (i.e., investments in non-public entities), I subscribe to the blog of an organization called Venture Capital Experts.  A very recent blog post in that blog contains an article arguing, among other things, that securities laws should be amended to make it easier for members of the middle class to make capital investments in venture capital-funded enterprises.  The article is relevant to LLC lawyers who handle private placements of LLC membership rights or who want to learn to handle them.  However, it is perhaps of even greater interest to estate planners who have clients potentially interested in making at least modest venture capital investments.

Here’s the link to the above article:

http://blog.vcexperts.com/2015/06/23/wealth-inequality-in-the-us-the-result-of-unintended-consequences-and-how-this-time-can-be-different/?utm_source=The+VC+Expert%27s+Buzz&utm_campaign=a399743da1-Wealth_Inequality_6_23_2015&utm_medium=email&utm_term=0_ee0d1cc528-a399743da1-267083297

SUBSCRIPTION AGREEMENTS IN LLC FORMATIONS

By , December 16, 2014 9:53 am

If you’re forming an LLC that will have even just one passive investor, you’ll have to address federal and state security laws protecting these investors.   This new post by Peter Mahler in his great blog entitled “Business Divorce” addresses significant LLC formation issues arising in the securities law “subscription agreement” included as a key exhibit to the operating agreement of the LLC in question in Peter’s post.

LLC MEMBERSHIPS AS SECURITIES

By , July 1, 2014 9:12 am

Whenever you form an LLC for your clients, you have to be aware of the issue whether the memberships issued by the LLC will be, at least for one or more members, securities subject to regulation under federal and state securities laws.

There are many LLC cases on this issue, but the short answer to the above issue is provided in Williamson v. Tucker, 645 F.2d 404, Fed. Sec. L. Rep. (CCH) ¶98003, 32 Fed. R. Serv. 2d 361, 58 A.L.R. Fed. 371 (5th Cir. 1981).  As applicable to LLCs, this case can be said to hold that any LLC memberships granted to passive members—i.e., members who have little or no right to participate in LLC management—are securities.  If LLCs you form will have passive members and if you yourself are not a securities lawyer, you should consult with a securities lawyer before the LLC is formed.