PART II AND III

As filed with the Securities and Exchange Commission on January 25, 2021

File No.          

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 1-A

REGULATION A OFFERING CIRCULAR

UNDER THE SECURITIES ACT OF 1933

MASTERWORKS 040, LLC

(Exact name of issuer as specified in its charter)

Delaware

(State of other jurisdiction of incorporation or organization)

497 Broome Street

New York, New York 10013

Phone: (203) 518-5172

(Address, including zip code, and telephone number,

including area code of issuer’s principal executive office)

Joshua B. Goldstein

General Counsel and Secretary

Masterworks 040, LLC

497 Broome Street

New York, New York 10013

Phone: (203) 518-5172

(Name, address, including zip code, and telephone number,

including area code, of agent for service)

Copy to:

Laura Anthony, Esq.

Craig D. Linder, Esq.

Anthony L.G., PLLC

625 N. Flagler Drive, Suite 600

West Palm Beach, FL 33401

Phone: (561) 514-0936

Fax: (561) 514-0832

7380	86-1213436
(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

An offering statement pursuant to Regulation A relating to these securities has been filed with the Securities and Exchange Commission. Information contained in this preliminary offering circular is subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted before the offering statement filed with the Securities and Exchange Commission is qualified. This preliminary offering circular shall not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sales of these securities in any state in which such offer, solicitation or sale would be unlawful before registration or qualification under the laws of any such state. We may elect to satisfy our obligation to deliver a final offering circular by sending you a notice within two business days after the completion of our sale to you that contains the URL where the offering circular may be obtained.

MASTERWORKS 040, LLC

Preliminary Offering Circular

January 25, 2021

Subject to Completion

83,250 Class A ordinary shares

Representing Class A Limited Liability Company Interests

$1,665,000 Maximum Offering Amount

Masterworks 040, LLC is a Delaware limited liability company formed to facilitate an investment in a single work of art by            (the “Painting”). The Painting will be identified and described in an amendment to this Offering Circular prior to the qualification of the Offering Statement of which this Offering Circular forms an integral part. Additionally, we will file the definitive agreement to acquire the Painting, in an amendment to the Offering Statement prior to qualification and we will not receive or accept any subscription funds or executed subscription agreements until a pre-qualification amendment has been filed and qualified by the SEC. We believe that, for many investors, our Class A shares represent an effective means to gain economic exposure to the Painting and, by extension, to the fine art market.

We are offering up to $1,665,000 of our Class A shares representing Class A limited liability company interests, at an offering price of $20.00 per Class A share in a “Tier 2” offering under Regulation A (the “Offering”). We expect to offer Class A shares in this Offering until we raise the maximum amount being offered. The maximum offering period is 24 months from the date of commencement, but we reserve the right to terminate this Offering for any reason at any time prior to the initial closing. Subscriptions will be accepted on a rolling basis and the initial closing of the Offering and the final closing of the Offering will occur on a date or dates determined by the Company in its discretion. This Offering will commence on the date this Offering is qualified by the SEC. If any of the Class A shares offered remain unsold as of the final closing, such Class A shares shall be issued to Masterworks, in full satisfaction of its advance and the true-up as described in this Offering Circular. There is no minimum number of Class A shares or dollar amount that needs to be sold as a condition of any closing of this Offering. Subscriptions, once received, are irrevocable by investors but can be rejected by us.

This Offering is being conducted on a “best efforts” basis, which means that there is no guarantee that any minimum amount will be sold through our underwriter, Independent Brokerage Solutions LLC (“IndeBrokers” or the “Underwriter”), a Securities and Exchange Commission (“SEC”) registered broker-dealer, and a member of the Financial Industry Regulatory Authority (“FINRA”) and Securities Investors Protection Corporation (“SIPC”). See “Plan of Distribution” in this Offering Circular.

Our affiliate Masterworks.io, LLC owns an online investment platform located at https://www.masterworks.io/ (the “Masterworks Platform”) that allows investors to acquire ownership of an interest in special purpose companies that invest in distinct artworks or a collection of artworks. Once an investor establishes a user profile on the Masterworks Platform, they can browse and screen potential artwork investments, view details of an investment and sign contractual documents online.

We do not currently intend to list the Class A shares for trading on a national securities exchange. We intend to facilitate secondary sales of Class A shares on a bulletin board platform at www.masterworks.io, referred to as the Masterworks “Secondary Market,” commencing on or after the three-month anniversary of the final closing of this Offering. No assurance can be given that the Secondary Market will provide an effective means of selling your Class A shares or that the price at which any Class A shares are sold through the Secondary Market will be reflective of the fair value of the Class A shares or the Painting.

No sales of Class A shares will be made prior to the qualification of the Offering statement by the SEC. All Class A shares will be offered in all jurisdictions at the same price that is set forth in this offering circular.

Class A shares Offered by Us	Number of Class A ordinary shares		Price to Public		Underwriting Discounts and Commissions (1)		Proceeds, Before Expenses, to Us (2)
Per Class A share:		1	$	20.00	$	0.00	$	20.00
Total (3)		83,250	$	1,665,000	$	0.00	$	1,665,000

(1)	We have engaged IndeBrokers as the Underwriter in connection with this Offering. IndeBrokers may engage other broker-dealers to assist us in finding potential investors. IndeBrokers will receive certain fees and commissions and expense reimbursements from Masterworks in respect of its activities, but no commissions, fees or expense reimbursements of IndeBrokers shall be paid by the Company or from the proceeds of this Offering. The maximum amount of underwriting compensation payable to IndeBrokers in connection with this offering shall not exceed approximately 4.09% of the gross offering proceeds if the maximum offering is sold. IndeBrokers is acting solely on a “best efforts” basis and will not acquire or sell any Class A shares for its own account. The Company intends to distribute the Offering through the Masterworks Platform. See the section entitled “Plan of Distribution” beginning on page 28 of this offering circular for additional information.
(2)	This amount does not include underwriting compensation, including maximum fees and commissions payable to IndeBrokers and estimated offering expenses in an aggregate amount of approximately $78,043, all of which will be paid by Masterworks rather than from the net proceeds of the Offering.
(3)	Assumes that the maximum aggregate offering amount of $1,665,000 is received by us.

The Class A shares are to be offered on a “best efforts” basis primarily through the Masterworks Platform. The Company is not offering, and does not anticipate selling, Class A shares in any state where IndeBrokers is not registered as a broker-dealer.

Generally, no sale may be made to you in this Offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov. We retain complete discretion to determine that subscribers are “qualified purchasers” (as defined in Regulation A under the Securities Act) in reliance on the information and representations provided to us regarding their financial situation.

An investment in the Class A shares is subject to certain risks and should be made only by persons or entities able to bear the risk of and to withstand the total loss of their investment. Prospective investors should carefully consider and review the information under the heading “Risk Factors” beginning on page 10.

The SEC does not pass upon the merits of or give its approval to any securities offered or the terms of the Offering, nor does it pass upon the accuracy or completeness of any offering circular or other solicitation materials. These securities are offered pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”); however, the SEC has not made an independent determination that the securities offered are exempt from registration.

We expect that our operations will not cause us to meet the definition of an “investment company” under the Investment Company Act of 1940, as amended (the “1940 Act”), because (1) at all times our sole assets will consist only of cash and a single work of art referred to herein as the “Painting,” neither of which is deemed to be a “security” for purposes of the 1940 Act, and (2) at all times we will not be engaged primarily in owning, holding, investing or trading in “securities” (as such term is used for purposes of the 1940 Act).

This offering circular is part of an offering statement that we filed with the SEC, using a continuous offering process pursuant to Rule 251(d)(3) of Regulation A, meaning that while the offering of securities is continuous, active sales of securities may happen sporadically over the term of the offering. Further, the acceptance of subscriptions, whether via the Masterworks Platform or otherwise, may be briefly paused at times to allow us to effectively and accurately process and settle subscriptions that have been received. Periodically, we will provide an offering circular supplement that may add, update or change information contained in this offering circular. Any statement that we make in this offering circular will be modified or superseded by any inconsistent statement made by us in a subsequent offering circular supplement. The offering statement we filed with the SEC includes exhibits that provide more detailed descriptions of the matters discussed in this offering circular. You should read this offering circular and the related exhibits filed with the SEC and any offering circular supplement, together with additional information contained in our annual reports, semi-annual reports and other reports and information statements that we will file periodically with the SEC. See the section entitled “Where You Can Find More Information” below for more details.

Our principal office is located at 497 Broome Street, New York, New York 10013 and our phone number is (203) 518-5172. Our corporate website address is located at www.masterworks.io. Information contained on, or accessible through, the website is not a part of, and is not incorporated by reference into, this offering circular.

This offering circular is following the offering circular format described in Part II of Form 1-A.

INDEPENDENT BROKERAGE SOLUTIONS LLC

The date of this offering circular is ______, 2021.

TABLE OF CONTENTS

	Page
THIRD PARTY DATA	2
TRADEMARKS AND COPYRIGHTS	2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS	2
STATE LAW EXEMPTION AND PURCHASE RESTRICTIONS	3
SUMMARY	4
THE OFFERING	7
DETERMINATION OF OFFERING PRICE	9
DIVIDEND POLICY	10
RISK FACTORS	10
DILUTION	26
PLAN OF DISTRIBUTION	28
USE OF PROCEEDS TO ISSUER	37
DESCRIPTION OF BUSINESS	38
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	49
MANAGEMENT	51
MANAGEMENT COMPENSATION	58
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS	60
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS	61
DESCRIPTION OF SHARES	64
SHARES ELIGIBLE FOR FUTURE SALES	72
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS	73
ADDITIONAL REQUIREMENTS AND RESTRICTIONS	81
LEGAL MATTERS	82
WHERE YOU CAN FIND MORE INFORMATION	82

We have not and IndeBrokers has not authorized anyone to provide any information other than that contained or incorporated by reference in this offering circular prepared by us or to which we have referred you. Neither we nor IndeBrokers take responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This offering circular is an offer to sell only the Class A shares offered hereby but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this offering circular is current only as of its date, regardless of the time of delivery of this offering circular or any sale of Class A shares.

For investors outside the United States: We have not done anything that would permit this Offering or possession or distribution of this offering circular in any jurisdiction where action for that purpose is required, other than the United States. You are required to inform yourselves about and to observe any restrictions relating to the Offering and the distribution of this offering circular.

1

THIRD PARTY DATA

Certain data included in this offering circular is derived from information provided by third-parties that we believe to be reliable. The discussions contained in this offering circular relating to the Painting, the artist, the art market, and the art industry are taken from third-party sources that the Company believes to be reliable and reasonable, and that the factual information is fair and accurate. Certain data is also based on our good faith estimates which are derived from management’s knowledge of the industry and independent sources. Industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of included information. We have not independently verified such third-party information, nor have we ascertained the underlying economic assumptions relied upon therein. The statistical data relating to the art market is difficult to obtain, may be incomplete, out-of-date, or inconsistent and you should not place undue reliance on any statistical or general information related to the art market included in this offering circular. The art market data used in this offering circular involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such data. While we are not aware of any material misstatements regarding any market, industry or similar data presented herein, such data was derived from third party sources and reliance on such data involves risks and uncertainties.

TRADEMARKS AND COPYRIGHTS

We own or have applied for rights to trademarks or trade names that we use in connection with the operation of our business, including our corporate names, logos and website names. In addition, we own or have the rights to copyrights, trade secrets and other proprietary rights that protect our business. We do not own the copyright to the Painting, as such term is defined below. This offering circular may also contain trademarks, service marks and trade names of other companies, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or products in this offering circular is not intended to, and should not be read to, imply a relationship with or endorsement or sponsorship of us. Solely for convenience, some of the copyrights, trade names and trademarks referred to in this offering circular are listed without their ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our copyrights, trade names and trademarks. All other trademarks are the property of their respective owners.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This offering circular contains certain forward-looking statements that are subject to various risks and uncertainties. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “plan,” “intend,” “expect,” “outlook,” “seek,” “anticipate,” “estimate,” “approximately,” “believe,” “could,” “project,” “predict,” or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, or state other forward-looking information. Our ability to predict future events, actions, plans or strategies is inherently uncertain. Although we believe that the expectations reflected in our forward-looking statements are based on reasonable assumptions, actual outcomes could differ materially from those set forth or anticipated in our forward-looking statements. Factors that could cause our forward-looking statements to differ from actual outcomes include, but are not limited to, those described under the heading “Risk Factors.” Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our views as of the date of this offering circular. Furthermore, except as required by law, we are under no duty to, and do not intend to, update any of our forward-looking statements after the date of this offering circular, whether as a result of new information, future events or otherwise.

2

STATE LAW EXEMPTION AND PURCHASE RESTRICTIONS

Our Class A shares are being offered and sold only to “qualified purchasers” (as defined in Regulation A under the Securities Act). As a Tier 2 offering pursuant to Regulation A under the Securities Act, this Offering is exempt from state law “Blue Sky” review, subject to meeting certain state filing requirements and complying with certain anti-fraud provisions, to the extent that our Class A shares offered hereby are offered and sold only to “qualified purchasers” or at a time when our Class A shares are listed on a national securities exchange. “Qualified purchasers” include: (i) “accredited investors” under Rule 501(a) of Regulation D and (ii) all other investors so long as their investment in our Class A shares does not represent more than 10% of the greater of their annual income or net worth (for natural persons), or 10% of the greater of annual revenue or net assets at fiscal year-end (for non-natural persons). Accordingly, we reserve the right to reject any investor’s subscription in whole or in part for any reason, including if we determine in our sole and absolute discretion that such investor is not a “qualified purchaser” for purposes of Regulation A.

To determine whether a potential investor is an “accredited investor” for purposes of satisfying one of the tests in the “qualified purchaser” definition, the investor must be a natural person who:

1.	has a net worth, or joint net worth with the person’s spouse or spousal equivalent, that exceeds $1,000,000 at the time of the purchase, excluding the value of the primary residence of such person; or
2.	had earned income exceeding $200,000 in each of the two most recent years or joint income with a spouse or spousal equivalent exceeding $300,000 for those years and has a reasonable expectation of reaching the same income level in the current year; or
3.	is holding in good standing one or more professional certifications or designations or credentials from an accredited educational institution that the SEC has designated as qualifying an individual for accredited investor status; or
4.	is a “family client,” as defined by the Investment Advisers Act of 1940, of a family office meeting the requirements in Rule 501(a) of Regulation D and whose prospective investment in the issuer is directed by such family office pursuant to Rule 501(a) of Regulation D.

For purposes of determining whether a potential investor is a “qualified purchaser,” annual income and net worth should be calculated as provided in the “accredited investor” definition under Rule 501 of Regulation D. In particular, net worth in all cases should be calculated excluding the value of an investor’s home, home furnishings and automobiles.

USE OF CERTAIN TERMS AND DEFINITIONS

In this offering circular, unless the context indicates otherwise, the following terms have the following meaning:

● “Class A share” or “Class A shares” refers to a Class A ordinary share or Class A ordinary shares, respectively, representing membership interests in the Company.

● “Class B share” or “Class B shares” refers to a Class B ordinary share or Class B ordinary shares, respectively, representing profits interests in the Company.

● “Masterworks” refers to Masterworks.io, LLC, and or its wholly owned subsidiaries, which include Masterworks Investor Services, LLC, which will conduct operations related to investor relations and pay all fees and expenses of the Underwriter and is referred to herein as “Masterworks Investor Services,” Masterworks Administrative Services, LLC, which will provide administrative services to us and is referred to herein as the “Administrator,” and Masterworks Gallery, LLC, but does not include Masterworks 040, LLC and Masterworks Cayman.

● “Masterworks Cayman” refers to a Cayman Islands segregated portfolio company. Following the initial closing of the Offering, title to the Painting will be held in a segregated portfolio of Masterworks Cayman. The Painting will be the only asset of the segregated portfolio, and we will be the only shareholder of that segregated portfolio.

● “Masterworks Platform” refers to the first online fine art investment platform located at https://www.masterworks.io/. The Masterworks Platform gives eligible investors the ability to:

○	Browse art investment offerings;
○	Transact entirely online, including digital legal documentation, initiate funds transfer, and ownership recordation; and
○	Execute secondary sales of shares issued by Masterworks issuers; and
○	Manage and track investments easily through an online portfolio management tool.

● “Shares” refers generically to the Class A shares and Class B shares.

● “we,” “our,” “ours,” “us,” “Masterworks 040” or the “Company,” refer to Masterworks 040, LLC, a Delaware limited liability company and, as the context requires, the segregated portfolio of Masterworks Cayman that will hold title to the Painting.

Acting as agent for the Company, Masterworks seeks to purchase the Painting at a purchase price of $1,500,000. Dollar amounts throughout this offering circular have been rounded to the nearest whole dollar and information such as auction sale prices, that were originally denominated in a currency other than the U.S. dollar have been converted into U.S. dollars at the prevailing exchange rate on the applicable date of such sale transaction per Artprice, an art market website operated by ArtMarket.com. Information contained on, or accessible through, the foregoing website is not a part of, and is not incorporated by reference into, this offering circular.

3

SUMMARY

This summary highlights selected information contained elsewhere in this offering circular. This summary does not contain all of the information you should consider before investing in the Class A shares. You should read this entire offering circular carefully, especially the risks of investing in the Class A shares discussed under “Risk Factors,” before making an investment decision.

Overview

We were formed as a Delaware limited liability company on December 11, 2020 to facilitate an investment in the Painting. Masterworks will manage all maintenance and administrative services relating to the Painting and the Company. We will not conduct any business activities except for activities relating to an investment in, maintenance, promotion and the eventual sale of the Painting. Our strategy will be to display and promote the Painting so as to enhance its value and broaden its exposure to the art-viewing public.

Masterworks, acting as agent for the Company, is seeking to purchase the Painting from an auction house at a public auction or in a privately negotiated transaction from a gallery, private collector, private sales division of an auction house or through and art advisor that represents a private collector, which we may refer to herein as the “Private Seller” for $1,500,000. The acquisition of the Painting by the Company is planned to occur on or before the initial closing of this Offering.

We are offering up to 83,250 Class A shares in this Regulation A+ Offering for aggregate proceeds of up to $1,665,000.

