Legal Question in Investment Law in California

Re: Can anyone in any stat invest via the internet in an LLP

The LLP's limited-partnership units or interests would almost certainly meet the definition of securities already. Practically anything you sell to investors is a security under the sweeping definition in the Securities Act of 1933 and court interpretations thereof.

It is often said in the securities industry that there are three kinds of offerings: registered, exempt, and illegal.

If your LLP hasn't filed a registration statement and been approved for offering by the SEC, it isn't registered and therefore doesn't fall into the first category.

You sure don't want your offering to be illegal.

Sooooo, your remaining possibility is to find an exemption that fits.

As you may know, securities law provides for at least six categories or classes of exemption from registration that are commonly relied upon by securities issuers in situations for which each is appropriate. Three of these are subclasses within so-called "Regulation D:" Section 504, 505 and 506. There are others.

Each exemption category has limitations. Full knowledge of these limitations is essential to finding the exemption that is most suitable (i.e. least restrictive) for your offering. You must abide by and live within the restrictions.

For example, most of the exemptions have dollar limits on the amount of money that can be raised. Most have limits on the number of persons who can be solicited, and/or on their degree of financial wealth and sophistication. Some don't permit advertising. Many require or at least permit "merit review" by individual states. There is only one exemption formula that I can recall which would permit sales in nearly every state without merit review. Finally, many of the exemptions require the issuer to have audited financials, and this may be a barrier to new companies with no operating history to audit. Further, the audits can't be done by just any Main Street CPA -- special credientials are required.

The bottom line is that there are so many laws you need to observe that you'll absolutely, positively need a securities law specialist. Not only are there Federal laws and different state laws in every state. these laws are written to require pro-active observance and are not merely resting in the background to trip up crooks.

Selling via the Internet and taking payments via PayPal is a novel idea, but (1) since you'll be offering in all 50 states plus countless foreign jurisdictions as soon as you post anything, you may break hundreds of laws before you take in your first nickel. Further, you may lose the ability to use the advertising, number-of-offerees and sophistication limits.

There are, however, ways to use the Internet to make an exempt offering. The SEC is actually taking a pro-active role, and new techniquest that don't break all states' laws are being developed.

Please contact a securities lawyer for further information before you attempt to raise money from the public.