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Hi, I'd like to create an investment fund LLC with my spouse and my parents. My parents would like to contribute their IRA's to my fund. And my spouse and I would like to contribute our solo 401K's to the fund. 1) How can I st...
I understand that you’re handling family money, nevertheless, I don’t recommend your proposed course of action as you’re going to have a lot of legal obstacles, even in the best case scenario. Anytime you're investing money on behalf of other people, you're going to have regulatory obstacles with the SEC or worse, the California Department of Corporations, Securities Regulation Division, e.g. Series 7 and Series 65, and registration as an investment adviser pursuant to either the Investment Adviser Act of 1940 or the California Corporations Code. Keep in mind that your "fund" will also have to satisfy the requirements of the banks and fund managers entrusted with your IRAs and 401(k) accounts, and they may not qualify you as a qualified investment. Also, it's not that you're in jeopardy arising from your mom's litigiousness, but your may run into a bank or fund that may report your activities to the SEC or Secretary of State.
Mr. Cornish correctly identified that you may qualify for an exemption from the investment adviser registration assuming you’re only handling family money, but that doesn't alleviate your problems. The Dodd-Frank Act also created a new exemption for funds having below $150 Mio. in assets under management which you may also qualify for if you have friends participating in your fund (If you have more than $150 Mio., I'm sending you an invoice.). In either instance, you’d still need to file for an exemption from registration as an investment adviser, and maintain all of the business practices as promulgated by federal securities laws, the minimum capital requirements, restrictions on the types of investment requirements, record-keeping requirements, disclosure requirements, and annual reportings requirements to the SEC. As you can see, this isn't easy, even in the easiest scenarios – checkout Part 1A of Form ADV (google it). If you have to register as an investment adviser, you'll have a multitude of additional requirements for the appropriate Series 7 and Series 65 transactions, depending on how you invest the money.
Assuming that the SEC doesn't have jurisdiction because you’re dealing exclusively in California , you’ll have requirements to file for an exemption (again, assuming it’s all family money), and observing similar state-mandated regulatory requirements much like those promulgated by the SEC for family offices. Otherwise, you’d need to register as an investment adviser with the State of California. Like the SEC’s requirements, you’re going to need the Series 7 and Series 65 licenses for certain types of dealings.
Again, I don’t recommend this course of action. You’ll have a better go about doing things with less risk if you decide to make investments as a group of separate investors, with each person investing on his own awareness and knowledge of the investments. To execute the plan you're considering costs about $100,000 in legal fees to establish and about $50,0000-$75,000 each year thereafter to maintain the appropriate securities filings, necessary governance procedures for the purposes of making prudent investments, tax planning and other implications arising from your activities.
I represent a private equity fund and recently ran this gauntlet last year. Check out my blog post of my findings if you want to know more.
Good luck, and reconsider your thinking with the simpler plan I laid out.See question
This is a manager-managed California LLC where I am the manager (and also a 90% owner) and there is another member who is not a manager. I need the other member to be able to open a bank account for the LLC (since she is located in Califo...
For banking privileges, ask the bank for their specific requirements, and they will provide you the relevant documents that you will sign and provide them. This has been my experience in countless instances. I’m not sure whether creating an entirely new operating agreement for purposes of doing business with the bank is practical or prudent.
In its simplest form, operating agreements can include a provision whereby the members authorize and entrust in the manager a power of appointment to determine and delegate which individuals who will have banking powers and privileges on behalf of the company, e.g. signature authority for the bank account, including without limitation, open and close accounts, the power to deposit, endorse instruments, make cash withdrawals, and issue checks on behalf of the company. With this flexibility, banks commonly accept a resolution from the manager empowering such person designated by the company.
The issues I’ve had with banks on this issue are when the company asks the bank to recognize and limit the designated person’s authority to do business with the bank on behalf of the company, e.g. capping the power to withdraw over $10,000. Banks don’t like assuming responsibility for these special rules as it makes their operations inefficient. Again, ask the bank for their documents, and determine whether you can accept the terms.
Good luck.See question
Hi, I used a self-study course from on creating and operating a family LLC. The self-study was written by an attorney named Bill Bronchick (www.legalwiz.com). Is it okay for me to use his LLC operating agreements and templates? ...
It will certainly be helpful and informative to you, as I'm sure you'll get something out of it. The question is how much will the course cost you, and will you be empowered to address your issues properly.
