LIMITED LIABILITY COMPANY INTERESTS AS SECURITIES: A PROPOSED FRAMEWORK FOR ANALYSIS

• Published in: American business law journal 1996-06, Vol.33 (4), p.577-644
• Main Authors: GARRISON, MICHAEL J., KNOEPFLE, TERRY W.
• Format: Article
• Language: English
• Subjects: Federal court decisions; Law; Limited liability companies; Limited partnerships; Organizational structure; Public policy; Securities regulations; Supreme Court decisions; Taxation; Treasuries
• ISSN: 0002-7766; 1744-1714
• DOI: 10.1111/j.1744-1714.1996.tb00406.x

The limited liability company (LLC) is a unique form of business organization that provides it members with limited liability plus the benefits of partnership tax treatment. Whether LLC interests fall within the securities laws has become an emerging public policy issue, the resolution of which requires an analytical framework that considers the legal attributes of the LLC and also balances competing interests in investor protection and business efficiency. Factors such as the marketing of the LLC interests, the number and geographic distribution of the members, the investors' dependence on Ted managerial expertise of the LLC managers and the extent to which members actually participate in the management of the firm should be considered. To provide a level of certainty to the analysis, courts should presume that interests in LLCs adopting a corporate model of governance are securities and those adopting a partnership model of governance are not securities. The presumptions should be rebuttable, however, if relevant factors indicate that interests in a particular LLC venture are or are not securities from an economic reality perspective.