Legal Question in Securities Law in California

ltd partnership transaction

I need to know how to apply a securities law test to a new and allegedly special type of limited partnership that brings different catagories of limited partners into the same partnership. the promoters claim the transaction is not a security and therefore does not have to be registered as such. I understand there is an economic reality test and an

investment test but I am unsure as how the law applies these tests and are there any other tests that would or could make any limited partnership exempt from being deemed a security? thank you for any help or direction toward my answer


Asked on 12/29/01, 1:52 am

1 Answer from Attorneys
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Re: ltd partnership transaction

The basic definition of 'security' is found in Section 2(1) of the Securities Act of 1933, and most states have corresponding definitions in their law. Additionally, hundreds of decided cases further interpret (and broaden) the definition of 'security'. Nearly all limited partnership and limited liability company interests clearly fall within the definition, and in some cases joint ventures and general partnerships can fall within the definition. If you invest or advance money or any other consideration with the expectation of profit, and do not also expect to manage and operate the business, you are buying a security.

I cannot comment on your particular proposed arrangement without more specific information, but it is always preferable to assume that it's a security and treat it accordingly.

One possibility is for the promoter to attempt to register with federal and state authorities and have them rule conclusively that the 'investment' is not a security.

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Answered on 12/29/01, 3:48 pm


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