LLCs are great in that you're afforded an great amount of flexibility to address your management, ownership of the company, and distributions of profit and loss in many different ways, but there are limits to this flexibility as promulated by the laws and regulations applicable to these issues, particular in the areas of taxation.
Being pragmatic, if you need something simple, you're probably okay with going this route, if not by using a form that is available on the internet. If you're creating the company for purposes of creating some special tax allocations, or in preparation for a securities offering, you'll need the benefit of counsel addressing your specific issues.See question
This is an odd one . . . a friend of mine wanted to open up an INTERNET business , but wanted to remain a " silent partner " . He wanted to partner with me so he could use my name . He did not want his employer at the time to know he was o...
If the business is owned 50/50, and there is no resolution process for the deadlock, then the company could be shut down by a partner with a petition to a court for the dissolution of the company. You're facing an issue there because neither party can force the other do anything on behalf of the company.
If your partner is competing with the business with a new venture and no operating agreement permits such activity, you can file suit on behalf of the LLC to enjoin such behavior as it constitutes the usurping of the company's opportunity, and the partner has the duty of a fiduciary and loyalty to the company to bring these opportunities to the LLC. If the partner created the deadlock for purposes of creating a new business and cutting you out, you have a good claim against your partner, and your money damages would be based upon the profitability of the LLC inclusive of the side-business endeavors. Seek an attorney in this regard.
Seemingly, you have good bargaining position to convince your partner to change his ways as the publication of his participation in a business outside of his employment could be in violation of his employer's policies, and subject him to termination, and there is a possibility that his employer would find out about such public dispute. Such a dispute could be in fact jeopardize his employment.
I'm not sure what you've meant with the statement that you should get 10s, but you certainly have options to stop your partner's side business and maintain the operations of the LLC, although none of these options seemingly give you the definitive right to ensure the long-life success of the business (other than to stop the outside competition); you didn't contemplate disagreements and devise a plan to resolve them with an operating agreement. You need to devise the upper hand in your circumstances and exact what you want through leverage.
Be creative, good luck.See question
I am a private lender looking for some one who could prepare loan documents for me for a Note Secured by a Investment real estate. I am going to lend the borrower the purchase price and the construction/ remodel funds. Say purchase price is $...
You're pursuing a path riddled with regulatory risks, so be careful. There is truly no means by which a private person that is not a finance professional can offer a promissory note in the manner that you propose without having some licensing requirements and regulatory oversight imposed on your lending activities, even if you engage the services of a third-party broker. You need a license.
Assuming you're a licensed professional, my suggestion would be to structure this as a construction loan, whereby the borrower will use the proceeds for a use primarily for other than personal, family, or household purposes so as to avoid the scrutiny and growing complexity of residential mortgage lending in California. By doing so, your proposed interest rate cannot be deemed unlawful, you'll avoid the penalties and risks associated with consumer and residential mortgage lending, and the enforcement of your promissory note will likely be strictly enforced by the courts. In other words, this is routine financing for real estate developers and commercial lenders. The trouble with this approach is that (i) you'd need a finance lender's license in California and be required to observe the requirements applicable to California Finance Lenders; and (ii) you may be aware that this is a personal loan (borrower’s assertion based on your dealings) that otherwise disqualifies this loan from it being a commercial loan to which you’d then be subject to the regulatory regime of mortgage lending.
To make residential mortgage loans (loans for personal use securitized by a deed of trust), you'll personally need to be licensed as (i) bank; (ii) real estate broker, (iii) finance lender, or (iv) residential mortgage lender, and utilizing a real estate broker would not exempt you from this requirement. You’d also need to comply with the state and federal requirements imposed upon mortgage lending.
While there are people that will suggest that you’re not doing business as a lender that may suggest that you’re not subject to these laws, this lawyer’s opinion is based an observance of these types of transactions encountering a dispute, and how to avoid the worst-case scenario. While it is true that you may trust your partners not to entertain a dispute, I would retort with the rhetorical question as to then why the need for the promissory note and deed of trust?
If you don’t have any of these licenses, you could structure this as a partnership whereby the entity would purchase and retain title to the home, you’d establish minimum capital contributions for both of the partners, and establish promissory notes for the unpaid portions of each partner’s unpaid capital contributions (between the partner and the partnership). Once the rehab is done, the partnership offers the home for sale whereby the partner or a 3d party can purchase/re-finance the home, the capital contributions are repaid to the partners, the promissory notes are forgiven, and you can structure a capital gains tax rate for your net proceeds if the interest is held for more than one year. There are other details of this transaction that you would want to ensure the smooth operation of the partnership and the fulfillment of the business objective that I’ll withhold from here (trade secrets that you can pay for),but you get the idea that this is feasible.