We do not expect to generate any material amount of revenues or cash flow unless and until the Painting is sold and no profits will be realized by investors unless they are able to sell their Class A shares or the Painting is sold. We will be totally reliant on Masterworks for administrative services, including those relating to the Painting and to fund operations.

The Artist

A description of the Artist will be included in a pre-qualification amendment to the Offering Statement of which this Offering Circular forms an integral part.

The Painting

A description of the Painting will be included in a pre-qualification amendment to the Offering Statement of which this Offering Circular forms an integral part. For purposes of this Offering Circular, we have assumed the Painting will be purchased for $1,500,000.

The Art Market

The global art market is comprised of a network of auction houses, dealers, galleries, advisors, agents, individual collectors, museums, public institutions, and various experts and service providers engaged in the purchase and sale of unique and collectible works of art. According to the 2020 Art Basel Report, global art sales were $64.1 billion in 2019, down 5% year-over-year from 2018. The same report estimates that global sales have remained between $57 billion and $68 billion over the past decade, except during 2009 when sales declined to approximately $40 billion which is believed to have been caused by the global financial crisis. From 2009 to 2019, global art sales have grown at a 5.0% CAGR.

In 2020, the economic disruption resulting from the COVID-19 pandemic impacted the schedule of public auctions in the first half of the year, but also demonstrated the overall resilience of the art market and global demand for blue chip fine art. Despite the initial disruption to market activity starting in March 2020, art market participants responded by re-shuffling sales calendars, re-imagining marquee auction sales formats, extending sales outposts beyond traditional big city locations and aggressively promoting online sales. These efforts combined to buoy overall market activity for the year and support a strong rebound in the second half of 2020. In addition, major auction houses created a new “20th Century & Contemporary Art” category that combined artists from the previous Post-War and Contemporary and selected artists active in the 20^th century from the previous Impressionist and Modern category.

For the full-year 2020, global auction sales by Christie’s, Sotheby’s and Phillips totaled $7.4 billion, a 26% decline from 2019 according to The Art Market 2020: A Year in Review published by ArtTactic. The Post-War and Contemporary art auctions fared better than the overall market posting $3.2 billion in total sales, a 21% fall from 2019.

4

Administrative Services

Pursuant to an administrative services agreement between us, Masterworks Cayman and Masterworks, to be entered into prior to the initial closing of the Offering, the Administrator will fund our ongoing operating costs and expenses and manage all administrative services relating to our business and the Painting. In exchange for these services and as reimbursement for ordinary and necessary administrative costs, we will issue Class A shares to the Administrator at a rate of 1.5% of the total Class A shares outstanding after giving effect to such issuance, per annum, commencing on the final closing of the Offering. There is no overall limit to the number of shares that may be issued to pay these fees. Any extraordinary or non-routine costs, payments and expenses, if any, relating to our Company or the Painting will be paid for by the Administrator, but will be reimbursed by us upon the sale of the Painting. Masterworks may determine to sell the Painting without engaging a third-party intermediary, in which event, the Administrator would charge the buyer of the Painting a reasonable fee not to exceed the lowest published buyer’s premium charged by Sotheby’s, Christie’s or Phillips in effect at such time.

Acquisition of the Painting

Masterworks, acting as agent for the Company, is seeking to purchase the Painting at a public auction through an auction house or in a privately negotiated transaction from a Private Seller. The acquisition of the Painting by the Company is planned to occur on or before the initial closing of this Offering. We intend to use a portion of the proceeds from the initial closing of this Offering to acquire the Painting, and if and to the extent such proceeds are less than the purchase price, Masterworks will advance us any additional funds required to consummate the acquisition. The remaining net proceeds of the Offering, together with any unsold Shares, if any, will be used to repay the Masterworks advance and pay Masterworks the true-up. No interest will accrue on the Masterworks advance. Following the initial closing, title to the Painting will be held in a segregated portfolio of Masterworks Cayman. The Painting will be the only asset of the segregated portfolio, and we will be the only shareholder of that segregated portfolio.

The Painting will be identified and described in an amendment to this Offering Circular prior to the qualification of the Offering Statement of which this Offering Circular forms an integral part. Additionally, the Company will file the definitive agreement to acquire the Painting, in an amendment to the Offering Statement prior to qualification. The Company will not receive or accept any subscription funds or executed subscription agreements until a pre-qualification amendment has been filed and qualified by the SEC.

Sale of the Painting or the Class A shares

We, in our sole and absolute discretion, will be able to execute a sale of the Painting at any time and in any manner and, after distribution of the proceeds of such sale, we intend to liquidate our Company. The Company will own the Painting for an indefinite period and may sell the Painting at any time following the final closing of the Offering. There is no guaranty that any such means for holders of Class A shares to sell those shares or any sale of the Painting will be successful, or if successful, that the net proceeds realized by shareholders from such transaction will be reflective of the estimated fair market value of the shares at such time.

5

Organizational Structure

The following diagram reflects the planned organizational structure and the material relationships between us and Masterworks that will exist following the Offering:

 

*All entities are Delaware limited liability companies, except Masterworks Cayman, SPC, which is a Cayman Islands segregated portfolio company.

(1)	“Masterworks.io” refers to our affiliate Masterworks.io, LLC, which owns the Masterworks Platform at www.masterworks.io which will facilitate online investment in connection with this Offering and facilitates similar offerings for other companies. Scott W. Lynn, the founder of Masterworks and the individual responsible for funding Masterworks, has effective control over Masterworks.
(2)	“Masterworks Investor Services” refers to Masterworks Investor Services, LLC, which conducts investor relations services and pays all fees and expenses of the Underwriter. Masterworks Investor Services is not a registered investment advisor under the Investment Advisors Act of 1940, a registered broker-dealer under the Exchange Act, or licensed under any state securities laws. Masterworks Investor Services acts as an agent of Masterworks Administrative Services, LLC and all services performed by Masterworks Investor Services are covered by the administrative services agreement (See Note 4). Masterworks Investor Services receives no compensation or reimbursement from the Company or investors.
(3)	“Masterworks Gallery” refers to Masterworks Gallery, LLC, which owns 100% of our membership interests prior to giving effect to the Offering. We intend to use a portion of the proceeds from the initial closing of this Offering to acquire the painting, and if and to the extent such proceeds are less than the purchase price, Masterworks Gallery will advance us any additional funds required to consummate the acquisition. Masterworks Gallery will receive the remaining net proceeds of the Offering, together with any unsold Shares, if any, as repayment of its advance and payment of the true-up.
(4)	Masterworks Administrative Services, LLC or the “Administrator” will operate the Masterworks Platform and will perform administrative services for us and Masterworks Cayman pursuant to the administrative services agreement.
(5)	The Company intends to hold title to the Painting in a segregated portfolio of a Cayman Islands segregated portfolio company (“Masterworks Cayman”). The Painting will be the only asset of the segregated portfolio, and we will be the only shareholder of that segregated portfolio. A segregated portfolio company registered under the Cayman Islands Companies Law is a single legal entity which may establish internal segregated portfolios. Each portfolio’s assets and liabilities are legally separated from the assets and liabilities of the Masterworks Cayman ordinary account and are also separate from assets and liabilities attributed to Masterworks Cayman’s other segregated portfolios (if any). This means that a creditor of Masterworks Cayman will only be entitled to recover against assets attributed and credited to the specific segregated portfolio to which the contract is also attributed. The segregated portfolio of Masterworks Cayman holding title to the Painting does not intend to enter into any contracts or incur any liabilities, except as may be necessary in connection with a sale of the Painting.

An investment in the Class A shares includes a number of risks and uncertainties which are described in the “Risk Factors” section of this offering circular, including the following:

● Risks Related to Our Business Model. Our business model is relatively new and untested and we do not plan to generate any material amount of revenues. Our strategy is to own the Painting for an extended period of time and sell it at a profit, but no assurance can be given that we will be able to sell the Painting at a profit or the timing of any such sale.

● Risks Associated with an Investment in a Company owning Fine Art. Artwork can be highly illiquid and investors must be prepared to hold their investment for an extended period of time. The Painting may decline in value or may not appreciate sufficiently to exceed administration fees and expenses. There are a variety of other risks to art investing, including, without limitation, the risk of claims that the artwork is not authentic, physical damage and market risks for any particular artist or work.

● Risks Relating to Our Relationship with Masterworks. Since we have minimal liquid assets, we are totally reliant on Masterworks to administer our business. If Masterworks were to cease operations for any reason it would be difficult for us to find a replacement administrator and we would likely be required to sell the Painting and dissolve the Company. In addition, since Masterworks owns Class B shares, which represent “profits interests” and earns fees and incurs maintenance expenses relating to the administration of our business, Masterworks may have economic interests that diverge from your interests.

● Risks Related to Ownership of the Class A shares and the Offering. Investors in this Offering will have limited voting rights and Masterworks and its affiliates will have significant discretion to operate the business and sell the Painting. In addition, although we intend to facilitate secondary sales of Class A shares on the Masterworks Secondary Market, the Secondary Market will have significant limitations and the Class A shares may be illiquid.

Company Information

We are a manager-managed limited liability company, managed by the Board of Managers. Our principal office is located at 497 Broome Street, New York, New York 10013 and our phone number is (203) 518-5172. Our corporate website address is the website address of Masterworks.io at www.masterworks.io. Information contained on, or accessible through, the website is not a part of, and is not incorporated by reference into, this offering circular.

6

THE OFFERING

Class A shares Offered	Up to 83,250 Class A shares, on a “best efforts” basis for up to $1,665,000 of gross proceeds. Purchasers of the Class A shares will become members of the Company.
Offering Price per Class A share by the Company	$20.00 per Class A share.
Number of Shares Outstanding Before the Offering	As of the date of this filing, 100% of the membership interests of Masterworks 040, LLC are held by Masterworks in the form of 1,000 Class B shares.
Amended and Restated Operating Agreement	Our amended and restated operating agreement, referred to herein as the “operating agreement,” created two classes of membership interests of the Company in the form of Class A shares and Class B shares. By participating in this Offering, investors will become party to the operating agreement.
Number of Shares Outstanding After the Offering	83,250 Class A shares. 1,000 Class B shares (100% held by Masterworks) that will entitle Masterworks to a 20% profits interest upon a sale of the Painting and will be convertible into Class A shares based on a formula that will result in the issuance of a number of Class A shares to Masterworks equal to the quotient of (a) 20% of the aggregate increase in value of our issued and outstanding Class A and Class B shares, divided by (b) the value of the Class A shares at the time of conversion. For a detailed description of the Class B share conversion formula and an example of how it operates, see “Description of Shares.”
Minimum and Maximum Investment Amount	The maximum investment amount per investor is $100,000 (5,000 Class A shares) and the minimum investment amount per investor is $10,000 (500 Class A shares), however, we can waive the maximum or minimum purchase restriction on a case-by-case basis in our sole discretion. Subscriptions, once received, are irrevocable by the investors but can be rejected by us prior to acceptance. Further, pursuant to the terms of the Company’s Operating Agreement, an investor generally cannot own, or be deemed to beneficially own, as “beneficial ownership” is determined pursuant to Section 13(d) and 13(g) of the Securities Act, more than 19.99% of the total number of Class A shares outstanding.
Subscribing Online	Our affiliate Masterworks.io owns the Masterworks Platform and Masterworks Administrative Services, LLC operates the Masterworks Platform located at https://www.masterworks.io/ that enables investors to become equity holders in companies that own artworks. Through the Masterworks Platform, investors can browse and screen potential artwork investments, view details of an investment and sign contractual documents online. After the qualification by the SEC of the offering statement of which this offering circular is a part, the Offering will be conducted through the Masterworks Platform, whereby investors will receive, review, execute and deliver subscription agreements electronically. For additional information, see “Plan of Distribution – Subscription Procedures.”
Underwriter	Independent Brokerage Solutions LLC (“IndeBrokers” or “Broker”), a New York limited liability company and a broker-dealer that is registered with the SEC and in each state where the offering will be made is an Underwriter of this Offering on a “best efforts” basis. IndeBrokers is a member of FINRA and SIPC.

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Payment for Class A shares	After the qualification by the SEC of the offering statement of which this offering circular is a part, investors can make payment of the purchase price in the form of ACH debit transfer or wire transfer into a segregated non-interest bearing account held by us with First Republic Bank Corporation or a similar institution until the applicable closing date. We may also permit payment to be made by credit cards. Investors contemplating using their credit card to invest are urged to carefully review “Risk Factors – Risks of investing using a credit card.” On each closing date, the funds in the account will be released to us and the associated Class A shares will be issued to the investors in this Offering and the obligations to Masterworks in respect of the advance and the true-up will be reduced by such amount. If there is no closings of this Offering, the funds deposited in the segregated account will be returned to subscribers by mail via a check in U.S. dollars, without interest. Credit card subscription shall not exceed the lesser of $15,000 or the amount permitted by applicable law, per subscriber, per transaction.
Investment Amount Restrictions	Generally, no sale may be made to you in this Offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, you are encouraged to review Rule 251(d)(2)(i)(c) of Regulation A. For general information on investing, you are encouraged to refer to www.investor.gov.
Worldwide	Class A shares will be offered worldwide, provided that we may elect not to sell shares in particular jurisdictions for regulatory or other reasons. No sales of Class A shares will be made anywhere in the world prior to the qualification of the offering circular by the SEC in the United States and FINRA’s issuance of a No Objections Letter. All Class A shares will be offered everywhere in the world at the same U.S. dollar price that is set forth in this offering circular.
Voting Rights	The Class A shares have no voting rights other than to vote, as a single class, to approve certain acts as described in our operating agreement, including the right to vote on certain amendments to the operating agreement and the administrative services agreement.
Risk Factors	Investing in the Class A shares involves risks. See the section entitled “Risk Factors” for a discussion of factors you should carefully consider before deciding to invest in the Class A shares.
Use of Proceeds	We expect to receive gross proceeds from this Offering of up to $1,665,000. Masterworks will pay all expenses of the Offering, including fees and expenses associated with qualification of the Offering under Regulation A and all fees and expenses of the Underwriter. Therefore, the gross proceeds from this Offering will equal the net proceeds from this Offering. We intend to use a portion of the proceeds from the initial closing of this Offering to acquire the Painting, and if and to the extent such proceeds are less than the purchase price, Masterworks will advance us any additional funds required to consummate the acquisition. The remaining net proceeds of the Offering, together with any unsold Shares, if any, will be used to repay the Masterworks advance and pay Masterworks the true-up.

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Closings	The Company may close the entire Offering at one time or may have multiple closings. Throughout this Offering Circular, we have assumed multiple closings and refer to the “initial closing” as the first such closing and the “final closing” as the last such closing. The Painting will be acquired by the Company on or prior to the initial closing of this Offering. Subscriptions will be accepted on a rolling basis. If any of the Class A shares offered remain unsold as of the final closing, such Class A shares shall be issued to Masterworks in full satisfaction of its advance and the true-up as described in this Offering Circular. The maximum Offering period is 24 months from the date of commencement.
Termination of the Offering	We reserve the right to terminate this Offering for any reason at any time prior to the initial closing.
Transfer Restrictions	The Class A shares may only be transferred by operation of law or with the consent of the Company:

● To an immediate family member or an affiliate of the owner of the Class A shares,

● To a trust or other entity for estate or tax planning purposes,

● As a charitable gift,

● On a trading platform approved by Masterworks, such as the Masterworks Secondary Market, or

● In a transaction otherwise approved by Masterworks.

Transfer Agent and Registrar

The Company will act as registrar and maintain the Company’s share register. As of the date of this offering circular, we have not engaged a transfer agent, and do not intend to engage a transfer agent until such time as we determine its necessary or we are required to do so in order to satisfy the conditional exemption contained in Rule 12g5-1(a)(7) of the Securities Exchange Act of 1934, as amended, or the Exchange Act.

Distributions

None, unless and until there is a sale of the Painting, at which point we plan to pay a liquidating distribution. There can be no assurance as to the timing of a liquidating distribution or that we will pay a liquidating distribution at all.

DETERMINATION OF OFFERING PRICE

The Offering size equals the sum of (a) the estimated purchase price that Masterworks anticipates paying for the Painting, $1,500,000, plus (b) approximately 11% of such amount (approximately 10% of the maximum aggregate offering amount), or $165,000 as an upfront payment, or “true-up” payable to Masterworks, which compensates and reimburses Masterworks for general operating costs, offering costs, sourcing and purchasing fees and costs, import taxes (if any) and interest and commitments to purchase the Painting. The initial price per Class A share was randomly determined by Masterworks and is calculated by dividing (1) the Offering size by (2) 83,250, which is the maximum number of Class A shares that will be sold in this Offering (or issued to Masterworks if any remain unsold).

Masterworks Gallery owns 1,000 Class B shares, representing a 20% “profits interest” in the Company and will own Class A shares if and to the extent the Offering is not fully subscribed, since Class A shares will be paid to Masterworks to repay the advance made by Masterworks to acquire the Painting and to pay the true-up. Prior to this Offering, no public market exists for the Class A shares, and there can be no assurance that a public market will ever exist for the Class A shares. The Company believes that based on the arms-length ultimate purchase price of the Painting, historical appreciation rates of similar paintings by the same artist and other factors, the per share offering price will constitute a reasonable estimate of the fair value of the Class A shares as of the date of this Offering Circular.

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DISTRIBUTION POLICY

We have not declared or paid dividends on the Class A shares since our formation and do not anticipate paying dividends in the foreseeable future on any shares, unless and until the Painting is sold, at which point we will pay any expenses for which we are responsible and make a liquidating distribution to our shareholders in accordance with our operating agreement. There can be no assurance as to the timing of a liquidating distribution or that we will pay a liquidating distribution at all. There are no contractual restrictions on our ability to declare or pay dividends and if any are to be paid in the future, such decision will be at the discretion of our Board of Managers and will depend on our then current financial condition and other factors deemed relevant by the Board of Managers.

RISK FACTORS

The purchase of the Class A shares offered hereby involves a high degree of risk. Each prospective investor should consult his, her or its own counsel, accountant and other advisors as to legal, tax, business, financial, and related aspects of an investment in the securities offered hereby. Prospective investors should carefully consider the following specific risk factors, in addition to the other information set forth in this offering circular, before purchasing the securities offered hereby.

Risks Related to our Business Model

The Company is a new company and our business model is untested.

