The Limited Liability Company as a Security

While a few commentaries have addressed the LLC enterprise in general, very few make mention of whether interests issued pursuant to this business form constitute securities. This article generally responds to Professor Sargent's position that interests in a LLC are normally not securities. We take the position that LLC interests usually satisfy the requirements for securities law status and, hence, such instruments normally are within the purview of the federal securities and the state blue sky laws.First, this article analyzes an interest in a LLC as an "investment contract," utilizing the four-part test adopted by the United States Supreme Court in SEC v. Howey, as well as the Court's rationale in Marine Bank v. Weaver. Second, we explore LLC interests under the same or similar circumstances test adhered to by the United States Supreme Court in Landreth Timber Co. v. Landreth, focusing on whether LLC interests have the characteristics of stock. Finally, pursuant to the definition of a security under the federal securities acts, we examine a LLC interest as an "interest or instrument commonly known as a security to show that a common equity participant in an enterprise called a "company" (as in a Limited Liability Company) may reasonably expect the investment to have securities law coverage