Tread lightly in this domain, but this is a lucrative business that many entertain. If you must persist, I suggest the use of creativity to avoid risk, rather than a woeful adjustment to your risk tolerance without full awareness of the details.
Good luck.See question
Property (Santa Fe Springs, Calif.) dirt was sent to Arizona for cleaning prior to selling. The property was sold after the County signed off on this cleaning. What basis does the owner have to file a lawsuit for $79 million (for any amount)? .....
You should seek the assistance of an environmental lawyer. You should also contact your (current or former) insurance broker / agent as you may have coverage for this type of lawsuit as soon as possible.
The $79M lawsuit could derive from a number of issues, especially if the landowner is now being sued for subsequent 'tainted' runoff and harm to adjacent neighbors or the is now state assessing liability (e.g. superfund). I'm not sure what type of issue the county had to sign-off in this regard, but this may have an impact and prove your non-liability as it could support your compliance with the remediation requirements.
Based on my experience with these issues, liability can arise from state and federal laws which allow for former property owners to remain liable for the harm created to the property, even after they've transferred it. I also recall that you can divert and transfer this liability depending upon the form in which you transferred titled to the subsequent landowner, and the terms of the purchase/sale agreement; it might not be that you're absolved from liability, but that someone else is obligated to pay for your legal defense.
In my experience, these issues feel more like plaintiff's shake-downs looking for insurance carriers who do not want to litigate these types of issues. These issues can be austere and require counsel familiar with the unique regulations leading to your residual liability, and lawyers familiar with environmental issues should be familiar with the issue that you're facing. I also cannot reiterate enough that contact your insurance people as soon as possible is an equally important action item for you at this point as well.
Good luck.See question
9 years ago, my partner & I formed an LLC (California) for a film production with investors as non-managing members. The film was made, distributed, and ran its course; now we want to dissolve the LLC. There's no outstanding debt and very little c...
In short, yes, you can liquidate the company and force this issue. You can also protect your investor from risk, but why would you want to if you utilize the liquidation process to your advantage?
In regards to the liability for the film, there is the possibility that some residual liability exists for the owners of the film, yes, personal liability. However, if the film was first displayed some years ago, it's possible that the statute of limitations and estoppel issues preclude you from any remaining risk of considerable monetary damages (unless you modify / remake the film, or if you begin the distribution of the film in new locations). In other words, there is always risk, but your risk here is likely remote.
To force the issue of buy-out options and to get the ball rolling on this issue, you need to review the liquidation and wind-up provisions of the operating agreement, and identify the process for liquidating the assets of the LLC. In the liquidation process, as is common with the wind-up of most LLCs, it's likely that the film will be offered for sale to the public, and anyone can bid for and purchase the film (including the filmmakers). You and your partner (filmmaker partner) could offer to purchase the film, and exclude the hold-out investor from this form of ownership. Upon the conclusion of the sale, as is common with LLC wind-ups, the distribution of the proceeds from the sale would then be made to each of the investors pursuant to the agreement, and the LLC could then be dissolved. You may also have reserve accounts that would be closed and distributed to investors, why not avoid the $800 annual liability and take the remaining money as a final distribution? You could also pay for the LLC's lawyers fees out of any reserve accounts / proceeds from sale if you incurred these fees during the sale process or liquidation of the LLC .
To address your question more directly, I'm not sure why you would want to indemnify your hold-out partner, but you could if you wanted to. I would consider utilizing the liability issue to your advantage to discourage the hold-out investor from further participation. It is not your duty or obligation to indemnify or defend an interest holder in the film, but you could protect him from risk if you had to. Also, keep in mind that promises of this type are only as good as the promissors (If you have no money, how can you defend your investor?).
As an aside, did you create the film as a work for hire or was there an assignment of a pre-existing film to the LLC? Does any of the documentation identify any residual rights in the filmmakers, e.g. the right to limited display, or reserved moral rights? Would this satisfy you as filmmakers if you have these, or could have these? Moreover, if you plan to liquidate, you could ask the LLC to allow the filmmaker to retain these residual rights in the film, and sell the film to the subsequent purchase (assuming the filmmakers are not the subsequent purchases) with the carve-out rights of the filmmakers to enjoy the film in the limited ways you contemplate.
