Legal Question in Business Law in New Jersey

The short answer is yes. You can allocate the units of interest into share like offerings and issue a private placement, but not without great costs and compliance.

So a better answer, and I know I am making some assumptions here, will be likely that this is not practical for you to do. This is why entrepreneurs typically seed their start ups with friends and family funds, not general solicitations and stock offerings. So long as you are not soliciting the general public to purchase an interest in your entity you can offer equity to potential partners/investors. This area can get chewy at times, so I would not entertain doing anything without the advice of a business lawyer.

If you would like to discuss further over a free phone consult, feel free to contact me anytime that is convenient.

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Kind regards,

Frank

www.LanternLegal.com

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DISCLAIMER: this is not intended to be specific legal advice and should not be relied upon as such. No attorney-client relationship is formed on the basis of this posting.

The short answer is, yes. By default, LLC ownership is represented by "membership interests." However, you can structure the LLC such that the ownership "looks like" corporation stock, i.e., by creating "units" of ownership. However, in addition to significant corporate law and tax considerations, raising capital in the fashion you described implicates securities law concerns. IMO, such should not be attempted without competent professional advice. I routinely assist clients in such matters. Please feel free to give me a call at no charge to discuss your project... 973-921-0600.

Kindly note and remember that my response is merely a general comment on the law related to your question, and NOT legal advice or opinion. Also, your question and my response does NOT create an attorney-client relationship between us. You cannot rely upon what I have written, because I do not have all of the information that I need to advise you or render an opinion. Even simple facts you have not shared can completely change my answer. For me to give you legal advice or opinion, you would need to hire me to be your lawyer, and then we would need to discuss this in detail and go over the documents.

Please visit my website! www.bgartenberg.com or call me 973-921-0600 if you�d like to learn more about me or my practice. Thank you.

Your question has two aspects. First, it is lawful to divide the interests in the LLC into "shares" so that they can be sold by the LLC for capital. In doing that, the LLC must be especially careful in the operating agreement to describe the rights of those owners and special care must be given to accounting for those interests. Secondly, the LLC cannot make a public offering of its shares without complying with the securities laws of the state and federal governments. That can be a costly and time-consuming process both initially and in the quarterly filings. An LLC is rarely the preferred form for a publicly-traded business. It is also unusual for a start-up company to move directly into a public offering. You may want to re-think your capitalization strategy with the assistance of your accountant and a business lawyer.

See also: http://info.corbettlaw.net/lawguru.htm

I agree with my colleauges. HOWEVER let me bring in my perspective as a startup attorney that handles startups+investors all the time. Theoretically you can do what you're proposing but in reality using an LLC would be cumbersome, costly and for some investors (especially venture capitalists and funds) LLCs as investment targets are practically a non-starter.

If you're going to raise funds with multiple investors you ought to consider a c-corp. It may mean shutting down the LLC and forming a new entity. I urge you to seek the advice of a startup attorney to avoid uncertainties and ambiguities just like this.

Feel free to ping me offline.

Roman R. Fichman, Esq.

www.TheLegalists.com │ @TheLegalist

email: Info (@) TheLegalists (dot) com

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