The Company is a new company that was formed on December 11, 2020 and had no operating history. We cannot make any assurance that our business model can be successful. Since inception, the scope of our operations has been limited to our formation. Our operations will be dedicated to acquiring and maintaining the Painting and facilitating the ultimate sale of the Painting. We do not expect to generate any material amount of revenues or cash flow until the Painting is sold and no profits will be realized by our investors unless the Painting is sold for more than we acquire it for and there are sufficient funds after all applicable costs and expenses in order to effectuate a distribution to holders of our Class A shares. Few companies other than Masterworks entities have issued securities that represent indirect ownership in an artwork with the sole goal of realizing appreciation on the value of that artwork. It is difficult to predict whether this business model will succeed or if there will ever be any profits realized from an investment in the Class A shares.

We do not expect to generate any material amount of revenues and rely on the Administrator to fund our operations.

We do not expect to generate any material amount of revenues or cash flow unless and until the Painting is sold. No profits can be realized by our investors unless the Painting is sold for more than we acquire it and there are sufficient funds to effectuate a distribution after paying the applicable costs, fees and expenses, or the investors sell their Class A shares. Accordingly, we will be completely reliant on Masterworks to fund our operations.

We are extremely undiversified since our strategy is to achieve capital appreciation from a single work of art.

Our Company was formed to facilitate an investment in, maintain and potentially sell the Painting. We will not invest in any other artwork or assets or conduct any other operations that could generate income. Such lack of diversification creates a concentration risk that may make an investment in the Class A shares riskier than an investment in a diversified pool of assets or business with more varied operations. Aggregate returns realized by investors are expected to correlate to the change in value of the Painting, which may not correlate to changes in the overall art market or any segment of the art market.

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The Painting may be sold at a loss or at a price that results in a distribution that is below the purchase price of the Class A shares, or no distribution at all.

Any sale of the Painting could be effected at an inopportune time, at a loss and or at a price that would result in a distribution of cash that is less than the price paid by investors to purchase our Class A shares. We intend to hold the Painting for an extended period of time and may choose to sell the Painting opportunistically if market conditions are favorable, which we believe is necessary to achieve optimal returns. Although the value of the Painting may decline in the future, we have no current intention nor economic incentive to sell the Painting at a loss. In the future, we may elect to do so if we determine that such a transaction would be necessary to satisfy our fiduciary obligations to our shareholders. Lastly, circumstances may arise that may compel us to sell the Painting at an inopportune time and potentially at a loss, such as if we face litigation, regulatory challenges or if Masterworks ceases to exist. Investors should be prepared to hold their Class A shares for an indefinite period of time, as there can be no assurance that the Class A shares can ever be resold or that the Painting can ever be sold or that any sale would occur at a price that would result in a distribution of more than $20.00 per Class A share.

The timing and potential price of a sale of the Painting are impossible to predict, so investors need to be prepared to own the Class A shares for an uncertain or even indefinite period of time.

We intend to hold the Painting for an indefinite period, although the Painting will be perpetually available for sale following the Offering and we will evaluate any reasonable third party offers to acquire the Painting. In addition, the occurrence of certain events may compel us to sell the Painting. Accordingly, a risk of investing in the Class A shares is the unpredictability of the timing of a sale of the Painting and the unpredictability of funds being available for cash distribution and investors should be prepared for both the possibility they will not receive a cash distribution for many years, if ever, and the contrary possibility that they may receive a cash distribution at any time following the completion of the Offering. An investment in the Class A shares is unsuitable for investors that are not prepared to hold their Class A shares for an indefinite period of time, as there can be no assurance that the Class A shares can ever be resold or that the Painting can be sold within any specific timeframe, or at all.

Our business model involves certain costs, some of which are to be paid for in the issuance of equity which will have a dilutive effect on the holders of our Class A shares.

There are various services required to administer our business and maintain the Painting. Pursuant to an administrative services agreement among us, Masterworks Cayman and the Administrator to be entered into prior to the initial closing of the Offering, the Administrator will manage all administrative services relating to our business and the maintenance of the Painting. The Administrator will pay all ordinary and necessary costs and expenses associated with the administration of our business and maintenance of the Painting. Because we do not expect to maintain cash reserves or generate any cash flow, we will be completely reliant on the Administrator to fund our operations. In exchange for these services and incurring these costs, the Administrator will receive equity interests in us. These equity issuances to Masterworks will effectively result in dilution of 1.5% per annum to Class A shareholders in their indirect ownership of the Painting. Such dilutive issuances, which will commence following the final closing of the Offering, will have a dilutive effect on the holders of our Class A shares and will effectively reduce the tangible book value per Class A share over time. In addition, we remain responsible to reimburse the Administrator for third-party costs associated with extraordinary or non-routine services. Accordingly, while ordinary costs and expenses are fixed pursuant to the administrative services agreement, investors may suffer losses or a reduction of returns associated with extraordinary or non-routine costs.

In the event we are able to sell the Painting, your potential investment returns will be lower than the actual appreciation in value of the Painting due to applicable commissions, fees and expenses.

In the event the Painting is sold, your distribution of cash proceeds will be reduced by commissions, fees and expenses incurred as a result of administering, marketing and selling the Painting, as well as dilution from Class A share issuances to the Administrator pursuant to the administrative services agreement. Transaction costs incurred as part of the sale of the Painting will differ depending on whether we choose or are able to sell the Painting privately or through a public auction. In a public auction, the principal transaction costs are a seller’s commission and buyer’s premium (a form of selling commission, based on a graduated scale set by each auction house), both of which reduce the net proceeds received by a seller from what a buyer ultimately pays. The final reported sales price includes the hammer price (i.e. the price at which the auctioneer declared the winning bid), and the buyer’s premium. The buyer may also separately incur additional sales or VAT taxes, fees or royalties. A seller typically receives the hammer price less the seller’s commission, if any. The economic terms negotiated between the seller and the auction house can vary widely depending on a number of factors, including the value and importance of the specific work, whether the work is sold as an individual piece or part of a larger collection, anticipated demand levels, and other factors. In addition, the proceeds receivable by a seller are less favorable if the work is subject to a pre-auction guaranty. If we sell the Painting in private transactions, there may be sales commissions payable to third parties who arrange for the sale transaction or, if no seller’s agent is engaged in connection with such sale, Masterworks may charge a sales commission in connection with such sale. While we believe we may be able to substantially reduce the transaction costs of selling the Painting, they will not be entirely eliminated.

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In addition, Masterworks will be entitled to its 20% profits interest in respect of its ownership of Class B shares, plus Class A shares issued by us pursuant to the administrative services agreement. Accordingly, your investment returns upon a sale of the Painting, if such a sale can occur and if such sale can generate sufficient funds for a distribution after accounting for applicable fees and expenses, may be significantly lower than the actual rate of appreciation of the Painting.

Risks Associated with an Investment in the Painting

There is no assurance of appreciation of the Painting or sufficient cash distributions resulting from the ultimate sale of the Painting.

There is no assurance that the Painting will appreciate, maintain its present value, or be sold at a profit. The marketability and value of the Painting will depend upon many factors beyond our control. There can be no assurance that there will be a ready market for the Painting, since investment in artwork is generally illiquid, nor is there any assurance that sufficient cash will be generated from the sale of the Painting to compensate investors for their investment. Even if the Painting does appreciate in value, the rate of appreciation may be insufficient to cover our administrative costs and expenses.

The value of the Painting is subjective.

The value of the Painting is inherently subjective given its unique character. The acquisition of the Painting by the Company is planned to occur on or before the initial closing of this Offering. The future realizable value of a fine artwork may differ widely from its estimated or appraised value for a variety of reasons, many of which are unpredictable and impossible to discern. In addition, the net realizable value to a seller at auction is often significantly lower than the published sale price because the net proceeds are typically reduced by all or a portion of the buyer’s premium and there may also be a sales commission.

For non-cash generating assets, such as fine art, valuation is heavily reliant on an analysis of sales history of similar artwork. Experts often differ on which historical sales are comparable and the degree of comparability. The attempt to discern value from historical sales data is extremely challenging for a variety of reasons, including, without limitation:

● Qualitative Factors. Differences in perceived quality or condition between the subject work and the so-called “comparable” sale. Perceived differences in the physical quality and condition of the respective works require subjective judgements as to the valuation impact attributable to such differences.

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● Lack of Reliable Data. Data from non-auction sales, comprising a majority of all sales, is largely unavailable and historical sales data may be inaccurate. Also, data may be stale or unavailable to the public because comparable works may remain off market for extended periods of time, often for generations. Even for public auctions, sale prices may be incorrectly reported due to credits for guarantees entered into with buyers (though under current rules in certain jurisdictions, these are required to be deducted from the reported sale price), or other credits provided to potential buyers.

● Idiosyncratic Factors. Idiosyncratic motivations of a buyer or seller may significantly affect the sale price. These motivations may relate to an emotional attachment to the work, ego, financial, estate or tax planning objectives, the desire to enhance or complete a specific collection objective, perceptions of supply and scarcity and other factors.

● Timing Differences. Historical transactions must be viewed in light of market conditions at the time compared to current conditions. Overall market conditions are difficult to track in recent periods and extremely difficult to discern for historical periods. Harder still, is the ability to track the relative popularity of specific works, artists and genres over historical periods.

● Market Depth. Sale prices only reflect the price a single buyer was willing to pay for a work, so it is very difficult to determine the depth of demand, as defined by the number of potential buyers that are ready, willing and able to purchase an artwork at or below a given price level.

● Entanglements. It is not uncommon in the art market for buyer, sellers and intermediaries to enter into private contractual arrangements that may affect the selling price in a specific transaction. It is often impossible to know of the existence or terms of any such contractual arrangements.

Accordingly, due to the inherent subjectivity involved in estimating the realizable value of the Painting, any appraisal or estimate of realizable value may prove, with the benefit of hindsight, to be different than the amount ultimately realized upon sale and such differences can be, and often are, material.

Since the valuation of high-end artwork relies in large part on an analysis of historical auction sales, it is more difficult to accurately determine fair value of artwork by artists that have fewer auction sales.

Certain artists such as Andy Warhol and Pablo Picasso have a relatively large global collector base and a well-established track record of auction sales over a lengthy period. These artists were also extremely prolific during their careers, so their artwork is frequently bought and sold at auction. This relatively large volume of data makes estimates of historical pricing trends and fair value ranges for artwork produced by these artists more reliable. By contrast, valuation of works by other artists who have a smaller collector base and or a shorter track record of auction sales is comparatively more difficult and such assessments are generally prone to wider margins of error. When assessing the historical auction performance of artwork by a particular artist, investors are urged to consider the volume of public auction data available. As a general matter, historical pricing trends and fair value estimates are more likely to be more accurate for artists with higher volumes of prior auction sales than pricing trends and estimates for artists that have fewer historical auction sales. Accordingly, there is a higher risk that we may overpay for, or misprice, artwork by artists with fewer auction sales than those with higher volumes of prior auction sales.

An investment in the Painting is subject to various risks, any of which could materially impair the value of the Painting and the market value of our Class A shares.

Investing in Painting is subject to the following risks:

● Authenticity. Claims with respect to the authenticity of a work may result from incorrect attribution, uncertain attribution, lack of certification proving the authenticity of the artwork, forgery of a work of art, or falsification of the artist’s signature. We generally obtain representations of authenticity from sellers, but these representations may not effectively eliminate the risk.

● Provenance. Claims related to provenance, or history of ownership, are relatively common and allege that an artwork has an uncertain or false origin. Buyers may also negatively perceive some elements of the prior ownership history, or whether the work is considered to have sold too often in the past. With respect to the Painting, buyers may negatively perceive our ownership in the Painting when considering a purchase.

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● Condition. The physical condition of an artwork over time is dependent on technical aspects of artistic workmanship, including the materials used, the manner and skill of application, handling and storage and other factors.

● Physical Risks. Painting is subject to potential damage, destruction, devastation, vandalism or loss as a result of natural disasters (flood, fire, hurricane), crime, theft, illegal exportation abroad, etc.

● Legal Risks. Painting ownership is prone to a variety of legal challenges, including challenges to title, nationalization, purchase of work of art from unauthorized person, risk of cheating, money laundering, violation of legal regulations and restitution issues. Purchasing from major auction houses and reputable galleries can reduce, but not eliminate these risks.

● Market Risks. The art market is prone to change due to a variety of factors, including changes in transaction costs, substantial changes in fees, tax law changes, export licenses etc., changes in legal regulations, changes in attitudes toward art as an investment, changes in tastes, trends (fashion) and changes in supply, such as the liquidation of a major collection. These risks can be specific to certain geographies.

● Economic Risks. Art values and demand are affected by economic confidence among ultra-high-net-worth individuals.

● Fraud Risk. The art market is unregulated and prone to abusive practices, including price manipulation, disguised agencies and lack of transparency.

Although Masterworks is seeking to purchase the Painting, the purchase or closing of which has not yet occurred, and will conduct due diligence in connection with its purchase of the Painting, no amount of due diligence can completely insulate a buyer against these risks and if any of these risks materialize, the value of the Painting may decline, and the value of the Class A shares would be adversely affected.

If the Painting is eventually displayed in a gallery space or other location, it could be damaged, and insurance may not cover all of the damages, or even if insurance does cover the damages, it may cause the painting to be unsaleable.

It is planned that the Painting will be permanently stored and displayed in the United States, though it might be displayed internationally. We plan to obtain and maintain insurance coverage for the Painting. However, the painting may be damaged while being displayed and our insurance may not be able to cover all of the damages resulting therefrom, and even if insurance does cover such damages, the damages may result in the Painting being unsaleable. Accordingly, damage or destruction of the Painting will have a material adverse impact on the value of the Painting and, consequently, the value of the Class A shares.

We may not be able to find a buyer for the Painting at a reasonable price.

Art is a highly illiquid asset and a significant percentage of objects go unsold when sent to auction. Even in the event that we attempt to sell the Painting, we cannot guarantee that there will be a buyer at any reasonable price. Additionally, if the Painting does go to an auction sale and is not sold, such failure could damage the reputation of the Painting in the marketplace and make it even more difficult to sell in the future.

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Temporary popularity of some paintings or categories of art may result in short-term value increases that prove unsustainable as collector tastes shift.

Temporary consumer popularity or “fads” among collectors may lead to short-term or temporary price increases, followed by decreases in value. The demand for specific categories of art and artists is influenced by changing trends in the art market as to which collecting categories and artists are most sought after and by the collecting preferences of individual collectors. These conditions and trends are difficult to predict and may adversely impact our ability to sell the Painting for a profit. These risks of changes in popularity may be greater for a living or emerging artist, as compared to other categories which may have a proven valuation track record over a longer period of time. These trends could result in reduced profitability or a loss upon the sale of the Painting.

We could be exposed to losses in the event of title or authenticity claims.

The buying and selling of artwork can involve potential claims regarding title, provenance and or authenticity of the artwork. Authenticity risk related to works of art may result from incorrect attribution, uncertain attribution, lack of certificate proving the authenticity of the artwork, purchase of a non-authentic artwork, or forgery. In the event of a title or authenticity claim against us by a buyer of the Painting from us, we would seek recourse against the seller of the Painting pursuant to authenticity and title representations obtained at the time of purchase, but a claim could nevertheless expose us to losses. In addition, we do not maintain liquid assets to defend or settle any such legal claims and would be reliant on the Administrator to outlay the cost of such defense or settlement.

Ownership of the artist’s work may be concentrated, and any large-scale divestiture of a collection could negatively affect prices.

If any major collector were to liquidate a large number of paintings by the artist, the supply and demand dynamic could shift dramatically. A significant increase in the number of paintings by the artist available for sale could reduce prices.

The Painting could be subject to damage, theft or deterioration in condition, which could have a material adverse effect on the value of the Painting.

We plan to store the Painting in a protected environment with security measures, but no amount of security can fully protect a painting from damage or theft. The damage or theft of valuable property, despite these security measures could have a material adverse impact on the value of the Painting and, consequently, the value of our Class A shares. The Company maintains insurance, but there is no guaranty that such coverage would be adequate to mitigate all of such losses.

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Changes in opinions by experts in the artwork regarding authenticity could damage or eliminate the value of the Painting.

Authenticity is often completed by art world experts, and opinions often matter more than scientific data. If a well-respected art expert were to opine negatively on the authenticity of the Painting, it could reduce or eliminate the value of the Painting.

Insurance coverage for the Painting does not cover title claims and may not cover all possible contingencies, exposing us to losses resulting from the damage or loss of the Painting.

We plan to maintain insurance coverage for the Painting against damage or loss of the Painting. Our insurance coverage does not cover title claims and may expressly exclude damage caused by war, losses caused by chemical or biological contamination and certain other potential loss scenarios. Accordingly, in the event of a successful claim that we do not have valid title and ownership to the Painting we would rely solely on the representations obtained from the seller to compensate us for such losses, which may prove to be inadequate. In addition, uncovered damage or destruction of the Painting that is not fully covered by insurance could have a material adverse impact on the value of our Class A shares.

Industry sales cycles can be unpredictable.

Purchase behavior by collectors is generally unpredictable due primarily to the discretionary nature, relative scarcity and high values of art purchases. An art buyer may typically purchase art when excess liquidity is abundant. When economic conditions preclude art collectors from purchasing the Painting, such a downturn in sales will affect our ability to sell the Painting. Additionally, many art buyers have significant access to credit to facilitate the purchase of artwork and any changes which would cause art collectors to not access credit could have a serious impact on a collector’s ability to purchase the Painting.

Purchasing the Painting in a privately negotiated transaction may involve greater risk than purchasing artwork at a public auction.

There are differences between purchasing artwork in a private transaction and purchasing at a public auction. Auctions are generally conducted by large companies that often perform higher levels of research and due diligence than private galleries or agents. Auction houses typically have greater financial and other resources as compared to private galleries or agents. Accordingly, if an authenticity claim were to arise, an auction house would likely have greater financial resources (and or higher levels of insurance coverage) to be able to address such claims than private galleries or agents. In addition, sales practices by auction houses are regulated by laws in the countries in which they operate. These laws vary by jurisdiction, but generally prevent unfair and improper practices and require certain mandatory disclosures. By contrast, private galleries and agents are largely unregulated and operate under general legal principles of agency which do not necessarily require the level of fairness, transparency and disclosure that apply to public auctions. Accordingly, there may be higher risks attendant to purchasing artwork in privately negotiated transactions.

