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Brent Blanchard
Brent Blanchard, Attorney
Category: Business Law
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Experience:  Thirteen years of business law experience, from business formation to litigation
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I am considering starting an LLC to manage and house personal

Resolved Question:

I am considering starting an LLC to manage and house personal assets. If I were to give out equity units in exchange for capital, rather in exchange for investment/partnership in the company, and I will be trading public equities and will also have private partnership interests, when or how big does the company need to get that would require registration as an RIA with the SEC?
Submitted: 3 years ago.
Category: Business Law
Expert:  Brent Blanchard replied 3 years ago.
Thank you for your question.

"Private placements" for investment into a closely-held company are perfectly legal, but the ins and outs of complying with the hundreds of pages of SEC rules under the Securities Acts of the 1930s and everything since then is way beyond what we can properly address in a question-and-answer forum.

However, any competent financial planner with a Series 6 Securities license should be able to help, AND direct you to a local attorney who can do the full job and do it right. You don't want to be on the receiving end of one of those investigations, whether by the feds at the SEC or the local state securities regulators. But rest assured, it can be done.

The details lie on how the investments are solicited, even if the security is not "traded".

However, please know that "equity interests" in a limited-liability company *are* membership interests. They don't use shares like a regular corporation, but there is little practical difference. It sounds like you are interested in having the investors NOT have any voting rights, and that is handled by having two different classes of Membership, voting and non-voting. Set it all up correctly in the beginning and the capital can be obtained without losing control of the business entity.

"Private partnership interests" in a business entity is completely incompatible with the LLC corporate form. An LLC could conceivably be a member of one or more formal partnerships, but the joint and several liability element of the partnership form is so fraught with dangers that it is hardly ever done any more. A limited partnership, on the other hand, would at least limit an LLC member's losses to its invested funds.

RIA registration is needed if the person or business is advising people on what investments to buy for themselves. What you describe actually sounds from one perspective more like a mutual fund than an assets management business because of its described activity of trading public equities. That takes it out of just being an LLC that is going to engage in some generalized business activities in pursuit of a profit, and puts it more squarely into the regulatory scheme of the SEC and the state of New York's securities regulator.

Thank you.

BAB.
Brent Blanchard, Attorney
Category: Business Law
Satisfied Customers: 1905
Experience: Thirteen years of business law experience, from business formation to litigation
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