A limited liability company (LLC) is a company that offers corporate liability protection, but usually operates and is taxed as either a sole proprietorship or a partnership.
LLCs are either member managed or manager(s) managed.
The LLC is formed upon filing of the Articles of Organization with the Secretary of State and the members entering into either an oral or written Operating Agreement. To maximize corporate protection, it is important to seek legal advice as to:
Generally, members of an LLC are not personally liable for the debts of the LLC. This protection is limited, and you should consult with an attorney to understand what liabilities the members and/or the managers are protected from and when personal liability exists.
A corporation is a separate entity that is formed for the benefit of its shareholders.
The filing of the Articles of Incorporation with the Secretary of State begins the corporate formation. There are many more documents that an attorney can assist you to prepare and file to ensure the corporation is formed correct and complete.
To maximize corporate protection, it is important to seek legal advice as to:
The corporate protection granted for a corporation in general means that the shareholders, officers and directors are not personally liable for the debts of the corporation. This protection is limited, and you should consult with an attorney to understand what liabilities the shareholders, officers and directors are protected from and when personal liability exists.
A Registered Investment Advisor (RIA) is an advisor or firm engaged in the investment advisory business and registered either with the Securities and Exchange Commission (SEC) or state securities authorities.
An investment advisor representative (often referred to as an “IAR”) generally is defined by most states as a person who, for compensation
This term does not include an individual who
Generally, you are required to register with the SEC when you have at least $100 million in assets under regular and ongoing management and can also include:
You will have to register with a state regulatory agency if you have less than $100 million in assets under management.
A “mid-sized adviser” is an investment adviser that has between $25 million and $100 million of assets under management.
After July 21, 2011, a mid-sized adviser must register with the Securities and Exchange Commission if it:
A mid-sized adviser that does not meet either one of these two requirements is prohibited from registering as an adviser with the Commission after July 21, 2011, but will have to register with the state securities authorities. There are a few exceptions to the general prohibition from SEC registration in rule 203A-2, such as for certain multi-state investment advisers and pension consultants. In addition, a mid-sized adviser that is required to register with the SEC, may elect to not register if it can rely on an exemption from registration, such as those for certain advisers to private funds.
Only New York.
A mid-sized adviser with its principal office and place of business in New York is not “subject to examination” by the New York state securities authority and would have to register with the SEC. A mid-sized adviser with its principal office and place of business in any other state is “subject to examination.” This information will be updated promptly upon notification by a state securities authority of any change to examination status.
This differs from state to state. If you have a place of business in the state, some states require registration before you take on your first client. Others require registration once you have more than a certain number of clients in that state. You should consult your attorney to get more information on your state’s requirements.
All applications for registration are submitted online through the Investment Adviser Registration Depository (“IARD”). You will need to request login credentials by submitting a Super Account Administrator Entitlement Form (“SAA Form”). The SAA Form may now be submitted online via DocuSign. Once you receive your login credentials, you will be able to submit the following required components of your application:
In addition, states may ask that you submit certain state-specific forms and may have other requirements such as submission of a form investment advisory agreement or balance sheet.
Your registration is required to be renewed annually, usually within 90 days of the end of your fiscal year.
You may also have to submit what are called other-than-annual amendments to correct information that has become materially outdated.
You are required to adopt and implement written policies and procedures that are reasonably designed to prevent violations of the Advisers Act. The SEC has said that it expects that these policies and procedures would be designed to prevent, detect, and correct violations of the Advisers Act. You must review those policies and procedures at least annually for their adequacy and the effectiveness of their implementation, and designate a chief compliance officer (“CCO”) to be responsible for administering your policies and procedures (under the “Compliance Rule” — Rule 206(4)-7).
You must file an annual updating amendment to your Form ADV within 90 days after the end of your fiscal year. In addition to making annual filings, you must promptly file an amendment to your Form ADV whenever certain information contained in your Form ADV becomes inaccurate (the Form ADV filing requirements are contained in Rule 204-1 of the Advisers Act, and in the instructions to the Form).
As a registered investment adviser, you are required to adopt a code of ethics (under the “Code of Ethics Rule” — Rule 204A-1 under the Advisers Act). Your code of ethics should set forth the standards of business conduct expected of your “supervised persons” (i.e., your employees, officers, directors and other people that you are required to supervise), and it must address personal securities trading by these people.
You are also required to establish, maintain, and enforce written policies and procedures that are reasonably designed to prevent the misuse of material non-public information (under Section 204A of the Advisers Act). These policies and procedures must encompass your activities and those of your supervised persons. Advisers often include this prohibition on insider trading in their code of ethics.
You must make and keep true, accurate and current certain books and records relating to your investment advisory business (under “the Books and Records Rule” — Rule 204-2). The books and records that you must make and keep are quite specific, and are described below in part:
For state registered investment advisers, additional requirements may be imposed by the state’s regulators.
Your firm will be subject to periodic, sometimes unannounced, audits by regulators. The purpose of an audit is to determine compliance with the regulator’s licensing, books and records, and anti-fraud requirements.
A 2015 survey of state securities regulators conducted by the North American Securities Administrators Association has revealed the top five problems noted in audits and examinations:
A mock audit is a great way to catch any potential deficiencies before a regulator finds them. The mock audit should be thorough and conducted as if it is a real audit. It is best if you respond to the mock audit like you would an actual one. Practicing going through the process will better prepare you for one conducted by a regulator.