I just wanted to share my research on this topic (AZ specific) and am interested in feedback from those with actual experience on the matter. Please correct me if any statements are wrong!
It is completely legal to form an LLC and manage money in AZ without a securities license within certain guidelines and restrictions. Read the whole way through, as there are some goodies herein. Here is the short version:
1. An LLC can be formed by simply completing the following form and sending a check for $95: $50 application + $35 expediting +$10 for certified copy.
LLC Forms
http://www.azcc.gov/divisions/corporations/filings/forms/index.asp
2. An LLC is governed by two documents:
a. Articles of Organization. http://www.azcc.gov/divisions/corporations/filings/forms/ll0004.pdf
Note the only real information you need include is the management structure. In this case it would be vested in managers. You can appoint yourself as the only manager & statutory agent for the initial filing.
b. Operating Agreement. This governs who else is a manager, what their % cut is on profits, voting rules etc. You don't send in the operating agreement to the state. Just update the Articles when you add/remove managers with a simple amendment form.
Mancuso's book gives a good template which you can have a local LLC atty review for ~$250:
http://www.amazon.com/Form-Limited-...=sr_1_6?ie=UTF8&s=books&qid=1207498633&sr=8-6
Here is a link to get an idea of what it looks like:
http://www.ilrg.com/forms/llc-opag-man/us/az
An LLCs "Board of Directors" is the managers listed on the operating agreement. "Selling stock" is accomplished by adding a member or manager to the operating agreement. The new member or manager is said to have an "interest". Later below I'll explain raising capital.
3. LLC laws. The laws are all online. They essentially grant the operating agreement leeway to manage it as you like, as long as all the managers sign the agreement.
http://www.azleg.state.az.us/ArizonaRevisedStatutes.asp?LinkType=htm&Title=29
4. Raising capital: Here is the tricky part. If you go to a friend or a family member and ask for money, they will become a "member", not a manager, and their contribution will be viewed as a security, subject to securities laws. Then you are limited to 10 total investors and a limit of $100,000 (law reprinted below). You can later collect up to $500,000 from these same investors as per
"R14-4-101. Exempt Transactions -- Existing Stockholders and Employees" http://www.azsos.gov/public_services/Title_14/14-04.htm
But wait, there's more: In order to do so, you need to file a financial statement with the Arizona Corporation Commission (ACC) per "R14-4-123. Financial Information Required by Applicants for Exemptions" http://www.azsos.gov/public_services/Title_14/14-04.htm
You will need a CPA to audit your initial financial statement as part of this requirement. This can be even trickier, since now the CPA opens herself up to liability. She will need a good insurance policy, and may not see you as a great risk/reward investment to her business! Probably best if you have a CPA friend who already knows and trusts you, and even I don't like the feel of this.
Read "R14-6-203. Dishonest and Unethical Practices" http://www.azsos.gov/public_services/Title_14/14-04.htm
Now read the definition of Accredited Investors per the SEC:
http://www.sec.gov/answers/accred.htm
My assessment of all of this is simple. Get experienced traders/investors/financial personnel to become managers (not "members") of the LLC. Here are all the advantages:
1. Ethics & legalities. You know there is no ethical conflict now. Everyone has adequate training and experience and can competently assess each others performance and govern the LLC. They all co-manage the company and provide weekly input as to investments, asset allocation, and performance evaluation. All the securities laws are there to protect the unknowing and unwitting good citizen from greedy and unscrupulous business practices. Limit your company to sophisticated and experienced financial personnel and you will sleep well at night.
2. Transparency & democracy. The inherent checks and balances will provide objective evaluation of traders' performance. There will be no "rogue traders." All issues may be voted on, including the expulsion or inclusion of new manager-traders. Note: This also means it is not "your" company and you can get bounced too. I see this as a plus as it will keep you sharp and help to keep everyone honest and in check. How great if all corps were like this!
