Converting a California LLC to a California corporation could be done by you with forms available online from the California Secretary of State. Attempting to issue shares pursuant to a federal exemption is overly ambitious for many attorneys and all non attorneys. Others may feel different but my analysis is that .
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Securties offerings should not be made by inexperience lay people. This is a complex area of the law with significant fraud implications, tax implications, contract implications, and corporate law requirements. Get a consult from an attorney before you consider embarking on a personal disaster.
Phillip M. Smith Jr.
Los Angeles Tax & Business Attorney
Call: 855 IRSTAXBIZ
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Funding is dangerous. Transferred tax attributes are dangerous. Have you considered starting afresh with a new corp?
Curt Harrington Patent & Tax Law Attorney Certified Tax Specialist by the California Board of Legal Specialization PATENTAX.COM This communication is general information and not legal advice, and does not create an attorney-client relationship. This communication should not be relied upon as any type of legal advice. Please note that no attorney-client relationship exists between the sender and the recipient of this message in the absence of either (1) a signed fee contract and (2) remission of an agreed-upon retainer. Absent such an agreement and retainer, I am not engaged by you as an attorney, nor is any other member of my law firm.
Conversion of your LLC is the least of your worries. You might be better off just starting afresh with a new C Corp, since the conversion documents will confuse your investors.
You are contemplating a private offering of securities, which is tightly regulated by federal and state securities agencies. Generally you may sell only to persons who qualify as purchasers under extensive regulations and a lot of lore, which you will not find in the law books, but only by hiring an experienced securities lawyer. These purchasers must satisfy specific tests that establish them as either “smart or rich” in the argot of securities practitioners. You will likely have to prepare an extensive “private placement memorandum” describing you, your business plan, your markets, your projected sales and earnings among other things.The PPM is not a cook book document that you can get out of a form book, nor is it a sales document. It is a reasoned analysis of the company and its business and the risks to the business. This is a liability document and must be carefully vetted by your lawyer. Anything in it can and will be used against you if the venture is not successful. Most of them are not. You may need to have audited financial statements prepared by a CPA. Depending on the amount to be raised and the number and sophistication of your offerees, this could cost you ten of thousands of dollars for attorneys, CPAs and printing. Failure to comply means that your purchasers can rescind if the business is not successful, so that you must refund all of their invested funds.
The only exception for your stock sales would be to relatives and close friends whom you have known for at least a year. Even they must sign a statement saying that they know they might lose the entire investment and that they can afford to do so. Do not try to cut corners or you will wind up repurchasing the shares.
You must consult an experienced securities lawyer to advise you on the mechanics of the offering and the drafting of the PPM. The SEC generally does not pay much attention to Rule 505 offerings, since they are limited to $1,000,000, but the CA Dept of Corps will look at it very carefully.
DISCLAIMERâ€”This answer is for informational purposes only under the AVVO system, its terms and conditions. It is not intended as specific legal advice regarding your question. The answer could be different if all the facts were known. This answer does not establish an attorney client relationship. I am admitted only in California. (Bryant) Keith Martin sbbizlaw.com