X-Message-Number: 6492
Date: Wed, 10 Jul 1996 08:47:49 -0700 (PDT)
From:  (Greg Stock)
Subject: Re: CryoNet #6484 - #6489

David Kekich wrote concerning the Promethius project:
>        You don't get a stock loss, whether the company is public or
>private, until you actually sell your stock at a loss or until the company
>goes out of business or if the stock becomes worthless. If anyone knows of
>exceptions, please clarify.

A Limited Liability Corporation (LLC) would be a mechanism for passing
through losses to investors. This is like an S-1 corporation in that it
passes on profits and gains as well as losses directly to investors, but an
LLC has no limits on the number of shareholders.  Some restrictions on this
type of organization are that it must have 1-- "continuity of life," ie not
plan on dissolving for some 30 years. This would probably be a good idea
anyway, even if you're only arranging funding for 10 years. 2 -- centralized
management, ie a manager of some sort. 3 -- The interests of a member can
not be sold to another without the consent of some specified percentage of
existing members. 

Finally, some individuals may have a problem in using losses from the LLC
because they are "passive" and hence carry certain restrictions.  That's
about all I know about LLCs.

One additional point: A few days ago Paul Wafker wrote something to the
effect that pledgors would be allowed to increase their pledges in the
future, and thus purchase more shares if they saw fit AT THE ORIGINAL SHARE
PRICE. This would be a good idea if the only intent were to raise more
research money for the project, but unfortunately (unless it is strictly
limited by some mechanism such as issuing a specific number of warrants or
some other such device) would undermine the possibility of the investment
ever appreciating. The better the project performed, the more original
investors would be diluted by additional share purchases from various
parties, so the stock price would essentially end up pegged at its original
price by new sales.

Good luck with Promethius!


Greg Stock

            Gregory Stock
, 


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