Plan for the contingencies and be creative with your solutions (Do as we lawyers do.). Also, be more considerate of your own interests and evaluate the bargaining position that you have with your hold-out partner. If you have a hold-out partner making waves, make sure you follow the proper procedure for the decision-making, and utilize the quorum of the other investors to encourage cooperation.
Good luck.See question
Magistrate ordered a settlement conference, and told me I could not appear without a lawyer since my LLC was co-defendant. So I did not attend and wrote the court a letter explaining I could not afford a lawyer. Now the magistrate entered that I'm...
Mr. Paul is correct. An LLC cannot be represented in legal proceedings before the court unless it is done by and through an attorney licensed before the court. You cannot represent yourself in this instance, and the judge did you a favor to defer judgment against you unless the plaintiff's counsel takes issue with the circumstances; you'll not get another favor, and the plaintiff's attorney will object if he is to ensure his zealous representation of his client (I would.).
If you don't bring an attorney with you, you're potentially facing sanctions by the court once the plaintiff objects and the court recognizes the objection. Moreover, you could also face an unfavorable ruling in favor of the plaintiff (default judgment) if you're not represented by counsel. This isn't a problem you should avoid.
You should have no trouble finding a lawyer to show up with you the next time your due it court., and you can find people that are inexpensive. Moreover, you'll also have the benefit of the opinion and recommendations of counsel to help the company and you personally (Yes, and attorney can represent you and the company at the same time, unless there is a conflict)..
Good luck.See question
I want to hire a writer to write the synopsis,the treatment and the screenplay based on the widely known actual war event. I provide him with my loose notes and a story available online for reading. 1. Does it make sense to request signing the no...
If you're hiring a writer to author a work for you, you should definitely have an agreement that clearly identifies you of the owner of the work without contingencies, that specifies all of your contemplated and possible uses of the work, and that requires the writer's assistance to secure your ownership of the intellectual property rights in the work. If you're planning on publishing the book with any publishing houses, putting this agreement in place with the writer will be a requirement as you did not 'write' the book. These are routine agreements, but you want a lawyer with publishing experience to assist you, or a document that the publishing company provides to you.
U.S. copyright law presumes that a non-employee (independent contractor) writer (a/k/a author) is the owner of the copyright in the work, and you want to refute this presumption with a written document signed by the writer. Employees are presumed to create authorship of a work in their employers, unless there is a specific agreement.
As far as entering into an NDA, you would do this to preserve the confidentiality of your story and to prevent the disclosure of your confidential information, assuming your story is confidential. A writer could conceivably conduct his own research of the events you witnessed and write a story of the events you experienced without violating an NDA (Independent discovery of non-confidential information is a defense to the breach of an NDA.). I would consider the use of an NDA for the limited purpose of precluding the writer from shopping your story to the industry people or if you didn't want anyone to know of your relationship with the author if these are concerns for you. An NDA does not establish ownership in the written story.
Good luck.See question
In California can you put a provision in the LLC agreement that if a member withdrawls prior to a certain period then they are liable for the contributions made from other members to the company?
You've raised an interesting question. A question I ask in return is with whom? You might have other ways to address your concern, without creating so much contention and concern, e.g. the commonality of my peers as responded here.
If the member is a natural person, you'll have to clearly establish the exchange of consideration issue, ensure the reasonableness of the period that the member cannot withdraw, and articulate the qualified and unqualified means of withdrawal without the obligation of re-payment, e.g. death, terminated for convenience, incapacitated, etc. You're facing potential enforcement problems given the proximity to the establishment of a contract of indentured servitude, and possibly, a non-compete agreement. Also, there are some of the risks I've identified above that can be mitigated/addressed with key man insurance so as to alleviate some of these unusual issues in relation to a constructive withdrawal. Although you can proceed, I'd certainly be deliberate and cautious if the member is a natural person given the risk that this agreement could be unenforceable.
If the member is another legal entity or business, you'll have an easier time at creating the obligation in relation to the restrictions of certain public policies, but again, the maximum period of time to which this obligation would apply does have limitations as proscribed by law. This isn't uncommon for businesses entering into JVs as this provision is known as a break-up fee, or termination penalty, and common fairly common in the oil and gas business, and business ventures where the partners each bring a separate and unique skill set to the table.
Proceed carefully, and I hope that you're dealing with sophisticates rather than the alternative, as understanding the problematic potential with these types of provisions is not to be treated haphazardly.
Good luck.See question