California has a somewhat confusing answer to the question of whether LLC interests are considered securities in our state. In some situations they are, and in others, they are not. Here we explain when they are and when they are not. If an LLC interest is considered a security it can have significant regulatory implications, particularly when the interest transferred or offered for sale. There are ways around these regulations, but the process can require additional work and filings and is not a sure thing.
When LLC Interests are Considered Securities
California’s first LLC law was called the Beverly-Killea Act. When it became law the legislature amended the corporations code. This amendment provided that a security includes an interest in a limited liability company. So this is the default position. However, this is not the end of the discussion. The legislature also carved out some substantial exceptions to this general rule.