Risks Related to our Reliance on Masterworks

We are totally reliant on the Administrator to maintain and sell the Painting and manage our administrative services.

We do not plan to have employees or intend to maintain or generate any cash flow prior to the sale of the Painting. Accordingly, we are totally reliant on the performance of the Administrator under the administrative services agreement to effectuate the decisions of our Board of Managers. We plan to rely on the Administrator to perform or administer all necessary services to maintain the Painting, including obtaining insurance and ensuring appropriate storage. The Administrator is also responsible for all administrative services required to maintain our Company, including professional services, regulatory filings, SEC reporting, tax filings and other matters. The Administrator is a newly formed company and has not yet developed a track record of successful performance of these activities. If the Administrator were to default on its obligations under the administrative services agreement, it would be extremely difficult for us to replace the Administrator or internally manage these functions given our lack of cash flow and lack of employees. Accordingly, in the event of a material default by the Administrator under the administrative services agreement, we would likely be forced to sell the Painting. We cannot provide assurance that the timing and or terms of any such sale would be favorable. Further, Masterworks can withdraw for any reason from its position as our Administrator, provided that such withdrawal would only become effective upon a sale of the Painting.

We are totally reliant on the Administrator to maintain sufficient capital resources to pay our fees, costs and expenses.

Although we believe the Administrator has sufficient capital resources and sources of liquidity to perform its obligations under the administrative services agreement for the foreseeable future, there can be no assurance that the Administrator will be able to maintain sufficient capital to satisfy its obligations in future periods. The Administrator’s capital resources and sources of liquidity will be relied upon by our auditors in determining our likely ability to continue as a going concern. Pursuant to and in accordance with the administrative services agreement, the Administrator is required to maintain cash reserves on hand for so long as the Class A shares remain outstanding sufficient to pay at least one year of estimated expenses to satisfy its obligations under the administrative services agreement. However, there can be no assurance that the Administrator will be able to maintain such cash reserves. If the Administrator’s liquid capital resources and sources of liquidity are insufficient to satisfy its operational requirements, including the management of our Company, for at least one year, our Company may receive qualified audit reports that would likely have a material adverse effect on the value of our Class A shares.

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The Administrator could run out of capital, which could force a liquidation of the Company.

The Administrator is responsible for paying expenses of maintaining the Painting, including storage and insurance, as well as administrative costs associated with managing other companies similar to ours. In that regard, we anticipate that the Administrator’s fee revenue will be fixed by contract with each entity that it manages, as it is for our Company, but its expenses will be variable and prone to increases based on market and other factors. In addition, because the Administrator intends to manage entities like ours that do not have liquid assets, it will periodically need to outlay capital for unusual or non-recurring expenses that will only be reimbursable upon a subsequent sale of the underlying Painting, which could result in liquidity shortages. For its capital and liquidity, the Administrator currently relies on revenue earned by other Masterworks entities which is transferred to the Administrator and, when such revenue is insufficient for its operations, loans from a single investor, Scott W. Lynn, to Masterworks.io, which are contributed down to the Administrator. If Scott Lynn were to cease funding Masterworks for any reason, the Administrator may not be able to identify additional sources of capital. Although creditors of the Administrator will not have any direct claims on the assets of the Company, if the Administrator is unable to continue operations, the Board of Managers will likely be forced to liquidate the Painting, distribute the proceeds in accordance with the operating agreement and dissolve the Company. Such sale may take place at an inopportune time and may not optimize investment returns on the Class A shares.

The Board of Managers will have complete authority to administer our business consistent with the terms and conditions of our operating agreement, other than certain amendments to the operating agreement and the administrative services agreement.

The Board of Managers will have sole voting power over all matters, including: mergers, consolidations, acquisitions, winding up and dissolution; except, the Board of Managers shall not have the authority to do any of the following without first obtaining the prior approval or consent of the holders of a majority of the voting shares, except as otherwise set forth therein:

● Amend, waive or fail to comply with any material provision of the operating agreement that disproportionately and adversely affects the Class A shareholders;

● Acquire additional material assets other than the Painting, incur debt for borrowed money or engage in business activities that are unrelated to the ownership, maintenance, promotion and sale of the Painting; or

● Issue additional Shares other than pursuant to the agreements described herein.

Additionally, we, in our sole and absolute discretion, may decide to sell the Painting at any time and in any manner.

The Company will own the Painting for an indefinite period and may sell the Painting at any time following the final closing of the Offering. There is no guaranty that any sale of the Painting will be successful, or if successful, that the net proceeds realized by shareholders from such transaction will be reflective of the estimated fair market value of the shares at such time. Masterworks will be entitled to reimbursement for costs and expenses associated with any such transaction and may earn fees for such transactions to the extent permitted by applicable laws, rules and regulations, and there can be no assurance that there will be any remaining net proceeds to be distributed after payment of such costs and expenses.

Members of the Board of Managers may be removed by a majority of the Board of Managers for any reason with or without “cause” or for “cause” as defined in our operating agreement by a vote of the holders of two-thirds (2/3) of the voting shares. This concentration of control in the Board of Managers may delay, deter or prevent acts that would be favored by holders of our Class A shares. The interests of the Board of Managers or the Administrator may not always coincide with our interests or the interests of the holders of our Class A shares. As a result, the market price of our Class A shares could decline, or holders of our Class A shares might not receive a premium over the then-current market price of our Class A shares upon a change in control.

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Holders of our Class A shares do not elect or vote on the Administrator and have limited ability to influence decisions regarding our business.

Our operating agreement provides that our assets, affairs and business will be managed under the direction of the Board of Managers. Holders of our Class A shares do not elect or vote on the Board of Managers and can only remove the Board of Managers by a vote of two-thirds (2/3) of the voting shares and only for “cause” as defined in the operating agreement. Accordingly, unlike the holders of common stock in a corporation, holders of Class A shares have only limited voting rights on matters affecting our business, and therefore limited ability to influence decisions regarding our business.

As a non-listed company conducting an exempt offering pursuant to Regulation A, we are not subject to a number of corporate governance requirements, including the requirements for a board of directors or independent board committees.

We do not intend to list the Class A shares on a national securities exchange. As a non-listed company conducting an exempt offering pursuant to Regulation A, we are not subject to a number of corporate governance requirements that an issuer listing on a national stock exchange would be. The Board of Managers is made up of Nigel Glenday, Joshua B. Goldstein, and Eli D. Broverman. One of the members of the Board of Managers, Eli D. Broverman, serves as the Independent Manager on the Board of Managers (the “Independent Manager”). The Independent Manager serves to protect the interests of the holders of the Class A shares and is tasked with reviewing and approving all related party transactions of our Company with our affiliates and address all conflicts of interest that may arise between us and the holders of the Class A shares and our affiliates. If the Independent Manager resigns from such position on the Board of Managers at any time, the remaining members of the Board of Managers shall appoint a replacement that meets the standards of an independent director pursuant to the standards set forth in NASDAQ Marketplace Rule 4200(a)(15). Accordingly, we do not have, nor are we required to have (i) a board of directors of which a majority consists of “independent” directors under the listing standards of a national stock exchange, (ii) an audit committee composed entirely of independent directors and a written audit committee charter meeting a national stock exchange’s requirements, (iii) a nominating/corporate governance committee composed entirely of independent directors and a written nominating/corporate governance committee charter meeting a national stock exchange’s requirements, (iv) a compensation committee composed entirely of independent directors and a written compensation committee charter meeting the requirements of a national stock exchange, and (v) independent audits of our internal controls. Accordingly, you may not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of a company listed on a national stock exchange.

Risk of non-compliance with regulations.

The Class A shares are being sold by IndeBrokers, which is a registered broker-dealer under the Securities Exchange Act of 1934 (the “Exchange Act”) and registered in each state where the offer and sales of the Class A shares will occur, and it is anticipated that Class A shares will be offered and sold only in states where IndeBrokers is registered as a broker-dealer. If a regulatory authority determines that Masterworks Investor Services, which is not a registered broker-dealer under the Exchange Act or any state securities laws, has itself engaged in brokerage activities that require registration, including initial sale of the Class A shares on the Masterworks Platform and permitting a registered broker-dealer to facilitate resales or other liquidity of the Class A shares on the Masterworks Platform, Masterworks Investor Services may need to stop operating and therefore the Company would not have an entity managing investor relations. In addition, if Masterworks Investor Services is found to have operated as a ‘broker-dealer’ without being properly registered, there is a risk that Class A shares offered and sold while Masterworks Investor Services was not registered may be subject to a right of rescission, which may result in the early termination of the Offering.

Our amended and restated operating agreement designates the federal district courts of the United States of America as the exclusive forum for disputes between us and our shareholders involving claims under the Securities Act, which, if enforced by the courts, will restrict our shareholders’ ability to choose the judicial forum for Securities Act disputes.

Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated operating agreement provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. There is uncertainty as to whether a court would enforce such provision, and the enforceability of similar choice of forum provisions in other companies’ constitutive documents has been challenged in legal proceedings.  While the Delaware courts have determined that such choice of forum provisions are facially valid, a shareholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated operating agreement. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.

This choice of forum provision may limit a shareholder’s ability to bring a Securities Act claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees. If a court were to find the exclusive-forum provision in our amended and restated operating agreement to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could seriously harm our financial condition.

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Risks Relating to Potential Conflicts of Interest

Masterworks financial arrangements may result in misalignment between its interests and the interests of Class A shareholders.

Masterworks and its affiliates will have substantially complete discretion to determine when and if to sell the Painting. Since Masterworks earns administrative fees and incurs maintenance and other ongoing costs for so long as the Painting is owned by us, Masterworks may have economic incentives or disincentives to sell the Painting that are misaligned with the interests of shareholders. Accordingly, there is a risk that Masterworks and its affiliates will have conflicts of interest and no assurance can be given that any such conflicts will be resolved in a manner that is in the best interests of shareholders.

Although Masterworks will own 1,000 Class B shares representing a 20% profits interest in our Company, and will own Class A shares following the Offering, Masterworks may eventually sell its shares.

Masterworks currently owns and will own 1,000 Class B shares representing a 20% profits interest in our Company following the Offering and will own Class A shares if and to the extent the Offering is undersubscribed, as well as Class A shares issuable to Masterworks pursuant to the administrative services agreement. Masterworks has agreed to lock-up provisions in our operating agreement, that will prohibit it from selling any Class B shares prior to the one-year anniversary of the Offering, though it is permitted to pledge all of its shares to unaffiliated third-party lenders and such lenders shall not be subject to the lock-up if they obtain ownership of the profits interest in connection with a default by Masterworks on its indebtedness. After the one-year anniversary, Masterworks will have no restrictions on the disposition of any of its retained shares, other than restrictions imposed by applicable securities laws. Accordingly, the alignment that will exist upon the final closing of the Offering between Masterworks and our other shareholders may not exist in the future. If Masterworks were to sell a significant portion of its shares, the interests of Masterworks may differ significantly from those of investors in the Offering and subsequent holders of the Class A shares. As a result, we cannot assure investors that Masterworks will execute a discretionary sale of the Painting at a time that is in the best interests of holders of the Class A shares.

Masterworks and Members of the Board of Managers and executive officers will have other business interests and obligations to other entities, including interests and obligations relating to the art industry.

Masterworks expects to engage in other business activities, including other activities relating to the art industry. Masterworks may buy and sell other works of art, enter into pre-auction guarantees, operate a gallery (for viewing purposes), establish other entities similar to us and other activities. In addition, neither the Administrator nor its executive officers nor the Board of Managers will be required to manage us as their sole and exclusive function and they will have other business interests and will engage in other activities in addition to those relating to us. We are dependent on the Administrator and its officers and employees to successfully operate us. Their other business interests and activities could divert time and attention from operating our business.

Masterworks may receive fees from a buyer of the Artwork if it sells the Artwork without engaging an intermediary.

Masterworks may determine to sell Artwork without engaging a third-party intermediary, in which event, Masterworks would charge the buyer of the Artwork a reasonable fee not to exceed the lowest published buyer’s premium charged by Sotheby’s, Christie’s or Phillips in effect at such time.

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Our operating agreement contains provisions that exculpate the Board of Managers and the administrative services agreement contains provisions that exculpate the Administrator and its affiliates, and certain other persons engaged on behalf of the Administrator from liabilities with respect to certain actions taken, even if such actions are negligent, which also reduces the remedies available to investors for certain acts by such persons.

Our operating agreement limits the liability of the Board of Managers, any of our members, any person who is an officer of ours and any person who serves at the request of the Board of Managers on behalf of us as an officer, director, members of the Board of Managers, Independent Manager, partner, member, stockholder or employee of such person. The administrative services agreement limits the liability of the Administrator, its affiliates, managers, officers and members. None of the foregoing persons shall be liable to us or the Administrator or any other member of us for any action taken or omitted to be taken by it or by other person with respect to us, including any negligent act or failure to act, except in the case of a liability resulting from any of the foregoing person’s own actual fraud, gross negligence, willful misconduct, bad faith, breach of fiduciary duties that have not been waived, reckless disregard of duty or any intentional and material breach of the operating agreement or conduct that is subject of a criminal proceeding (where such person has reasonable cause to believe that such conduct was unlawful). With the prior consent of the Board of Managers, any of the foregoing persons may consult with legal counsel and accountants with respect to our affairs (including interpretations of the operating agreement) and shall be fully protected and justified in any action or inaction which is taken or omitted in good faith, in reliance upon and in accordance with the opinion or advice of such counsel or accountants. In determining whether any of the foregoing persons acted with the requisite degree of care, such person shall be entitled to rely on written or oral reports, opinions, certificates and other statements of the members of the Board of Managers, officers, employees, consultants, attorneys, accountants and professional advisors of us selected with reasonable care; provided, that no such person may rely upon such statements if it believed that such statements were materially false. The foregoing limitations on liability reduce the remedies available to the holders of the Class A shares for actions taken which may negatively affect us.

Risks Relating to Ownership of the Class A shares and the Offering

Our Class A shareholders will have very limited voting rights and we will have the ability to sell the Painting without shareholder approval.

Our operating agreement provides that the assets, affairs and business of our Company will be managed under the direction of our Board of Managers. Our Board of Managers, in their sole and absolute discretion, will have the ability to sell the Painting at any time and in any manner. Our shareholders do not elect or vote on our Board of Managers. Our Class A shareholders will have voting rights only with respect to certain matters, primarily relating to amendments to our operating agreement or the administrative services agreement that would adversely change the rights of the Class A shares. Each outstanding Class A share entitles the holder to one vote on all matters submitted to a vote of shareholders, provided, that Class A shares beneficially owned by Masterworks, if any, shall not vote. Generally, matters to be voted on by our shareholders must be approved by a majority of the votes cast by all Class A shares present in person or represented by proxy, although the vote to remove a member of the Board of Managers for “cause” requires a two-thirds vote. If any vote occurs, you will be bound by the majority or supermajority vote, as applicable, even if you did not vote with the majority or supermajority.

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There is no active public market for our Class A shares and an active trading market may not ever develop or, even if developed, may not be available to all shareholders, may not be sustained or may cease to exist following this Offering, which would adversely impact the market for our Class A shares and make it difficult, or even impossible, to sell your Class A shares.

There is no active market for our Class A shares. We do not plan to list the Class A shares for trading on a national securities exchange, but we intend to facilitate secondary sales of Class A shares on a bulletin board platform at www.masterworks.io, referred to as the Masterworks “Secondary Market,” commencing on or after the three-month anniversary of the final closing of this Offering. No assurance can be given that the Secondary Market will provide an effective means of selling your Class A shares or that the price at which any Class A shares are sold through the Secondary Market is reflective of the fair value of the Class A shares or the Painting. We do not know the extent to which investor interest will lead to the development and maintenance of a liquid market. In light of a variety of factors, including, without limitation, the relatively small market capitalization of the Company and the limited number of users participating on the Secondary Market, we do not expect the Secondary Market will provide a reliable or effective means of price discovery. Any posted offer prices or historical transaction information reflected on the Secondary Market should not be construed as being representative of the fair value of the Company’s Class A shares or of the Painting. The Secondary Market is currently only available for use by United States citizens with a United States bank account. Investors should be prepared to hold their Class A shares for an indefinite period of time, as there can be no assurance that the Class A shares will ever be saleable through the Masterworks Secondary Market or an alternative platform.

You may not be able to sell your Class A shares at or above the offering price or at all.

The initial public offering price for our Class A shares is above their net tangible asset value due to the payment of the true-up to Masterworks. In addition, Masterworks owns 1,000 Class B shares representing a 20% profits interest in our Company. Prior to this Offering, no public market exists for our Class A shares. You may not be able to sell your Class A shares at or above the initial offering price, or ever. Investors should be prepared to hold their Class A shares for an indefinite period, as there can be no assurance that the Class A shares can ever be tradable or sold.

We will be required to publicly report on an ongoing basis under the reporting rules set forth in Regulation A for Tier 2 issuers. Therefore, we will be subject to ongoing public reporting requirements that are less rigorous than Exchange Act rules for companies that are not “emerging growth companies,” and our investors could receive less information than they might expect to receive from exchange traded public companies.

We will be required to publicly report on an ongoing basis under the reporting rules set forth in Regulation A for Tier 2 issuers. The ongoing reporting requirements under Regulation A are more relaxed than for “emerging growth companies” under the Exchange Act. The differences include, but are not limited to, being required to file only annual and semiannual reports, rather than annual and quarterly reports. Annual reports are due within 120 calendar days after the end of the issuer’s fiscal year, and semiannual reports are due within 90 calendar days after the end of the first six months of the issuer’s fiscal year. Therefore, our investors could receive less information than they might expect to receive from exchange traded public companies.

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Holders of our Class A shares may face significant restrictions on the resale of the Class A shares due to state “Blue Sky” laws or rules restricting participation by foreign citizens.

