North Dakota Security Agreement regarding Member Interests in Limited Liability Company
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How to fill out Security Agreement Regarding Member Interests In Limited Liability Company?
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FAQ
Security: An LLC, however, can elect to have its membership interests classified as securities under Article 8 of the UCC. Generally, the organizational documents must expressly state that the membership interests are to be treated as securities.
As a result, lenders desiring to secure their loans with an equity pledge (typically either in the borrower itself or its subsidiaries) are increasingly taking pledges of LLC membership interests as part of their collateral.
In most cases, an LLC interest is a general intangible. Once the lender has made that determination, issues of perfection and priority of the security interest can be addressed under the UCC Article 9 perfection rules.
General intangible: Most commonly, a membership interest in an LLC is considered a general intangible.
In California, shares of an LLC in which any member is not continuously actively involved in the management of the LLC would qualify as securities. The most common scenario where this would happen is if the LLC is manager-managed and at least one member does not participate in the day to day operations of the business.
All ownership interests in a manager-managed LLC are considered securities even if some members actually are involved in the daily management of the business.
Under this definition, a membership interest in an LLC is a security for California law purposes unless all of the members are actively engaged in management. Thus, interests in a manager-managed LLC where not all members are managers are securities under California law.
A membership interest represents an investor's (called a "member") ownership stake in an LLC. A person who holds a membership interest has a profit and voting interest in the LLC (although these may be amended by contract). Ownership in an LLC can be expressed by percentage ownership interest or membership units.
All ownership interests in a manager-managed LLC are considered securities even if some members actually are involved in the daily management of the business.
All corporations and limited liability companies, except as otherwise provided in this chapter, are prohibited from owning or leasing land used for farming or ranching and from engaging in the business of farming or ranching.