3. Pass-thru tax. Your percentage of profits "pass through" the LLC to you as an individual investor and go directly on your tax return. If you make $10k from the LLC, you add this to your personal return. If you lose $10k and are a professional trader per the IRS, you deduct $10k from your return. I don't want to speak to tax laws as they vary from state to state and each persons individual circumstances, so see a qualified CPA.
4. No securities licenses necessary. You ARE NOT offering professional investment services or selling a stake in the company to outside investors. You are just a company of qualified businessmen and women, trying to make an honest buck.
5. Easy to raise capital legitimately. With a limited offering of securities, which applies if you raise money from member-investors, you are limited in net capital and number of investors. Under this restriction, you also are not allowed to solicit investors without a 7/65 license and a sponsoring broker. With a manager-managed LLC, you can solicit all you want. You can bring on as many as 35 members in many states. Stick to truly qualified financial personnel and you can't go wrong. For example:
-experienced, educated traders and investors
-CPAs
-Attorneys
-Doctors
-Engineers
-CFPs
-CTAs
-Financial advisors
-Business degreed professionals
-Real estate investors with market experience
-Retired individuals with successful investment track record
-Entrepreneurs
-Members of local investment clubs
-Any accredited investor as defined per SEC
These could be anyone with sufficient investment experience - but this is a must. Remember-these people are going to be managers of the company, have a say in asset allocation, hiring/firing, and have a vote in amending the LLC. This should keep you from grabbing anyone with a bunch of money yet lacking financial savvy.
6. Any lawful activity is allowed in the LLC. You don't actually need to list and limit the purpose of the LLC and can engage in a broad scope of practices. For example, you could teach trading, hold meditation retreats, and manage money all under this one LLC. Just don't go around giving financial advice!
7. LLCs are meant to inspire entrepreneurship, and are devoid of all the hassles of corporate procedures. Don't let a bunch of fear or hype stop you from honestly chasing your dream. Remember, this is America, the home of the brave and land of the free!
Give back something everyday once you're doing well. This is the real reward in life.
Feel free to pm me anytime with any questions/comments/suggestions.
Best Wishes in all your endeavors!
al : )
It is completely legal to form an LLC and manage money in AZ without a securities license within certain guidelines and restrictions. Read the whole way through, as there are some goodies herein. Here is the short version:
1. An LLC can be formed by simply completing the following form and sending a check for $95: $50 application + $35 expediting +$10 for certified copy.
LLC Forms
http://www.azcc.gov/divisions/corporations/filings/forms/index.asp
2. An LLC is governed by two documents:
a. Articles of Organization. http://www.azcc.gov/divisions/corporations/filings/forms/ll0004.pdf
Note the only real information you need include is the management structure. In this case it would be vested in managers. You can appoint yourself as the only manager & statutory agent for the initial filing.
b. Operating Agreement. This governs who else is a manager, what their % cut is on profits, voting rules etc. You don't send in the operating agreement to the state. Just update the Articles when you add/remove managers with a simple amendment form.
Mancuso's book gives a good template which you can have a local LLC atty review for ~$250:
http://www.amazon.com/Form-Limited-...=sr_1_6?ie=UTF8&s=books&qid=1207498633&sr=8-6
Here is a link to get an idea of what it looks like:
http://www.ilrg.com/forms/llc-opag-man/us/az
An LLCs "Board of Directors" is the managers listed on the operating agreement. "Selling stock" is accomplished by adding a member or manager to the operating agreement. The new member or manager is said to have an "interest". Later below I'll explain raising capital.
