Limited Liability Companies are often exempt from securities laws.
A Limited Liability Company (LLC) is a business structure that reduces the amount of personal liability for any company debts, or for any of the company's activities. Instead of being the owner of an LLC, you are a "member." In this sense, becoming a member of an LLC can be seen as similar to investing in the stock market (a "security"), the only difference being that as you are a member, you are also a partial owner, and you will often be included in the running of the company.
Securities Law
A "security" can simply be defined as an investment (such as a stock or bond) that could potentially yield a profit, that you are not personally responsible for the success of. The basic legislation (put forward in 1933) has two key aims. One of these aims is to prevent fraud and misrepresentation within the sale of securities, and the other is to ensure that sufficient financial information is given to investors before they commit to purchasing any sort of security. The laws often don't affect LLCs, but in certain situations, they are relevant. They mainly seek to protect investors and ensure that all trading in stocks and investments is done ethically.
Sole Members
It should be evident that although members of an LLC usually have some stake in the running of the company, the investment is not generally considered a security. LLCs can have as little as one member, or as many as they like, and the only time securities laws come into play is if some members do not have a part in the running of the company. This makes sole members exempt from any securities legislation.
Co-Ownership
Most LLCs are small companies set up by groups of friends and family, and as such, all the members often have input into the running of the company. In these situations, securities law does not directly affect LLCs. They are affected, however, if some members do not participate in the running of the organization. To sell securities, you must register with the Securities and Exchange Commission (SEC). The registration process is there to find out about the basics of the business, which security is being sold, and information about the company's management structure.
Exemption
There are several exemption criteria from securities law. Most LLCs are able to gain exemption from the laws because the criteria are quite favorable to smaller businesses, in order to encourage their growth. An LLC qualifies for exemption if the investments are all made within the same state (known as an "intrastate offering"). The company also qualifies for an exemption if the "offerings" are made privately, or if the offerings are made to individuals or businesses that could reasonably be expected to be able to cover themselves financially. It is on similar grounds that any small investments are also eligible for exemption.