Each state has its own securities laws, often called “blue sky” laws, which limit sales of securities to a state’s residents unless the securities are registered in that state or qualify for an exemption from registration and govern the reporting requirements for broker-dealers doing business directly or indirectly in the state. Before a security is sold in a state, there must be a registration in place to cover the transaction, or the transaction must be exempt from registration. The applicable broker, if any, must be registered in that state. We do not know whether our Class A shares will be registered or exempt from registration under the laws of any state. We believe that isolated transactions effected between users of the Masterworks Secondary Market, which do not involve the Company, are deemed to be exempt transactions in many States, but participants on the Secondary Market will need to ensure that their activities comply with the laws of their respective States. If our Class A shares are quoted on an alternative trading system, a determination regarding registration will be made by those broker-dealers, if any, who agree to serve as the market-makers for our Class A shares. There may be significant state blue sky law restrictions on the ability of investors to sell, and on purchasers to buy, our Class A shares.

In addition, many trading platforms do not permit non-U.S. citizens or residents to transact on their platforms due primarily to complications associated with obtaining reasonable assurances as to the identity of such individuals and compliance with anti-money laundering, tax and securities laws that would be applicable to such transactions. Masterworks does not currently permit non-U.S. citizens to use the Masterworks Secondary Market. Accordingly, you should consider the resale market for our Class A shares to be limited, as you may be unable to resell your Class A shares without the significant expense of state registration or qualification, or at all.

There is a risk the Offering will not close.

There are numerous possible scenarios pursuant to which the offering may be abandoned prior to the initial closing, including a material adverse change or event in the capital markets or art markets, which could make it impracticable to consummate the Offering. The emergence of material litigation regarding the Company and/or involving Masterworks, material physical damage to the Painting prior to the initial closing, the Painting failing its physical inspection, the outbreak of war or hostilities, or Masterworks or IndeBrokers’ determination that the Offering should be delayed, suspended, or abandoned, due to these or other unforeseeable events.

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Sales of our Class A shares under Rule 144 could reduce the price of our stock.

Masterworks owns 1,000 Class B shares, representing a 20% “profits interest” in our fully diluted equity. Aggregate proceeds from this Offering will not exceed $1,665,000 and not more than 83,250 Class A shares will be outstanding upon the final closing of this Offering. The Class B shares will be convertible into Class A shares with a value at the time of conversion equal to 20% of the increase in value of our issued and outstanding Class A and Class B shares. Masterworks has agreed to lock-up provisions in our operating agreement that will prohibit it from selling any Class B shares prior to the one-year anniversary of the Offering, provided that Masterworks is permitted to pledge all of its shares to unaffiliated third-party lenders and such lenders shall not be subject to the lock-up if they obtain ownership of the shares in connection with a default by Masterworks on its indebtedness. After the one-year anniversary, Masterworks will have no restrictions on the disposition of any of its retained shares, other than restrictions in our operating agreement and those imposed by applicable securities laws. These shares held by our affiliates, shall be “restricted securities” as defined in Rule 144 of the Securities Act. In general, our affiliates must either sell their restricted shares in a transaction exempt from the registration requirements of the of the Securities Act, in which case the buyer would own restricted securities that could not trade freely with the Class A shares sold in this Offering for at least one year from the time of such sale, or they could sell their shares in accordance with Rule 144. Rule 144 requires that these affiliates hold their shares for a period of at least one year, not sell more than one percent of the total issued and outstanding Class A shares in any 90-day period and resell the Class A shares in an unsolicited brokerage transaction at the market price. The availability for sale of substantial amounts of Class A shares under Rule 144 could reduce prevailing market prices for our securities.

If we face litigation related to the Offering, we may elect to auction the Painting and the proceeds of any sale at such auction may be insufficient to provide an adequate remedy. Further, if investors successfully seek rescission, we would face severe financial demands that we may not be able to meet.

Our Class A shares have not been registered under the Securities Act and are being offered in reliance upon the exemption provided by Section 3(b) of the Securities Act, including Regulation A promulgated thereunder. We represent that this offering circular does not contain any untrue statements of material fact or omit to state any material fact necessary to make the statements made, in light of all the circumstances under which they are made, not misleading. However, if this representation is inaccurate with respect to a material fact, if this Offering fails to qualify for exemption from registration under the federal securities laws pursuant to Regulation A, or if we fail to register the Class A shares or find an exemption under the securities laws of each state in which we offer the Class A shares, each investor may have the right to rescind his, her or its purchase of the Class A shares and to receive back from us his, her or its purchase price with interest. Such investors, however, may be unable to collect on any judgment, and the cost of obtaining such judgment may outweigh the benefits. If investors successfully seek rescission, we may elect to sell the Painting and there can be no assurance that the proceeds of any such sale would be an adequate remedy for our investors and we would face severe financial demands we may not be able to meet and it may adversely affect any non-rescinding investors.

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If we face litigation, unless such litigation is proven to involve fraud or intentional misconduct on the part of the Administrator or our other affiliates, we may seek to sell the Painting and the Administrator will be entitled to recoup its expenses in connection with defending and or settling such litigation.

Our operating agreement indemnifies the Board of Managers and the administrative services agreement indemnifies the Administrator in all instances not involving fraud or intentional misconduct. In addition, while the Administrator is responsible for all ordinary and necessary expenses incurred in connection with maintaining the Painting and administering our Company, there is an exception for costs incurred in connection with litigation. Accordingly, if there is any litigation involving our Company which does not involve fraud or intentional misconduct, the costs relating to such litigation will be deducted from the funds to be disbursed to holders of Class A shares upon our sale of the Painting and subsequent dissolution.

Because we do not have an audit committee, holders of our Class A shares will have to rely on our Board of Managers and the Independent Manager to perform these functions.

We do not have an audit committee. The Board of Managers, made up of Nigel Glenday, Joshua B. Goldstein and Eli D. Broverman will perform the duties normally performed by an audit committee for an entity such as ours. One of the members of the Board of Managers, Eli D. Broverman, serves as the Independent Manager on the Board of Managers. The Independent Manager serves to protect the interests of the holders of the Class A shares and is tasked with reviewing and approving all related party transactions between us and our affiliates and address all conflicts of interest that may arise between us and the holders of the Class A shares and our affiliates. If the Independent Manager resigns from such position on the Board of Managers at any time, the remaining members of the Board of Managers shall appoint a replacement that meets the standards of an independent director pursuant to the standards set forth on NASDAQ pursuant to NASDAQ Marketplace Rule 4200(a)(15).

Purchasers in this Offering and in the aftermarket will experience dilution in the book value of their investment over time.

The initial offering price per Class A share will be approximately $1.98 above the pro forma net tangible book value per Class A share immediately following this Offering as a result of the true-up amount payable to Masterworks. The Administrator will earn an administrative services fee in the form of Class A shares. These fees will, when issued, effectively further reduce the tangible book value per Class A share over time. Additionally, if the value of the Class A shares increases over time, the number of Class A shares to be issued upon conversion of the Class B shares will also increase over time resulting in additional dilution to holders of our Class A shares.

Risks of investing using a credit card.

We may accept credit cards for subscriptions, provided that any such credit card subscription shall not exceed the lesser of $15,000 or the amount permitted by applicable law, per subscriber. An investment in the Class A shares is a long-term and highly illiquid investment. Payment by credit card may be appropriate for some investors as a temporary funding convenience, but should not be used as a long term means to finance an investment in the Class A shares. Investors contemplating using their credit card to invest are urged to review the SEC’s Investor Alert dated February 14, 2018 entitled: Credit Cards and Investments – A Risky Combination, which is available at https://www.sec.gov/oiea/investor-alerts-and-bulletins/ia_riskycombination. Credit card investment will result in incurrence of third-party fees and charges (often ranging from 1.5% - 3.0%), interest obligations which will lower your expected investment returns, and could exceed your actual returns. In addition, if you cannot meet your minimum payment obligation, you may damage your credit profile which would make it more difficult and more expensive to borrow in the future.

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Provisions of our Certificate of Formation and our Operating Agreement may delay or prevent a take-over which may not be in the best interests of holders our Class A shares.

Provisions of our Certificate of Formation and the operating agreement may be deemed to have anti-takeover effects, which include, among others, the Board of Managers having sole and exclusive control of the operations of us with the exclusion of the holders of the Class A shares being able to vote upon certain limited circumstances, and may delay, defer or prevent a takeover attempt.

We do not intend to pay distributions in the foreseeable future and may only make a distribution to the holders of our Class A shares if the Painting can be sold at a profit to the price we paid and after the costs and expenses associated with the sale there are sufficient funds to effect a distribution upon the liquidation of the Company.

We do not maintain any cash balances and do not intend to pay any distributions in the foreseeable future and may only make a distribution to the holders of our Class A shares if the Painting can be sold at a profit to the price paid by us and other costs and expenses associated with the sale there are sufficient funds to effect a distribution upon our liquidation. Investors should be prepared to never receive a distribution in connection with their ownership of the Class A shares.

The tax treatment of an investment in the Company is uncertain and subject to change.

We currently expect to be taxed as a partnership, which means we do not expect to pay entity-level Federal income taxes and any income or loss arising from a sale of the Painting by Masterworks Cayman would be allocated to our shareholders and result in ordinary dividend income for our shareholders. In the event our Board of Managers determines that there is a material risk that our partnership status may not be respected by the IRS due to the potential existence of secondary market liquidity for the Class A shares or for other reasons, our Board of Managers may restructure our operations to avoid or minimize entity-level Federal income taxes. Any such restructuring could, among other consequences, cause any gain resulting from a sale of the Painting being taxed at higher rates applicable to capital gains on collectibles. Shareholders are urged to consult their advisors with respect to the tax consequences of an investment in the Company in light of their particular circumstances. In addition, the Board of Managers has sole discretion to change the tax election such that the Company would be taxed as a corporation for U.S. Federal income purposes, which would mean that the Company would be required to pay entity level U.S. Federal income taxes on gains, if any, from the sale of the Painting. Any such change could adversely impact the net amount of funds you receive, after taxes, from a sale of the Painting.

Tax risk to investors seeking to invest using their individual retirement accounts, including traditional and self-directed IRAs and 401(k)s.

Section 408(m) of the Internal Revenue Code of the United States treats the acquisition of any collectible, including any work of art, as a distribution from the retirement account. Distributions are taxable to the holder of the account and may be subject to early withdrawal penalties of 10% of such amount if the investor is not at least 59-1/2 years of age. The Internal Revenue Service could take the position that an investment in the Class A shares is tantamount to the acquisition of artwork and therefore should be treated as a taxable distribution. We urge those investors seeking to use their individual retirement accounts to invest in Class A shares to consult with a competent professional tax professional prior to making an investment decision.

By purchasing shares in this Offering, you are bound by the provisions contained in our subscription agreement which provide for mandatory arbitration and a waiver of rights to a jury trial which limits your ability to bring class action lawsuits, seek remedies on a class basis or have a jury decide the factual merits of your claim.

By purchasing shares in this Offering, investors agree to be bound by the arbitration provisions contained in our subscription agreement which provide that arbitration is the exclusive means for resolving disputes relating to or arising out of the subscription agreement, the shares, the Masterworks Platform, and/or the activities or relationships that involve, lead to, or result from any of the foregoing. In addition, by signing the subscription agreement, you waive your rights to a jury trial in any such dispute. Please note that neither the mandatory arbitration provision nor the waiver of your rights to a jury trial apply to claims made under the federal securities laws. Purchasers of shares in a secondary transaction would also be subject to the same arbitration provisions and jury waiver that are currently in our subscription agreement. Such arbitration provision limits the ability of investors to bring class action lawsuits or similarly seek remedies on a class basis for claims subject to the provision. If invoked, the arbitration is required to be conducted in New York, NY in accordance with New York law. The subscription agreement allows for either the Company or an investor to elect to enter into binding arbitration in the event of any covered claim in which the Company and the investor are adverse parties. While not mandatory, in the event that the Company were to invoke the arbitration clause, the rights of the adverse shareholder to seek redress in court would be severely limited. These restrictions on the ability to bring a class action lawsuit and the waiver of a jury trial may result in increased costs and/or reduced remedies, to individual investors who wish to pursue claims against the Company, except in the case of claims made under the federal securities laws.

The outbreak of the coronavirus may cause an overall decline in the economy as a whole and may materially harm our Company.

If the outbreak of the coronavirus continues to grow, the effects of such a widespread infectious disease and epidemic may cause an overall decline in the economy as a whole. The actual effects of the spread of coronavirus are difficult to assess at this time as the actual effects will depend on many factors beyond the control and knowledge of the Company. However, the spread of the coronavirus, if it continues may cause an overall decline in the global economy as a whole and therefore may materially harm our Company.

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DILUTION

As of the date of this filing, 100% of the membership interests of the Company are held by Masterworks.

Investors in this Offering will suffer immediate dilution in the net tangible book value per share $1.98 as a result of the true-up to be paid to Masterworks as part of our cost of acquiring the Painting. Fees payable to Masterworks in the form of Class A shares will also result in dilution in the net tangible book value per share of the Class A shares. We estimate that the net tangible book value per share upon the final closing of the Offering after giving effect to the intended use of proceeds from the Offering will be $18.02.

The Class B shares may also have a dilutive effect following the final closing of the Offering. The formula for the conversion of the Class B shares into the Class A shares is as follows:

Class A shares issuable upon conversion	=	(A) Value Increase, multiplied by
		(B) Conversion Percentage, multiplied by
		(C) 20%, divided by
		(D) Class A share Value.

Definitions for conversion calculation:

“Value Increase”	the aggregate value of Shares outstanding at such time, minus the product of (i) the number of Class A shares outstanding at such time and (ii) $20.00, if such difference is positive.
“Conversion Percentage”	means, (A) the number of Class B shares being converted, divided by (B) the number of Class B shares outstanding.
“Class A share Value”	means, as of the close of business on the day preceding the conversion date, the volume weighted average trading price (“VWAP”) of the Class A shares on all trading platforms or trading systems on which the Class A shares are being traded over the forty-five (45) trading days then ended, provided, that if the total aggregate trading volume over such 45-trading-day period is less than 5% of the public float, such period shall be extended to the ninety (90) trading days then ended, provided, further, if the total aggregate trading volume over such 90-trading-day period is less than 5% of the public float, the holder of the Class B shares shall request that the Administrator obtain an appraisal of the Class A share Value from one or more independent nationally-recognized third party appraisal companies and such appraisal shall constitute the Class A share Value.*

* The hypothetical Class A share values represent the assumed VWAP, or in the absence of a trading market, the appraised fair value of the Class A Shares, which, in either case, is assumed to be the amount that a Class A share would receive upon liquidation of the Company (i.e. the appraised value of the Painting divided by the fully diluted number of Class A shares outstanding). For all purposes of determining the number of Class A shares issuable upon conversion of Class B shares, a bulletin board platform, such as the Masterworks Secondary Market, which does not display firm quotes, shall not constitute a “trading platform” or “trading system.”

Examples of conversion calculation

The following table illustrates the number and percentage of Class A shares (rounded to nearest whole share) that would be issued to Masterworks upon conversion of all of its Class B shares based on hypothetical changes in the trading price or value of the Class A shares:

Hypothetical Class A share Value	$	20.00		$	30.00		$	40.00		$	50.00		$	60.00
No. of Class A shares Masterworks would receive upon conversion of 100% of its Class B shares		0			6,938			10,406			12,488			13,875
Percentage of total outstanding Shares Masterworks would receive upon conversion of 100% of its Class B shares		0	%		7.69	%		11.11	%		13.04	%		14.29	%

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Pursuant to the foregoing formula, Class A shares will only be issuable upon a conversion of Class B shares if the value of the Class A shares is higher than $20.00 per share. Upon the final closing of this Offering, the value of the Class A shares will be $20.00 per share based on the offering price and therefore, no shares will be issuable upon a conversion of Class B shares into Class A shares at such time.

Nominal consideration was paid for the membership interests represented by Class B shares. The aggregate cash cost to Masterworks for the Class B shares will be $100.00 (representing the cash payment made in consideration of the issuance of membership interests represented by Class B shares) or less than $0.01 per share. If in the future the value of the Class A shares increases to where there is a gain in value, based on the above formula, there will be additional dilution.

For example, if the value of the Class A shares is $30 per share, based on the foregoing conversion formula, the Class B shares will be convertible into 6,938 Class A shares if Masterworks decides to convert all of the Class B shares they hold. The new investors ownership interest would be diluted as follows assuming that 83,250 Class A shares are sold in the Offering:

	Dilution Based on Hypothetical Conversion
	Shares Purchased					Total Consideration					Average Price
	Number		Percent			Amount		Percent			per Share
Existing stockholders as of January 25, 2021		0		0.0	%	$	0		0.0	%	$	0.00
Assumed issuance of Class A shares for Class B shares		6,938		7.69	%	$	100		0.0	%	$	0.01
New investors (this Offering)		83,250		92.31	%	$	1,665,000		100.0	%	$	20.00
Total		90,188		100.0	%	$	1,665,100		100.0	%	$	20.01

Further, as additional Class A shares are issued to the Administrator as payment for its administrative services, the holders of the Class A shares will suffer dilution.

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PLAN OF DISTRIBUTION

IndeBrokers, a New York limited liability company, will manage the sale of the Class A shares as Underwriter pursuant to an engagement letter agreement, a form of which is attached as Exhibit 1.1 to the offering statement of which this offering circular is an integral part (as amended, the “Engagement Agreement”). IndeBrokers shall use its best efforts to find potential purchasers for the Class A shares offered pursuant to this offering circular and may engage other broker-dealers to do so. The Underwriter is under no obligation to take the securities and has not committed to purchase any of the Class A shares offered herein. Subscriptions will be made only through the Masterworks Platform and payment will be made directly to the Company. IndeBrokers shall not directly accept subscriptions or accept payment for the Class A shares. The subscription funds paid by investors as part of the subscription process will be held in a noninterest-bearing segregated account of the Company with First Republic Bank Corporation, or a similar institution and will not be commingled with any other funds and will not be released, unless and until there is an initial closing and the date of each respective additional closing under of this Offering. IndeBrokers is a broker-dealer registered with the SEC and a member of the FINRA and the SIPC and is registered in each state where the Offering and sale of the Class A shares will occur. All fees and expenses of IndeBrokers will be paid by Masterworks and the Company shall have no responsibility for any amounts payable to IndeBrokers. Accordingly, the gross proceeds from the Offering shall be the same as the net proceeds from the Offering. This Offering will not exceed 24 months from the date of commencement in accordance with Rule 251(d)(3) of Regulation A.

