The federal securities laws predate by decades the advent of limited liability companies and the statutory definitions of a "security" under those laws has not been updated to address membership interests in LLCs. California in contrast amended the Corporate Securities Law of 1968 amended the definition of "security" in the Corporate Securities Law of 1968 when it enacted its first limited liability company law - the Beverly-Killea Limited Liability Company Act. 1994 Cal. Stats. Ch. 1200 (SB 469). This 1994 added to the laundry list of instruments constituting securities "interest in a limited liability company and any class or series of those interests (including any fractional or other interest in that interest)". Cal. Corp. § 25019.

California does include a notable exception to the statute. A membership interest in an LLC is not a security if the person claiming this exception can prove that all of the members are actively engaged in the management of the limited liability company. However, evidence that members vote or have the right to vote, or the right to information concerning the business and affairs of the limited liability company, or the right to participate in management, will not establish, without more, that all members are actively engaged in the management of the limited liability company.

The legislature has antipodeanly also elected to expressly exclude an interest in an LLC from the definition of a "security". Section 8103(c) of the Commercial Code provides an "interest in a . . . limited liability company is not a security unless it is dealt in or traded on securities exchanges or in securities markets, its terms expressly provide that it is a security governed by this division, or it is an investment company security."

So there you have it - there are four possible answers to the question of whether an LLC interest is a security under California law: Yes and Yes, Yes and No, No and Yes, and No and No.