Legal Question in Business Law in California

Re: Best Business Formation for Investment Offerings

First, I should start by warning you that attempting any kind of securities offering without the assistance of a retained securities lawyer as part of your planning team is risky and inadvisable. Both the business itself and the individuals involved could become subject to civil and criminal actions for the slightest mis-step.

Having said that, I do not know of any legal reason why the economic interests in an LLC could not be offered as securities under section 506 of Regulation D. LLC interests may be deemed to be securities, and the Reg. D exemption from registration has been used at one time or another for almost every imaginable type of security.

It seems to me that practical considerations of operating the business, tax issues, and the ultimate marketability of the securities should determine the choice of business organization, i.e. whether to be a corporation, LLC or something else.

I would think in 97 cases out of 100 the corporate form would be preferable. Only your own attorney-accountant team can tell you whether your proposed business is among the 3 in 100 where an unusual form of organization is better.

The main thing that is 'special' about the formation of any business entity that will be offered to the public, whether by registration or exemption, is that it needs to be 'sqeaky clean' as far as legal compliance. Minor informalities are sometimes tolerable in the planning of a family business, or among long-time partners. A business that is going to be offered to strangers needs to be planned and executed strictly by the book.