Online Subscriptions and Bank Account

Our affiliate Masterworks.io, LLC and its principals own and operate the Masterworks Platform located at https://www.masterworks.io/ that allows investors to acquire interests in special purpose companies that invest in artwork. Through the Masterworks Platform, investors can, once they establish a profile, browse and screen potential artwork investments, view details of an investment and sign contractual documents online. After the qualification by the SEC of the offering statement of which this offering circular is a part, the Offering will be conducted through the Masterworks Platform, whereby investors will receive, review, execute and deliver subscription agreements electronically as well as make payment of the purchase price in the form of ACH debit, credit card, or wire transfer into a segregated non-interest bearing account held by us until the closing date of each respective closing under this Offering. The subscription funds paid by investors as part of the subscription process will be held in a noninterest-bearing segregated account of the Company with First Republic Bank Corporation or a similar institution and will not be commingled with any other funds and will not be released, unless and until there is an initial closing and the date of each respective closing under this Offering. IndeBrokers will not be responsible for collecting or holding investor funds. Credit card subscription shall not exceed the lesser of $15,000 or the amount permitted by applicable law, per subscriber. Investors contemplating using their credit card to invest are urged to carefully review “Risk Factors – Risks of investing using a credit card.” Credit card investment will result in incurrence of third-party fees and charges, interest obligations which will lower your expected investment returns and could exceed your actual returns. In addition, if you cannot meet your minimum payment obligation, you may damage your credit profile which would make it more difficult and more expensive to borrow in the future. On any relevant closing date, the funds in the account will be released to us and the associated Class A shares will be issued to the investors in this Offering. If there are no closings of this Offering, the funds deposited in the segregated account will be promptly returned to subscribers, without deduction and generally without interest.

Upon each closing under the terms as set out in this offering circular, funds will be immediately transferred to us (where the funds will be available for use in the operations of the Company’s business in a manner consistent with the “Use of Proceeds” in this offering circular).

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Engagement Agreement with the Underwriter.

We and Masterworks Investor Services, LLC will enter into an engagement letter agreement with the Underwriter, a form of which is attached as Exhibit 1.1 to the offering statement of which this offering circular is an integral part. The term of the engagement agreement will continue for one-year, unless terminated earlier in accordance with its terms. Masterworks is responsible for the payment of all offering fees and expenses, including the following: (i) fees and disbursements of our legal counsel, accountants, and other professionals we engage; (ii) fees and expenses incurred in the production of offering documents, including design, printing, photograph, and written material procurement costs; (iii) all filing fees, including FINRA and blue sky filing fees; (iv) all of the legal fees related to the registration and qualification of the Class A shares under state securities laws and FINRA’s issuance of a No Objections Letter; and (v) other distribution expenses. To the extent that any of these fees and expenses are paid by IndeBrokers with our approval, Masterworks will, upon request, reimburse IndeBrokers for such fees and expenses. In the event the offering does not close or the engagement letter agreement is terminated for any reason other than because of IndeBrokers’ material failure to provide the services contemplated by the engagement letter agreement, Masterworks shall reimburse IndeBrokers for all unreimbursed, reasonable, documented, out-of-pocket fees, expenses, and disbursements, including legal fees. IndeBrokers will be entitled to receive commissions from Masterworks in connection with this Offering which will vary depending on a variety of factors, including the total amount of capital raised by IndeBrokers and other broker-dealers engaged by IndeBrokers to assist in the distribution, provided that commissions payable to IndeBrokers for capital raising activities in connection with this Offering shall not exceed 3.0% of the gross proceeds of the Offering, or $49,950.

In addition, IndeBrokers and representatives of IndeBrokers will receive additional payments in respect of various activities that are not directly attributable to this Offering or any other offering conducted through the Masterworks Platform, but are considered underwriting compensation. These payments relate to (i) a monthly retainer for administrative support services, which focus on supervision of the FINRA registered representatives and their sales practices, including compliance oversight of securities marketing material, investor screening, investor and issuer due diligence and records management, as well as legal fees incurred through the underwriting, and (ii) fixed compensation payments to IndeBrokers representatives, which include non-transaction based compensation payable to each representative in the form of salaries and other costs related to the benefits provided to them. These amounts are payable by Masterworks, which is not an issuer of securities in this Offering or any other proposed offering and such amounts are payable regardless of whether any particular offering is consummated. Accordingly, for purposes of calculating maximum underwriting compensation we have estimated the aggregate amount of such costs and expenses over a twelve (12) month period and allocated a portion of these estimated costs and expenses to the Offering based on the relative size of the Offering in proportion to the total amount of securities estimated to be offered through the Masterworks Platform during such period. As a result of such allocation, we and IndeBrokers determined that $14,763 is a reasonable estimate of costs and expenses referenced in clauses (i) and (ii) above that are appropriately allocated to this Offering for purposes of determining maximum aggregate underwriting compensation. Lastly, IndeBrokers is entitled to reimbursement for out-of-pocket costs of up to 0.20% of aggregate offering proceeds in connection with this Offering. Accordingly, the maximum amount of underwriting compensation for this Offering will not exceed $68,043, or approximately 4.09% of the gross offering proceeds if the maximum offering is sold. For the avoidance of doubt, the total amount of all items of compensation from any source payable to underwriters, broker dealers, or affiliates thereof will not under any circumstances exceed an amount that equals ten (10) percent of the gross proceeds of the Offering if the maximum offering is sold. All underwriting compensation will become due and payable by Masterworks upon consummation of this Offering, including the commissions and the fees and costs set forth above.

Transfer Agent and Registrar

The Company will act as registrar and maintain the Company’s share register. As of the date of this offering circular, we have not engaged a transfer agent, and do not intend to engage a transfer agent until such time as we determine its necessary or we are required to do so in order to satisfy the conditional exemption contained in Rule 12g5-1(a)(7) of the Securities Exchange Act of 1934, as amended, or the Exchange Act.

Book-Entry Records of Class A shares

Ownership of the Class A shares will be represented in “book-entry” only form directly in the name of the respective owner of the Class A shares and shall be recorded by the Company and that no physical certificates shall be issued, nor received, by the Company or any other person. The Company or Masterworks shall send out email confirmations of positions and notifications of changes “from” us upon each and every event affecting any person’s ownership interest.

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Investment Amount Limitations

The maximum investment amount per investor is $100,000 (5,000 Class A shares) and the minimum investment amount per investor is $10,000 (500 Class A shares). We can waive the minimum and maximum purchase requirements by posting such change to our website or on a case-by-case basis in our sole discretion. Subscriptions, once received, are irrevocable by the investors but can be rejected by us. Further, pursuant to the terms of the Company’s Operating Agreement, an investor generally cannot own, or be deemed to beneficially own, as “beneficial ownership” is determined pursuant to Section 13(d) and 13(g) of the Securities Act, more than 19.99% of the total number of Class A shares outstanding.

Generally, no sale may be made to you in this Offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing, you are encouraged to refer to www.investor.gov.

As a Tier 2, Regulation A offering, investors must comply with the 10% limitation to investment in the Offering. The only investor in this Offering exempt from this limitation is an accredited investor, an “Accredited Investor,” as defined under Rule 501 of Regulation D. If you meet one of the following tests you should qualify as an Accredited Investor:

(i)	You are a natural person who has had individual income in excess of $200,000 in each of the two most recent years, or joint income with your spouse or spousal equivalent in excess of $300,000 in each of these years, and have a reasonable expectation of reaching the same income level in the current year;
(ii)	You are a natural person and your individual net worth, or joint net worth with your spouse or spousal equivalent, exceeds $1,000,000 at the time you purchase Class A shares (please see below on how to calculate your net worth);
(iii)	You are a director, executive officer or general partner of the issuer or a director, executive officer, or general partner of the general partner of the issuer;
(iv)	You are an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, or the Code, a corporation, a Massachusetts or similar business trust or a partnership, or limited liability company, not formed for the specific purpose of acquiring the Class A shares, with total assets in excess of $5,000,000;
(v)	You are a bank or a savings and loan association or other institution as defined in the Securities Act, a broker or dealer registered pursuant to Section 15 of the Exchange Act, an investment advisor registered pursuant to  the Investment Advisers Act of 1940 or registered pursuant to the laws of a state, an investment advisor relying on the exemption of registering with the SEC under the Investment Advisers Act of 1940, an insurance company as defined by the Securities Act, an investment company registered under the Investment Company Act of 1940, or a business development company as defined in that act, any Small Business Investment Company licensed by the Small Business Investment Act of 1958, or a Rural Business Investment Company as defined in the Consolidated Farm and Rural Development Act, or a private business development company as defined in the Investment Advisers Act of 1940;
(vi)	You are an entity (including an Individual Retirement Account trust) in which each equity owner is an accredited investor;
(vii)	You are a trust with total assets in excess of $5,000,000, your purchase of Class A shares is directed by a person who either alone or with his purchaser representative(s) (as defined in Regulation D promulgated under the Securities Act) has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment, and you were not formed for the specific purpose of investing in the Class A shares; or
(viii)	You are a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has assets in excess of $5,000,000; an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;
(ix)	You are an entity, of a type not listed in the above paragraphs (iv), (v), (vi), (vii), or (viii), not formed for the specific purpose of acquiring the Class A shares, owning investments in excess of $5,000,000;
(x)	You are a natural person holding in good standing one or more professional certifications or designations or credentials from an accredited educational institution that the SEC has designated as qualifying an individual for accredited investor status;
(xi)	You are a “family office,” as defined by the Investment Advisers Act of 1940, with assets under management in excess of $5,000,000, and is not formed for the specific purpose of acquiring the Class A shares, and your prospective investment is directed by a person who has such knowledge and experience in financial and business matters that such family office is capable of evaluating the merits and risks of the prospective investment;
(xii)	You are a “family client,” as defined under the Investment Advisers Act of 1940, of a family office meeting the requirements in the above paragraph (xi), and your prospective investment in the issuer is directed by such family office pursuant to the above paragraph (xi).

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Offering Period and Expiration Date

We will commence the sale of the Class A shares as of the date on which the offering statement of which this offering circular is a part is declared qualified by the SEC. The Company may close the entire Offering at one time or may have multiple closings. Throughout this Offering Circular, we have assumed multiple closings and refer to the “initial closing” as the first such closing and the “final closing” as the last such closing. The Painting is planned to be acquired by the Company on or prior to the initial closing of this Offering. Additional closings, if any, will occur on a rolling basis throughout the offering period as determined by Masterworks. The maximum Offering period is 24 months from the date of commencement in accordance with Rule 251(d)(3) of Regulation A, but we reserve the right to terminate this Offering for any reason at any time prior to the initial closing.

Masterworks Platform

We plan to use the Masterworks Platform website at https://masterworks.io/ to provide notification of this anticipated Offering. Prior to the qualification of the Offering by the SEC, we may post information about this anticipated Offering on the Masterworks Platform website, including prior auction sales of art created by the artist. This offering circular as well as amendments to this offering circular after it has been publicly filed and prior to qualification by the SEC will be furnished to prospective investors for their review via download 24 hours per day, 7 days per week on the website as well.

Procedures for Subscribing

After the qualification by the SEC of the offering statement of which this offering circular is a part, if you decide to subscribe for any Class A shares in this Offering, you should go to the Masterworks Platform website at https://masterworks.io/, and follow the links and procedures described on the website. The website will direct you to receive (upon your acknowledgement that you have had the opportunity to review this offering circular), review, execute and deliver the subscription agreement electronically. The Masterworks Platform provides a secure portal to enable you to subscribe as follows:

1.	Once an offering has been qualified by the SEC, you can initiate the subscription process by clicking a “Buy Shares” link adjacent to a reference to the particular offering.
2.	The next screen will require you to provide basic identifying information, including your name, email address, phone number, and to establish a password, after which you will be prompted to continue to the next screen.
3.	You will then be presented with a link to the final Offering Circular (and any post qualification supplements or amendments, if applicable) and basic information about the Offering, including an image of the relevant artwork, the number of Class A shares offered, the maximum aggregate offering amount and the minimum investment amount.
4.	You will be requested to confirm the number of Class A shares you wish to subscribe for and the corresponding dollar amount of your proposed subscription.
5.	After a prompt to continue, you will be requested to select a payment method, including: (i) linking a bank account to facilitate payment through the Automated Clearing House, or ACH, (ii) federal funds wire transfer or (iii) credit card, as follows: (a) ACH. If you choose to link your bank account, you will be requested to select your bank among a directory of banks and you will be prompted to provide your bank user name and password and to select the particular account. You may also confirm your bank account by confirming micro deposits in lieu of using your user name and password.

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	(b) Wire Transfer. If you choose to pay by wire transfer, you will be provided with the issuer’s bank account number, routing number and bank address, along with a unique identifying code that will enable us to match the incoming wire transfer with your subscription. (c) Credit Card. If you choose to pay by credit card, you will be prompted to provide your credit card information and will be presented with a screen that reflects the amount of your subscription, the amount of fees that would be charged by the credit card issuer for the transaction and the total amount payable.
6.	After selecting the method of payment, Masterworks sends you an email requesting you to click a link that verifies your email address and confirms that you created your profile with Masterworks.
7.	Assuming your email address is valid, you will be directed to review and execute a copy of the subscription agreement, which contains an active hyper-link to the operating agreement for the issuer and is self-populated with your name, address, telephone number, subscription amount and method of payment.
8.	Next, you will be requested to verify your identity and you will be presented with an active hyperlink to a Customer ID Program Notice which describes the identification information you need to provide. You will be prompted to provide us with your address, date of birth and your social security or tax identification number. You will also be asked: (i) whether you are an accredited investor (with appropriate definitions provided) and if not, you will be asked to confirm that your investment will be less than 10% of your net worth or annual gross income, (ii) whether you or anyone in your household are associated with a FINRA member, securities exchange, self-regulatory organization or the SEC and (iii) whether you or anyone in your household or immediate family is a 10% shareholder, officer, or member of the board of directors of a publicly traded company.
9.	After your identity is cleared against certain governmental terrorist watch lists and lists designed to prevent or deter money-laundering, you will be presented with a confirmation of your accepted subscription. Investors selecting ACH will receive an email that payment has been initiated and a follow-up email indicating that the payment has been received by the issuer.
10.	You will receive an email confirmation indicating the amount of your subscription, along with a fully executed copy of the subscription agreement, which will be time and date stamped, for your records.
11.	You will then be presented with a screen requesting certain tax exemption status information that will be used, along with other information previously provided, to populate a Form W-9 (Request for Taxpayer Identification Number and Certification) or W-8 (International), as applicable.
12.	Lastly, you will be directed to a “My Account” screen that summarizes the status of your subscription, order history, whether or not shares have been issued, profile information, tax documents and active hyperlinks to the subscription agreement and operating agreement.

Any potential investor will have ample time to review the Subscription Agreement, along with their counsel, prior to making any final investment decision. We will not accept any money until the SEC declares this offering circular qualified.

All funds received from investors in this Offering will be held in a non-interest bearing segregated bank account of the Company with First Republic Bank Corporation or a similar institution. IndeBrokers will not be responsible for collecting or holding investor funds. The funds in the account will be released to us on each closing date. We intend to complete multiple closings and, until a closing date, the proceeds for the Offering will be kept in the segregated bank account. At the closing, the proceeds will be distributed to us and the associated Class A shares will be issued to the investors in this Offering. If there are no closings or if funds remain in the account upon termination of this Offering without any corresponding closing, the funds deposited in the segregated account will be promptly returned to subscribers, without deduction and generally without interest.

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You will be required to represent and warrant in your subscription agreement that you are an accredited investor as defined under Rule 501 of Regulation D or that your investment in the Class A shares does not exceed 10% of your net worth or annual income, whichever is greater, if you are a natural person, or 10% of your revenues or net assets, whichever is greater, calculated as of your most recent fiscal year if you are a non-natural person. By completing and executing your subscription agreement you will also acknowledge and represent that you have received a copy of this offering circular, you are purchasing the Class A shares for your own account and that your rights and responsibilities regarding your Class A shares will be governed by our operating agreement and Certificate of Formation, each filed as an exhibit to the offering statement of which this offering circular forms an integral part. Purchasers of our Class A shares in this Offering and subsequent purchasers will be deemed to become party to the Masterworks 040, LLC operating agreement, a form of which is filed as Exhibit 2.2 to the offering statement of which this offering circular forms an integral part.

● Right to Reject Subscriptions. After we receive your complete, executed subscription agreement and the funds required under the subscription agreement have been transferred to the non-interest bearing segregated bank account, we have the right to review and accept or reject your subscription in whole or in part, for any reason or for no reason. We will return all monies from rejected subscriptions immediately to you, without interest or deduction.

● Acceptance of Subscriptions. Upon our acceptance of a subscription agreement, we will countersign the subscription agreement and issue the Class A shares subscribed at the applicable closing. Once you submit the subscription agreement and it is accepted, you may not revoke or change your subscription or request your subscription funds. All accepted subscription agreements are irrevocable.

Under Rule 251 of Regulation A, non-accredited, non-natural investors are subject to the investment limitation and may only invest funds which do not exceed 10% of the greater of the purchaser’s revenue or net assets (as of the purchaser’s most recent fiscal year end). A non-accredited, natural person may only invest funds which do not exceed 10% of the greater of the purchaser’s annual income or net worth (please see below on how to calculate your net worth).

For the purposes of calculating your Net Worth, it is defined as the difference between total assets and total liabilities. This calculation must exclude the value of your primary residence and may exclude any indebtedness secured by your primary residence (up to an amount equal to the value of your primary residence). In the case of fiduciary accounts, net worth and/or income suitability requirements may be satisfied by the beneficiary of the account or by the fiduciary, if the fiduciary directly or indirectly provides funds for the purchase of the Class A shares.

In order to purchase Class A shares and prior to the acceptance of any funds from an investor, an investor will be required to represent, to our satisfaction, that he or she is either an accredited investor or is in compliance with the 10% of net worth or annual income limitation on investment in this Offering.

Non-U.S. investors may participate in the Offering by depositing their funds in the non-interest-bearing account. Any such funds that are received shall be held on deposit until the applicable closing under the Offering or returned if there is no closing.