3. LLC laws. The laws are all online. They essentially grant the operating agreement leeway to manage it as you like, as long as all the managers sign the agreement.
http://www.azleg.state.az.us/ArizonaRevisedStatutes.asp?LinkType=htm&Title=29
4. Raising capital: Here is the tricky part. If you go to a friend or a family member and ask for money, they will become a "member", not a manager, and their contribution will be viewed as a security, subject to securities laws. Then you are limited to 10 total investors and a limit of $100,000 (law reprinted below). You can later collect up to $500,000 from these same investors as per
"R14-4-101. Exempt Transactions -- Existing Stockholders and Employees" http://www.azsos.gov/public_services/Title_14/14-04.htm
But wait, there's more: In order to do so, you need to file a financial statement with the Arizona Corporation Commission (ACC) per "R14-4-123. Financial Information Required by Applicants for Exemptions" http://www.azsos.gov/public_services/Title_14/14-04.htm
You will need a CPA to audit your initial financial statement as part of this requirement. This can be even trickier, since now the CPA opens herself up to liability. She will need a good insurance policy, and may not see you as a great risk/reward investment to her business! Probably best if you have a CPA friend who already knows and trusts you, and even I don't like the feel of this.
Read "R14-6-203. Dishonest and Unethical Practices" http://www.azsos.gov/public_services/Title_14/14-04.htm
Now read the definition of Accredited Investors per the SEC:
http://www.sec.gov/answers/accred.htm
My assessment of all of this is simple. Get experienced traders/investors/financial personnel to become managers (not "members") of the LLC. Here are all the advantages:
1. Ethics & legalities. You know there is no ethical conflict now. Everyone has adequate training and experience and can competently assess each others performance and govern the LLC. They all co-manage the company and provide weekly input as to investments, asset allocation, and performance evaluation. All the securities laws are there to protect the unknowing and unwitting good citizen from greedy and unscrupulous business practices. Limit your company to sophisticated and experienced financial personnel and you will sleep well at night.
2. Transparency & democracy. The inherent checks and balances will provide objective evaluation of traders' performance. There will be no "rogue traders." All issues may be voted on, including the expulsion or inclusion of new manager-traders. Note: This also means it is not "your" company and you can get bounced too. I see this as a plus as it will keep you sharp and help to keep everyone honest and in check. How great if all corps were like this!
3. Pass-thru tax. Your percentage of profits "pass through" the LLC to you as an individual investor and go directly on your tax return. If you make $10k from the LLC, you add this to your personal return. If you lose $10k and are a professional trader per the IRS, you deduct $10k from your return. I don't want to speak to tax laws as they vary from state to state and each persons individual circumstances, so see a qualified CPA.
4. No securities licenses necessary. You ARE NOT offering professional investment services or selling a stake in the company to outside investors. You are just a company of qualified businessmen and women, trying to make an honest buck.
5. Easy to raise capital legitimately. With a limited offering of securities, which applies if you raise money from member-investors, you are limited in net capital and number of investors. Under this restriction, you also are not allowed to solicit investors without a 7/65 license and a sponsoring broker. With a manager-managed LLC, you can solicit all you want. You can bring on as many as 35 members in many states. Stick to truly qualified financial personnel and you can't go wrong. For example:
-experienced, educated traders and investors
-CPAs
-Attorneys
-Doctors
-Engineers
-CFPs
-CTAs
-Financial advisors
-Business degreed professionals
-Real estate investors with market experience
-Retired individuals with successful investment track record
-Entrepreneurs
-Members of local investment clubs
-Any accredited investor as defined per SEC
These could be anyone with sufficient investment experience - but this is a must. Remember-these people are going to be managers of the company, have a say in asset allocation, hiring/firing, and have a vote in amending the LLC. This should keep you from grabbing anyone with a bunch of money yet lacking financial savvy.
6. Any lawful activity is allowed in the LLC. You don't actually need to list and limit the purpose of the LLC and can engage in a broad scope of practices. For example, you could teach trading, hold meditation retreats, and manage money all under this one LLC. Just don't go around giving financial advice!
7. LLCs are meant to inspire entrepreneurship, and are devoid of all the hassles of corporate procedures. Don't let a bunch of fear or hype stop you from honestly chasing your dream. Remember, this is America, the home of the brave and land of the free!
Give back something everyday once you're doing well. This is the real reward in life.
Feel free to pm me anytime with any questions/comments/suggestions.
Best Wishes in all your endeavors!
al : )
