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Are there any restrictions for marketing and selling (within US) shares of a business enterprise that is formed as a Nevis LLC?

Redmond, WA |

The proposed business venture involves investment in foreign (multinational) enterprises, but no direct business activity within the US. American investors, however, would be sought to finance the project as limited partners in a Nevis LLC. This foreign registration would be for the purpose of keeping start up costs down, avoiding SEC restrictions and burdens, minimizing tax obligations, and offering enhanced liquidity for future transfer of share ownership. Are there any legal pitfalls to marketing such an investment publicly (given that there will be full disclosure of all particulars)?

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Attorney answers 3

Posted

YES THERE ARE LEGAL PITFALLS AND YOU ARE ASKING FOR BIG TROUBLE HERE -- get yourself a competent U.S. securities lawyer to help you with your plan. Try looking at the 1933 and 1934 Securities Acts and the rules and regulations that govern the potential sale of securities to U.S. investors. Even if you were able to get a Reg. D exemption for private placements under rule 504, 505 or 506 still has a lot of rules to manage.

My answer is not intended to be giving legal advice and this topic can be a complex area where the advice of a licensed attorney in your State should be obtained.

Asker

Posted

Thank you for the information. This project is still in the planning stages and I would not have moved forward without consulting an attorney, but I must admit I find the severe restrictions rather frustrating. This is an undertaking that promises a solid return on investment while contributing significant social benefits. I will reconsider possible strategies to navigate the legal hurdles.

Posted

Foreign registration itself doesn't abrogate compliance with US securities laws if you're offering to US clients. You might as well incorporate in the US.

Also, good luck finding a US bank that will handle funds for a Nevis LLC.

The foregoing is not legal advice nor is it in any manner whatsoever meant to create or impute an attorney/client relationship.

Asker

Posted

Thank you for the reply. I was thinking that the funds would probably be handled through a Nevis bank, but then I am re-evaluating the entire strategy in view of other unresolved issues.

Posted

Your are asking the right questions, as you are aware the a securities offering in the US requires attention to US securities laws. It sounds like you are the person who is offering securities to US investors through an offshore company. This structure certainly offers some benefits; it also adds extra steps in the process.

I'm stating the obvious: In most situations, the US securities laws are relatively straightforward. Securities offerings are so commonplace that it is pretty easy to find someone to help you comply with affordable compliance fees.

In most situations, investors prefer structures that are easy to explain and look like opportunities they have already invested in. Membership units in a Nevis raise some issues regarding repatriation, transparency, and multi-jurisdictional structures. That said, it is certainly not impossible if you can figure out what you are doing or get some help in figuring out what to do.

At the risk of answering a question with more questions, I'd recommend you consider many issues, including:

- What connections do you have to individual investors?
- What are those investors' appetites for risk? Complexity?
- How quickly do the investors want to take distributions?
- Are the investors accredited or sophisticated?
- What tax treaties do you expect to rely on in third-party jurisdictions?
- How do you plan to repatriate distributions?
- What is your corporate structure?
- What kind of marketing materials or channels do you expect to use?
- Who are you working with to ensure appropriate disclosures?
- What registrations do you plan to make?
- What is your appetite for legal risks?

In addition, you'll need to share the details of the investment opportunity with someone you can trust as an advisor. You're on the right track by asking for help from the legal community.

Hope this helps!

Total Mobility Law is an international law firm that lets companies do global business with the knowledge and confidence they need to comply in any country. Our answers on this site do not constitute legal advice, nor do they establish an attorney-client relationship. The only thing that can do that is a signed Engagement Letter and Fee Agreement, which you can get by contacting us through www.totalmobilitylaw.com.

Asker

Posted

I was really hoping to be able to "crowd-fund" this project, but it appears that the SEC has not yet rescinded the ban on general solicitation (as directed by the JOBS Act). The limited crowd-funding outlets that do exist for investment purposes seem very narrowly focused on Silicon Valley tech startups and this project does not fit that category.

Todd Matthew Heine

Todd Matthew Heine

Posted

Got it. Yes, crowd-funding is an emerging area, to say the least. As a local Seattle lawyer who focuses solely on cross-border issues, I would be glad to discuss other fundraising options at your convenience.