Selling Restrictions

Notice to prospective investors in Canada

The Offering of the Class A shares in Canada is being made on a private placement basis in reliance on exemptions from the prospectus requirements under the securities laws of each applicable Canadian province and territory where the Class A shares may be offered and sold, and therein may only be made with investors that are purchasing as principal and that qualify as both an “accredited investor” as such term is defined in National Instrument 45-106 Prospectus and Registration Exemptions and as a “permitted client” as such term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligation. Any offer and sale of the Class A shares in any province or territory of Canada may only be made through a dealer that is properly registered under the securities legislation of the applicable province or territory wherein the Class A shares are offered and/or sold or, alternatively, by a dealer that qualifies under and is relying upon an exemption from the registration requirements therein.

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Any resale of the Class A shares by an investor resident in Canada must be made in accordance with applicable Canadian securities laws, which may require resales to be made in accordance with prospectus and registration requirements, statutory exemptions from the prospectus and registration requirements or under a discretionary exemption from the prospectus and registration requirements granted by the applicable Canadian securities regulatory authority. These resale restrictions may under certain circumstances apply to resales of the Class A shares outside of Canada.

Upon receipt of this document, each Canadian investor hereby confirms that it has expressly requested that all documents evidencing or relating in any way to the sale of the securities described herein (including for greater certainty any purchase confirmation or any notice) be drawn up in the English language only. Par la réception de ce document, chaque investisseur canadien confirme par les présentes qu’il a expressément exigé que tous les documents faisant foi ou se rapportant de quelque manière que ce soit à la vente des valeurs mobilières décrites aux présentes (incluant, pour plus de certitude, toute confirmation d’achat ou tout avis) soient rédigés en anglais seulement.

Notice to prospective investors in the European Economic Area

In relation to each Member State of the European Economic Area (each, a “Relevant Member State”), no offer of Class A shares may be made to the public in that Relevant Member State other than:

● To any legal entity which is a qualified investor as defined in the Prospectus Directive;

● To fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representatives; or

● In any other circumstances falling within Article 3(2) of the Prospectus Directive,

provided that no such offer of Class A shares shall require us or the representatives to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.

Each person in a Relevant Member State who initially acquires any Class A shares or to whom any offer is made will be deemed to have represented, acknowledged and agreed that it is a “qualified investor” within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive. In the case of any Class A shares being offered to a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, each such financial intermediary will be deemed to have represented, acknowledged and agreed that the Class A shares acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer of any Class A shares to the public other than their offer or resale in a Relevant Member State to qualified investors as so defined or in circumstances in which the prior consent of the representatives has been obtained to each such proposed offer or resale.

We, the representatives and their affiliates will rely upon the truth and accuracy of the foregoing representations, acknowledgements and agreements.

This offering circular has been prepared on the basis that any offer of Class A shares in any Relevant Member State will be made pursuant to an exemption under the Prospectus Directive from the requirement to publish a prospectus for offers of Class A shares. Accordingly, any person making or intending to make an offer in that Relevant Member State of Class A shares which are the subject of the Offering contemplated in this offering circular may only do so in circumstances in which no obligation arises for us to publish a prospectus pursuant to Article 3 of the Prospectus Directive in relation to such offer. We have not authorized, nor do we authorize, the making of any offer of Class A shares in circumstances in which an obligation arises for us to publish a prospectus for such offer.

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For the purpose of the above provisions, the expression “an offer to the public” in relation to any Class A shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Class A shares to be offered so as to enable an investor to decide to purchase or subscribe the Class A shares, as the same may be varied in the Relevant Member State by any measure implementing the Prospectus Directive in the Relevant Member State and the expression “Prospectus Directive” means Directive 2003/71/EC (including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member States) and includes any relevant implementing measure in the Relevant Member State and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.

Notice to prospective investors in the United Kingdom

In addition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are “qualified investors” (as defined in the Prospectus Directive) (i) who have professional experience in matters relating to investments falling within Article 19 (5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Order”) and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”).

Any person in the United Kingdom that is not a relevant person should not act or rely on the information included in this document or use it as basis for taking any action. In the United Kingdom, any investment or investment activity that this document relates to may be made or taken exclusively by relevant persons. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.

Notice to Prospective Investors in Switzerland

The Class A shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange, or SIX, or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the Class A shares or this Offering may be publicly distributed or otherwise made publicly available in Switzerland.

Neither this document nor any other offering or marketing material relating to this Offering, our Company, the Class A shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of Class A shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA (FINMA), and the offer of Class A shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes, or CISA. The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of Class A shares.

Notice to Prospective Investors in the Dubai International Financial Centre

This offering circular relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority, or DFSA. This Offering circular is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this offering circular nor taken steps to verify the information set forth herein and has no responsibility for the offering circular. The Class A shares to which this offering circular relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the Class A shares offered should conduct their own due diligence on the Class A shares. If you do not understand the contents of this offering circular you should consult an authorized financial advisor.

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Notice to Prospective Investors in Australia

No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission, or ASIC, in relation to this Offering. This offering circular does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001, or the Corporations Act, and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.

Any offer in Australia of the Class A shares may only be made to persons, or the Exempt Investors, who are “sophisticated investors” (within the meaning of section 708(8) of the Corporations Act), “professional investors” (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the Class A shares without disclosure to investors under Chapter 6D of the Corporations Act.

The Class A shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under this Offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring Class A shares must observe such Australian on-sale restrictions.

This offering circular contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this offering circular is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.

Notice to prospective investors in China

This offering circular does not constitute a public offer of the Class A shares, whether by sale or subscription, in the People’s Republic of China (the “PRC”). The Class A shares are not being offered or sold directly or indirectly in the PRC to or for the benefit of, legal or natural persons of the PRC.

Further, no legal or natural persons of the PRC may directly or indirectly purchase any of the Class A shares or any beneficial interest therein without obtaining all prior PRC’s governmental approvals that are required, whether statutorily or otherwise. Persons who come into possession of this document are required by the issuer and its representatives to observe these restrictions.

Notice to Prospective Investors in Hong Kong

The Class A shares have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the Class A shares has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Class A shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.

Notice to Prospective Investors in Japan

The Class A shares have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) and, accordingly, will not be offered or sold, directly or indirectly, in Japan, or for the benefit of any Japanese Person or to others for re-offering or resale, directly or indirectly, in Japan or to any Japanese Person, except in compliance with all applicable laws, regulations and ministerial guidelines promulgated by relevant Japanese governmental or regulatory authorities in effect at the relevant time. For the purposes of this paragraph, “Japanese Person” shall mean any person resident in Japan, including any corporation or other entity organized under the laws of Japan.

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Notice to Prospective Investors in Singapore

This offering circular has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this offering circular and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of Class A shares may not be circulated or distributed, nor may the Class A shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA, (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the Class A shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

(a) A corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire Class A share capital of which is owned by one or more individuals, each of whom is an accredited investor; or

(b) A trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Class A shares pursuant to an offer made under Section 275 of the SFA except:

(a) To an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;

(b) Where no consideration is or will be given for the transfer;

(c) Where the transfer is by operation of law;

(d) As specified in Section 276(7) of the SFA; or

(e) As specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Class A shares and Debentures) Regulations 2005 of Singapore.

USE OF PROCEEDS TO ISSUER

We expect to receive gross proceeds from this Offering of up to $1,665,000. Masterworks will pay all expenses of the Offering, including fees and expenses associated with qualification of the Offering under Regulation A and all fees and expenses of the Underwriter. Therefore, the gross proceeds from this Offering will equal the net proceeds from this Offering. We intend to use a portion of the proceeds from the initial closing of this Offering to acquire the Painting, and if and to the extent such proceeds are less than the purchase price, pursuant to an intercompany agreement, the form of which is filed as Exhibit 6.2 to the offering statement of which this offering circular forms an integral part, Masterworks will advance us any additional funds required to consummate the acquisition. The advance and the true-up will be settled through proceeds from this Offering and, if the Offering is not fully subscribed, the remaining unsold Class A shares will be issued to Masterworks in full settlement of such obligations. Accordingly, in any circumstance in which an initial closing occurs, at the time of the final closing, 83,250 Class A shares will be issued and outstanding, the purchase price of the Painting and the true-up will be fully paid, the Company will own the Painting and the Company will have no indebtedness.

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DESCRIPTION OF BUSINESS

The discussions contained in this offering circular relating to the artist, the Painting and the art industry are taken from third-party sources that the Company believes to be reliable and the Company believes that the information from such sources contained herein regarding the artist, the Painting and the art industry is reasonable, and that the factual information therein is fair and accurate.

Overview

We were formed as a Delaware limited liability company on December 11, 2020, by Masterworks to facilitate an investment in the Painting. We are a manager-managed limited liability company managed by a Board of Managers. Upon our formation, Masterworks was issued membership interests of the Company representing 100% of our membership interests. Masterworks Gallery adopted our amended and restated operating agreement and Masterworks currently holds 1,000 Class B shares. On or prior to the initial closing of the Offering, we will enter into the administrative services agreement with our Administrator pursuant to which the Administrator will agree to administer the Painting and our business. Our Administrator can withdraw for any reason from its position as our Administrator, provided that such withdrawal shall be effective only following a sale of the Painting.

Masterworks, acting as agent for the Company, is seeking to purchase the Painting at a public auction through an auction house or in a privately negotiated transaction from a Private Seller for $1,500,000. The Company will close on the acquisition of the Painting on prior to the initial closing of this Offering.

We are offering 83,250 Class A shares in the Offering for aggregate consideration of $1,665,000 (inclusive of a true-up of approximately 11% of the cost of the Painting, or approximately 10% of the maximum aggregate offering amount). We intend to use a portion of the proceeds from the initial closing of this Offering to acquire the Painting, and if and to the extent such proceeds are less than the purchase price, Masterworks will advance us any additional funds required to consummate the acquisition. The remaining net proceeds of the Offering, together with any unsold Shares, if any, will be used to repay the Masterworks advance and pay Masterworks the true-up. The Masterworks advance does not incur interest. Following the initial closing of the Offering, title to the Painting will be held in a segregated portfolio of Masterworks Cayman. The Painting will be the only asset of the segregated portfolio, and we will be the only shareholder of that segregated portfolio.

We do not expect to generate any material amount of revenues or cash flow unless and until the Painting is sold and no profits will be realized by investors unless the Painting is sold for more than we acquire it for, plus the true-up amount and we have sufficient funds after payment of all associated costs and fees in connection with the sale of the Painting, or the investors are able sell their Class A shares for a price higher than they purchased them for. We will be 100% reliant on the Administrator to maintain the Painting and administer our business.

Pursuant to an administrative services agreement among Masterworks and, Masterworks Cayman and us to be entered into prior to the initial closing of the Offering, Masterworks will manage all of our administrative services and will maintain the Painting. In exchange for these services and paying all ordinary and necessary operating costs and expenses, Masterworks will receive equity interests in us commencing on and after the final closing of the Offering. These equity issuances to Masterworks will result in dilution of 1.5% per annum to Class A shareholders. The Administrator will also manage any extraordinary or non-routine services which may be required, from time-to-time, including, without limitation, litigation or services in connection with a sale of the Painting or any sale, merger, third-party tender offer or other similar transaction involving us. Any third-party costs incurred by the Administrator or payments made by the Administrator in connection with litigation or major transactions will be reimbursed upon the sale of the Painting or our Company, as applicable. Masterworks may determine to sell the Painting without engaging a third-party intermediary, in which event, the Administrator would charge the buyer of the Painting a reasonable fee not to exceed the lowest published buyer’s premium charged by Sotheby’s, Christie’s or Phillips in effect at such time. For more information regarding the administrative services agreement, see “Related Party Transactions.” We will not conduct any business activities except for activities relating to the ownership, maintenance, promotion and the eventual sale of the Painting. Our strategy will be to display and promote the Painting in a manner designed to enhance its provenance and increase its exposure and its value.

Acquisition of the Painting

Masterworks, acting as agent for the Company, is seeking to purchase the Painting at a public auction through an auction house or in a privately negotiated transaction from a Private Seller for $1,500,000. Closing of the sale is planned to occur on or before the initial closing of this Offering. We intend to use a portion of the proceeds from the initial closing of this Offering to acquire the Painting, and if and to the extent such proceeds are less than the purchase price, pursuant to an intercompany agreement, the form of which is filed as Exhibit 6.2 to the offering statement of which this offering circular forms an integral part, Masterworks will advance us any additional funds required to consummate the acquisition. The advance and the true-up will be settled through proceeds from this Offering and, if the Offering is not fully subscribed, the remaining unsold Class A shares will be issued to Masterworks in full settlement of such obligations. Accordingly, in any circumstance in which an initial closing occurs, at the time of the final closing, 83,250 Class A shares will be issued and outstanding, the purchase price of the Painting and the true-up will be fully paid, the Company will own the Painting and the Company will have no indebtedness.

The Painting will be identified and described in an amendment to this Offering Circular prior to the qualification of the Offering Statement of which this Offering Circular forms an integral part. Additionally, the Company will file the definitive agreement to acquire the Painting, in an amendment to the Offering Statement prior to qualification. The Company will not receive or accept any subscription funds or executed subscription agreements until a pre-qualification amendment has been filed and qualified by the SEC.

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Masterworks Experience in the Art Industry

Other offerings by Masterworks are summarized in the table below:

Issuer	Artist	Offering Status
Masterworks 001, LLC	Andy Warhol	Closed Q3, 2019
Masterworks 002, LLC	Claude Monet	Closed Q3, 2020
Masterworks 003, LLC(1)	Banksy	Closed Q4, 2019
Masterworks 004, LLC	Jonas Wood	Closed Q1, 2020
Masterworks 005, LLC	Alex Katz	Closed Q1, 2020
Masterworks 006, LLC	Jean-Michel Basquiat	Closed Q3, 2020
Masterworks 007, LLC	Cecily Brown	Closed Q3, 2020
Masterworks 008, LLC	KAWS	Closed Q2, 2020
Masterworks 009, LLC	Günther Förg	Closed Q3, 2020
Masterworks 010, LLC	Sam Gilliam	Closed Q2 2020
Masterworks 011, LLC	Pierre Soulages	Closed Q3, 2020
Masterworks 012, LLC	Yayoi Kusama	Closed Q3, 2020
Masterworks 013, LLC	KAWS	Closed Q3, 2020
Masterworks 014, LLC	Joan Mitchell	Closed Q4, 2020
Masterworks 015, LLC	Banksy	Closed Q3, 2020
Masterworks 016, LLC	George Condo	Closed Q3, 2020
Masterworks 017, LLC	Andy Warhol	Offering fully subscribed
Masterworks 018, LLC	Keith Haring	Closed Q4, 2020
Masterworks 019, LLC	Zao Wou-Ki	Closed Q4, 2020
Masterworks 020, LLC	Günther Förg	Closed Q4, 2020
Masterworks 021, LLC	Agnes Martin	Offering fully subscribed
Masterworks 022, LLC	Cecily Brown	Closed Q4, 2020
Masterworks 023, LLC	Günther Förg	Closed Q4, 2020
Masterworks 024, LLC	Christopher Wool	Closed Q4, 2020
Masterworks 025, LLC	George Condo	Closed Q4, 2020
Masterworks 026, LLC	Barkley Hendricks	Closed Q1, 2021
Masterworks 027, LLC	Pierre Soulages	Closed Q1, 2021
Masterworks 028, LLC	Cecily Brown	Offering fully subscribed
Masterworks 029, LLC	George Condo	Offering fully subscribed
Masterworks 030, LLC	Jean-Michel Basquiat	Offering fully subscribed
Masterworks 031, LLC	Günther Uecker	Offering in progress
Masterworks 032, LLC	Albert Oehlen	Offering in progress
Masterworks 033, LLC	Lucio Fontana	Offering in progress
Masterworks 034, LLC	Christopher Wool	Offering in progress
Masterworks 035, LLC	Alex Katz	Awaiting SEC Qualification
Masterworks 036, LLC	Jean-Michel Basquiat	Awaiting SEC Qualification

Notes:

1. On November 16, 2020, Masterworks 003, LLC consummated a transaction to sell the artwork and subsequently commenced the process of winding up and dissolving in accordance with its Amended and Restated Operating Agreement, as disclosed in its Current Report on Form 1-U as filed with the SEC on November 17, 2020. On December 29, 2020, Masterworks 003, LLC filed a Current Report on Form 1-U announcing that it was dissolved as of December 28, 2020.

In addition, other Masterworks entities have filed offering statements which have not been qualified by the SEC. Such offering statements contain preliminary offering circulars which are incomplete and do not currently identify the artist or the subject artwork.

Except as indicated in Note 1 above, the artwork held by these entities has not been liquidated as of the date hereof. Other than such offerings, Masterworks has not offered any prior investment programs in which disclosed in the offering materials was a date and time period at which the investment program might be liquidated.

Scott W. Lynn, the Founder of Masterworks and Chief Executive Officer of the Administrator has been an active collector of postwar and contemporary art for more than fifteen years and has built an internationally-recognized collection of Abstract Expressionism that has included works by Clyfford Still, Barnett Newman, Mark Rothko, Willem de Kooning, and more. In 2017, portions of Mr. Lynn’s collection were exhibited at the Royal Academy in London, the Denver Art Museum, and the Palm Beach Museum. At other periods in time, Mr. Lynn’s collection has been exhibited at museums such as the National Gallery, the Guggenheim (New York), and the Museum of Modern Art. Our acquisition strategy is guided by Mr. Lynn and thus far has relied heavily on various outside consultants and advisors that Mr. Lynn has worked with in his personal collecting. We have hired and continue to hire personnel with backgrounds in art investment and analysis and as such individuals become members of our team, their biographies are posted on the “Our Team” section of the www.masterworks.io website.

About the Art Market

Primary Sources of Data

There are currently a limited number of sources of publicly available data on the art market. Below are leading sources often relied upon for information:

● Art Basel, a promoter of art fairs and a subsidiary of MCH Group, an international marketing organization & UBS, an international banking organization, publish the Art Market Report, which we refer to as the Art Basel Report, annually in March. Until recently, the report was published by the same art economist in collaboration with TEFAF.

● Deloitte Luxembourg, a division of a global financial services company & ArtTactic, an art market research and analytics company, jointly publish the Art and Finance Report biannually in November.

● Artnet, an art market website operated by Artnet Worldwide Corporation, a wholly owned subsidiary of Artnet, AG, a German publicly traded company.

● ArtPrice, an art market website operated by ArtMarket.com, a French publicly-traded company controlled by Groupe Serveur.

