Limited liability companies did not exist when Congress enacted the Securities Act of 1933 and the Securities Exchange Act of 1934. Therefore, it should be no surprise that as originally enacted these acts did not mention LLCs. Congress has since amended both acts and references to LLCs can now be found in both acts. Section 27A of the Securities Act and Section 21E (establishing safe harbors for forward-looking statements) each refer to LLCs and expressly defer to the SEC to define the term by rule or regulation. Interestingly, the SEC has not defined “limited liability company” in its general rules under either the Securities Act or the Exchange Act. Nevertheless, Securities Act Rules 147 and 147A each include a reference to LLCs and there are some scattered references to LLCs in the Exchange Act Rules. There are no references to LLCs in Regulation S-K.
So, is an LLC a “person” under the Securities Act and the Exchange Act? Section 2(a)(2) defines “person” as follows:
The term ‘‘person’’ means an individual, a corporation, a partnership, an association, a joint-stock company, a trust, any unincorporated organization, or a government or political subdivision thereof. As used in this paragraph the term ‘‘trust’’ shall include only a trust where the interest or interests of the beneficiary or beneficiaries are evidenced by a security.
The Exchange Act definition found in Section 3(a)(9) is oddly different:
The term ‘‘person’’ means a natural person, company, government, or political subdivision, agency, or instrumentality of a government.
I expect many readers will point out that LLCs might fall within the penumbra of “any unincorporated organization” for purposes of Section 2(a)(2) and “company” for purposes of Section 3(a)(9). However, I find it distinctly inelegant to say that an LLC for purposes of the Securities Act is one type of person but for purposes of the Exchange Act it is another type of person. Did Congress have some recondite purpose in enacting two different definitions of “person”?
The California Corporate Securities Law of 1968 more or less follows the Section 2(a)(2) definition but without the last sentence concerning trusts. The legislature amended the statute, Corporations Code Section 25013, to include LLCs in 1994 when it enacted California’s first LLC law. This amendment could be interpreted in three ways. Perhaps the legislature believed that LLCs should be included because they didn’t fit within the category of unincorporated organizations. Perhaps the legislature believed that while included in the category of unincorporated organizations it would be helpful to remove all doubt and include LLCs in the list. Finally, it is possible, if not likely, that the legislature had no thoughts on the subject at all.