What Is The Distinction Between "Management" and "Voting Rights?"

[Bryan Hancock]

So we had another thread about securities definitions earlier today and there was some good discussion there. The point was made that management was the key concern for something to keep from being deemed a security after citing some classical case law.

I understand that deals can be set up such that equity holders don't have voting rights. This is obviously an instance where there would be securities involved. There could also be many instances where shareholders can vote on things where things get blurrier.

So what are some examples you can think of where investors can own voting rights and not manage the deal? What exactly does "management capacity" mean? Do they need 25% voting rights? How about 1%? Do they need to be majority shareholders?

The context for the earlier discussion centered around one's ability to advertise for "equity partners." Could it be argued that giving someone some minimal stake is making them a voting partner/manager and thus the solicitation rules don't apply. What is the threshold for this?

I realize that this is unlikely to be settled definitively without looking at specifics, but I could see people arguing that voting rights equal management in some arrangements. Wouldn't this mean that people could advertise for investment dollars if they were willing to give away some minimal amount of management and/or voting rights in their deal?

All very confusing!