How to Raise LLC Capital

Using an LLC can be an atractive option to raise capital.
Using an LLC can be an atractive option to raise capital. (Image: Jupiterimages/ Images)

A limited liability company can be an attractive option to raise capital due to the flexibility of ownership status and liability protections to its members. LLC owners can be either a member, manager or both. Liability depends on whether the members actively are involved with the day-to-day operations. In that case, they would be considered managers. The pro rata share is determined by how much the member/manager invests into the LLC.

Draft an LLC operating agreement. Include information about the company such as the names of the initial managing members, existing capital contributions, and how you intend on operating the company. Address how you intend on distributing profits and losses.

Prepare a private placement offering memorandum or PPM. A PPM differs from the LLC operating agreement to the extent that it goes into detail on how you intend on raising capital for the company. Your PPM should contain a description of the LLC units to be sold, the price per unit and how much percentage of ownership each unit represents.

Provide a subscription agreement to each potential investor. A subscription agreement is a contract that outlines the actual procedures on how a potential investor will buy into the LLC. Specify the minimum investment amount.

Contact broker-dealers specializing in raising capital for LLCs. Provide each with your business plan, LLC operating agreement, PPM and subscription agreement. Be prepared to give a presentation on the company, addressing the objectives and goals you intend on achieving with the capital that you raise.

Tips & Warnings

  • Consult with a securities attorney. He will provide advice regarding specific securities laws that govern the process of raising capital.

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