Legal Question in Investment Law in District of Columbia

Issuing preferred stock or equivalent of as an LLC

I am interested in creating an LLC to purchase real estate investment properties and need equity from investors as leverage to secure loans/mortgages to purchase the properties. I am considering offering a preferred stock contractual agreement, not actual preferred stock since that can only truly be through a corporation, to investors, meaning through the LLC I will offer quarterly dividends/returns (fixed) and the ''shares'' will be callable. How do I structure this? Will a bank consider this as true equity for the purposes of borrowing money to buy the properties? Additionally, should I maybe consider structuring the business as a true corporation(I know the differences, no need to explain)? If I do operate with investments as preferred stock how is that stock valued when called?

Asked on 5/11/05, 7:41 am

1 Answer from Attorneys

Robert DiPaolo The Fidelis Group, LLC

Re: Issuing preferred stock or equivalent of as an LLC

You can create a membership interests (equity) with an LLC that have the same rights and privileges as would a class of preferred stock of a corporation, which pays dividends, can be callable, etc. The bank should consider such membership interests as true equity, but may want to see it as debt in the context of your borrowing money. This will depend on how you structure the membership interests. You can determine how the membership interests will be valued when they are called as part of the terms of such interests using a variety of valuation formulas. We have had a lot of experience doing this sort of work, and would be pleased to assist you with the matter. Please do not hesitate to contact me at [email protected]

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Answered on 5/11/05, 8:54 am

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