This post is the third in a series exploring when securities laws impact business transactions.
In my previous posts, I provided a general overview of the definition of a “security” under federal securities laws. One of the categories of investments that constitutes a “security” under federal law is an “investment contract.” The term is a rather open-ended one, but under the so-called Howey Test, the term includes any arrangement or transaction that is “an investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.” As a result, any transaction which constitutes an investment contract is a security under federal securities law. In this post, we’ll explore when an interest in a limited liability company (“LLC”) or a partnership constitutes an investment contract, and consequently, a security. [Read more…]