Membership Interests in Limited Liabiilty Companies (LLCs)
What Every Investor Should Know
A limited liability company (LLC) is structured similarly to a limited partnership, but participants are called members rather than partners. In a manager-controlled LLC, the managing member--just as a general partner--controls all
the affairs and finances of the company. All the other contributing members simply provide the capitalization for the business with the expectation that they will receive a profit on their investment.
Not only are the ownership interests of a manager-operated LLC considered securities*, but also the business of the LLC can be investing in securities. For example, hedge funds are sometimes limited liability companies. The company raises
money by selling membership interests and then uses the money raised to invest in securities. In Arizona, the manager of an LLC that invests in securities may be an investment adviser and may need to be licensed under the Investment Management
*See Nutek Information Systems, Inc. v. Arizona Corporation Commission, 194 Ariz. 104, 977 P.2d 826 (Ct. App. 1998), review denied, cert denied 528 U.S. 932.