● ArtTactic, an art market website operated by ArtTactic Limited, a London-based private art market research company.

● Major auction houses, including Christie’s, Sotheby’s and Phillips, among others, regularly publish data retaining to upcoming and past auctions sales, both online and in paper catalogues. Masterworks reviews and compiles such data to derive additional analysis in the form of art market indices and summarized statistics on artists’ markets.

Statistical data relating to the art market is difficult to obtain, incomplete, or inconsistent. It is a substantially unregulated industry. Accordingly, you should not place undue reliance on any data or general information related to the art market.

Summary

The global art market is comprised of a network of auction houses, dealers, galleries, advisors, agents, individual collectors, museums, public institutions, and various experts and service providers engaged in the purchase and sale of unique and collectible works of art. According to the 2020 Art Basel Report, global art sales were $64.1 billion in 2019, down 5% year-over-year from 2018. The same report estimates that global sales have remained between $57 billion and $68 billion over the past decade, except during 2009 when sales declined to approximately $40 billion which is believed to have been caused by the global financial crisis. From 2009 to 2019, global art sales have grown at a 5.0% CAGR.

In 2020, the economic disruption resulting from the COVID-19 pandemic impacted the schedule of public auctions in the first half of the year, but also demonstrated the overall resilience of the art market and global demand for blue chip fine art. Despite the initial disruption to market activity starting in March 2020, art market participants responded by re-shuffling sales calendars, re-imagining marquee auction sales formats, extending sales outposts beyond traditional big city locations and aggressively promoting online sales. These efforts combined to buoy overall market activity for the year and support a strong rebound in the second half of 2020. In addition, major auction houses created a new “20th Century & Contemporary Art” category that combined artists from the previous Post-War and Contemporary and selected artists active in the 20^th century from the previous Impressionist and Modern category.

For the full-year 2020, global auction sales by Christie’s, Sotheby’s and Phillips totaled $7.4 billion, a 26% decline from 2019 according to The Art Market 2020: A Year in Review published by ArtTactic. The Post-War and Contemporary art auctions fared better than the overall market posting $3.2 billion in total sales, a 21% fall from 2019.

The second half of 2020 provided a significant rebound with total sales of $4.8 billion, demonstrating a 4.5% increase from the same period of 2019 and was nearly two-fold the performance of the first half of 2020. Marquee hybrid sales, that were conducted both online and in person, totaled $2.4 billion in 2020 with sales in the fall season increasing 8.7% over the summer sales. Online sales exploded in 2020 with total sales of $1.0 billion, a six-fold increase from 2019 with average realized prices increasing 153.4%.

In 2019, auction sales by Sotheby’s, Christie’s and Phillips totaled $9.7 billion, down 20% from 2018, according to the 2019 ArtTactic Auction Review. Adjusted for the sale of the Peggy and David Rockefeller Collection held at Christie’s in May 2018 and the sale of the Barney A. Ebsworth Collection held at Christie’s in November 2018, auction sales by these houses were down 12% from 2018. Post-War and Contemporary art auction market sales volume rose 4.6% to $4.1 billion in 2019 from 2018.

The global art market is influenced over time by the overall strength and stability of the global economy, geopolitical conditions, capital markets and world events, all of which may affect the willingness of potential buyers and sellers to purchase and sell art. While the global art market is large, its exact size is unknown and statistical data is inconsistent. Much of the uncertainty stems from differing estimates of the size of the private dealer and gallery market, which is based on survey data, but disparities also exist in reported auction sales.

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The high-end fine art market, generally defined as works valued in excess of $1 million, is dominated by a small group of ultra-high-net-worth private collectors and institutions, with participation narrowing works valued in excess of $10 million.

The art market is commonly classified into several major collecting categories, the definitions of which may change depending on the auction house or reporting entity, but generally, they include the following:

● Post War and Contemporary ⁽¹⁾,

● Impressionist and Modern ⁽¹⁾,

● Chinese and Asian, and

● Old Masters.

Notes:

(1) In 2020, Christie’s, Sotheby’s and Phillips held auction sales based on a new “20^th Century and Contemporary” category designation. In general, this category combined artist formerly included in the Post-War and Contemporary category, as well as selected artists active in the 20^th century from the Impressionist and Modern category.

Art Appraisals, Valuation, and Auction Estimates

The fair market value of art and other unique collectibles is generally assessed by expert appraisers using relative valuation techniques by analyzing historical comparative transactions involving similar works, characteristics of the specific work, supply and demand factors, subjective perceptions of value, among other factors. However there is no efficient market that determines the price of an artwork and there is no standardized art valuation methodology.

There is tremendous variability in the market value of individual artwork by any given artist. These differences are influenced by the perceived quality of the work, materials, condition, color, size, subject matter, provenance and other factors.

Auction houses generally estimate the sale price of a painting prior to conducting a sale. Such sale estimates are intended to provide general guidance to potential bidders regarding the expected price outcome of the artwork, however estimates may not be “arm’s length” and are often negotiated with the selling party. Therefore, they cannot be used as unbiased guidelines in determining the value of an artwork.

Private and Gallery Sales

The private art market is made up of a network of galleries, dealers, art fairs and other intermediaries that sell artwork in privately negotiated transactions, in which transactions are generally not publicly reported. Galleries and other intermediaries that sell high end art have extensive relationships with artists, critics, collectors and others in the art market and are often driven by self-interested objectives, such as enhancing the reputation and market value of artists they represent or the market value of their inventory. Accordingly, galleries can be highly selective in determining which collectors are permitted to purchase from them, preferring those who are likely to hold works for a long period of time and enhance the provenance of a piece. Most private and gallery sales are confidential. Sellers generally determine pricing in private sales in which the dealer or gallery acts as an intermediary in negotiating a transaction with a buyer.

According to the 2020 Art Basel Report, auction sales accounted for an estimated 38% of total sales by dollar volume in 2019, as compared to approximately 43% in 2018 with the balance accounted for by the private market. Auction houses are also increasingly participating in the private market, brokering non-auction sales transactions. The relative size of the private dealer and gallery market as compared to the auction market tends to shift based on overall market sentiment, where market optimism tends to bolster auction sales.

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Auction Sales

The auction market is made of a network of global and regional auction houses that conduct regular sales of artwork and other collectibles in a public auction format, as well as provide other art-related services. In general, the auction market is more transparent and more open than the private sales market as sale prices are determined through open competition, in which any qualified individual can participate and potentially buy the offered work. Interested buyers place sequential ascending bids in a format referred to by economists as an English Auction. Works which are offered for sale by the auction house on behalf of a potential seller, also referred to as a consignor, are often referred to as lots, which may be comprised of one or more items; most artwork is sold as individual lots. Auction sales occur at a fixed time and are a matter of public record. Bidders determine the price of a piece in an auction sale, though the consignor typically sets a reserve floor price below which they would be unwilling to sell the work. A low and high estimate of the sale price is set by the auction house, with the consignor’s input, based on a variety of factors, including the prior sales history, market factors like supply considerations and the reserve price floor. If a consignor does not agree with the estimate range proposed by the auction house, they can elect not to consign the work for sale or can withdraw a consignment. Auction houses often set estimates at levels to either entice bidders to participate or potential consignors to offer their work at auction, thus estimates should not necessarily be viewed as proxies for determining market value.

The price at which an auctioneer declares an item sold at a public auction, referred to as the “hammer price,” does not reflect either the amount realized by a consignor or the price paid by a buyer. In addition to the hammer price, the successful bidder must pay the so-called “buyer’s premium,” which is effectively a commission on the sale that ranges between 14.5% and 26% of the hammer price. The economics received by a consignor in an auction can vary widely. For works of relatively low value, consignors may also be required to pay a seller’s commission to the auction house. For higher value works, consignors often pay no commissions and may be entitled to receive a portion of the buyer’s premium, if not the full amount of the purchase price.

The public nature of auction sales can pose certain risks for consignors. A work that fails to sell at auction as a result of not attracting a bid in excess of the reserve price, will often be much harder to sell in the future. The rate at which artworks fail to sell at public auction, referred to as the “buy-in rate,” is generally around 30%, according to Artprice. The value of an artwork is highly subjective, so a failure to sell a piece at auction is damaging to the perceived value of the work, a concept referred to the art industry as “burning” the work.

In order to attract high-value consignments, an auction house may offer a guaranteed minimum price to a consignor. In exchange, the consignor agrees, if the final sale is in excess of the guaranteed amount, to pay the auction house a certain percentage of sale proceeds above the guaranteed amount. To offset the risk of a sale below the amount guaranteed to the consignor, an auction house may also secure a minimum guaranteed bid from a potential buyer, also known as a “third-party guarantee” or “irrevocable bid”. These guarantees effectively provide certainty that a successful sale will occur. The economic terms of guarantees and irrevocable bids are not typically disclosed and can vary widely based on negotiations between the relevant parties.

Auction houses publicly report total sale prices that reflect the hammer price (i.e. the price at which the auctioneer declared the winning bid), plus the buyer’s premium, but tend to exclude applicable taxes, fees and royalties, which are typically paid by the purchaser. The buyer’s premium schedule is published by the auction house and is updated or revised periodically. The buyer’s premium (inclusive of any additional “Overhead Premium,” if applicable) for the New York salesroom of each of the major auction houses as of the date of this offering circular is as follows (percentages and USD amounts relate to the hammer price):

Sotheby’s	Christie’s	Phillips
26% up to and including $400,000	25% up to and including $600,000	26% up to and including $600,000
21% from $400,001 to $4.0 million	20% from $600,001 to $6.0 million	21% from $600,001 to $6.0 million
14.9% above $4.0 million	14.5% above $6.0 million	14.5% above $6.0 million

The amount of the published sale price a consignor receives is typically reduced by all or a portion of the buyer’s premium and, in some cases for high value items, a sales commission. The percentage of the buyer’s premium received by the consignor, if any, and the amount of any sales commission payable by the consignor, if any, are negotiated between the consignor and the auction house and vary widely depending on a number of factors, including the value and importance of the specific work, whether the work is sold as an individual piece or part of a larger collection, anticipated demand levels and other factors. For high value items auction houses often waive the sales commission and rebate a portion of the buyer’s premium to the consignor, which is commonly referred to in the industry as an “enhanced hammer.”

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Auction houses do not publicly report the economic terms of transactions with consignors, so the Company cannot determine with any degree of confidence what percentage of a sale price would be received by the Company upon consummation of an auction sale. In addition, the economics receivable by a seller are less favorable if the work is subject to a pre-auction guaranty. Based on experience, we believe that it would be reasonable to expect that the net pre-tax cash proceeds receivable by the Company in an auction sale would be approximately 80% to 90% of the published sale price, however, the net result could fall outside of this range. The existence of any such guarantee arrangement would provide greater certainty of success at auction, but could reduce the sales proceeds received by the Company.

About Art as an Investment

Fine art, in the form of paintings, sculpture, drawings and all manner of unique collectibles, has been collected for centuries. Founded in 1744, Sotheby’s had been the oldest listed Company on the New York Stock Exchange until it was taken private in October 2019. While art collectors can enjoy the aesthetic and societal benefits of art ownership and patronage, works of art can equally be valuable assets that deliver financial, as well as emotional rewards to their owners. Art has often acted as a store of wealth, with price appreciation in excess of U.S. consumer price inflation over the long term. Many of those who collect art therefore do so with an eye upon its investment potential as well as its aesthetic appeal. Put simply, art can be considered an investable asset class.

In general, art as an investment bears the following characteristics:

● Demand for artwork generally coincides with wealth creation among the global ultra-high-net-worth community.

● Supply of artwork, particularly at the high-end of the market, is relatively fixed or otherwise scarce.

● Art is an internationally marketable good that can be transacted in any locale or currency.

● Art is a tangible, mobile store of value without a currency-specific denomination nor tied to a financial cash-flow.

Historical Art Price Indices

The historical performance of prices in the art market can be estimated using different techniques and is generally derived from publicly available auction sales results. General statistical summaries of past prices, such as historical average or median prices, can provide a broad sense of price direction across the art market or for a specific artist. However, given that the supply of art transacted in any given period is not homogenous, changes in average or median prices from period-to-period may not be reflective of changes in the underlying value of the artwork, but may reflect varying quality or other characteristics that were present in the artwork sold.

Art market indices provide an alternative means to gauge market performance. A number of techniques have been developed in this regard. A repeat-sales-based index follows a methodology similar to that used to estimate home price appreciation, most notably through the S&P CoreLogic Case-Shiller Index. The best-known repeat-sales index for the art market is the Sotheby’s Mei Moses, which was originally developed in 2002 by New York University Stern School of Business Professors Jianping Mei, PhD and Michael Moses, PhD, and was later acquired by Sotheby’s in 2016. The Sotheby’s Mei Moses indices control for differing levels of quality, size, color, maker, and aesthetics of a work of art by analyzing repeat sales. Another methodology is the hedonic price index, which estimates the historical progression of prices based on analysis of all available transactions and controlling for certain “hedonic” characteristics, such as artist name, dimension, medium, art category, among others. The use of these techniques, among others, provides insight into the behavior of art as an investment.

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Observations on the Historical Progression of Art Prices

The following are general observations based on a repeat-sales index of historical art market returns computed based on a value weighted-basis and focused on the Post-War & Contemporary Art category, as developed by Masterworks:

● The Post-War & Contemporary Art category appreciated by an estimated 13.6% annually from the year ended December 31, 1995 to the year’s 2020 interim cut-off date July 30th, 2020, versus 7.0% annually for the MSCI Gross World Equity Index (includes dividends reinvested) for the same period

● Correlation factor of 0.19 between Post-War & Contemporary Art and the MSCI Gross World Equity Index based on annual returns from the year ended December 31, 1985 to the year’s 2020 interim cut-off date July 30, 2020

● Resilience of art market performance through periods of financial stress (e.g., 2001-2, 2008-9, 2020)

● Investment case for art as a risk diversifier

The Artist

The discussions contained in this offering circular relating to the artist, the Painting and the art industry are taken from third-party sources that the Company believes to be reliable and the Company believes that the information from such sources contained herein regarding the artist, the Painting and the art industry is reasonable, and that the factual information therein is fair and accurate.

A description of the Artist will be included in a pre-qualification amendment to the Offering Statement of which this Offering Circular forms an integral part.

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The Painting

Masterworks intends to acquire a painting (the “Painting) that will be identified and described in a pre-qualification amendment to the Offering Statement of which this Offering Circular forms an integral part. Additionally, we will file the definitive agreement to acquire the Painting, in an amendment to the Offering Statement prior to qualification. For all purposes of this Offering Circular, we have assumed the purchase price of the Painting is $1,500,000.

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Administrative Services

There are various services required to administer our business and maintain the Painting. Pursuant to an administrative services agreement that will be entered into prior to the initial closing between us, Masterworks Cayman and the Administrator, the Administrator will manage all administrative services relating to our business and the Painting. The Administrator will receive aggregate fees and expense reimbursement for administrative services in the form of Class A shares at a rate of 1.5% of the total Class A shares outstanding, after giving effect to such issuance, per annum, following the final closing of the Offering, provided that if the Offering is fully subscribed, but the final closing is delayed due to a delay in our receipt of investor subscription funds, such administrative services fee shall start accruing once at least 95% of the Class A shares offered have been issued. The foregoing equity issuances to Masterworks will result in dilution to Class A shareholders. The share issuance in respect of fees and routine reimbursements to Masterworks will be made on a quarterly basis in arrears.

Any extraordinary costs or non-routine services, if any, will be managed and paid for by the Administrator, but such extraordinary costs will be reimbursed upon the sale of the Painting or a sale of our Company, as applicable. Masterworks may determine to sell the Painting without engaging a third-party intermediary, in which event, the Administrator would charge the buyer of the Painting a reasonable fee not to exceed the lowest published buyer’s premium charged by Sotheby’s, Christie’s or Phillips in effect at such time.

Ordinary and necessary entity-level administrative and maintenance costs include:

● Costs associated with SEC filings and compliance with applicable laws;

● Transfer agent fees, if any;

● Other fees associated with the Offering; and

● Accounting.

Ordinary and necessary Painting-level administrative and maintenance costs include:

● Storage costs;

● Insurance costs;

● Display or gallery costs; and

● Crating and shipping costs related to traveling exhibitions;

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Extraordinary or non-routine costs for which the Administrator shall be entitled to seek reimbursement from us, as applicable, include:

● Payments associated with litigation, judicial proceedings or arbitration (regardless of whether or not the Company is a named defendant or party to such litigation), including, without limitation, attorneys’ fees, settlements or judgments;

● Costs associated with any material transactions, such as any third-party costs and expenses incurred in connection with any merger, third-party tender offer or other similar transaction;

● Costs and taxes, if any, associated with selling the Painting; and

● Conservation, restoration, reframing and other expenditures that increase the value of the Painting.

Sale of the Painting without a third-party intermediary:

● Masterworks may determine to sell the Painting without engaging a third-party intermediary, in which event, the Administrator would charge the buyer of the Painting a reasonable fee not to exceed the lowest published buyer’s premium charged by Sotheby’s, Christie’s or Phillips in effect at such time.

Our agreements with our affiliated entities raise various conflicts of interests in which the best interest of our Administrator and our affiliates may differ from the best interest of holders of the Class A shares.

Conflicts of Interest include but are not limited to the following:

● Masterworks may at some point in the future seek to register to become a broker-dealer and a member of FINRA to enable it to earn transactional fees for trading the Class A shares or it may seek to earn administrative or other fees associated with making a trading market available. The operation of a trading market in the Class A shares by Masterworks or the receipt of trading or administrative fees would create conflicts of interest. If such activities generate profits, our affiliates will be incentivized not to sell the Painting and liquidate us, even in situations in which a sale of the Painting is in the best interest of holders of the Class A shares. Masterworks does not earn any fees from operation of the Secondary Market.

● In exchange for administrative and custodial services and paying all ordinary and necessary operating costs and expenses, Masterworks will receive equity interests in us. These equity issuances to Masterworks will result in dilution of 1.5% per annum to Class A shareholders. These dilutive issuances shall commence following the final closing of the Offering.

● Neither the Board of Managers, the Administrator, or its members, will be required to manage or administer our operations, as applicable, as their sole and exclusive function and they will have other business interests and will engage in other activities in addition to those relating to us. We depend on the Administrator to successfully operate us. Their other business interests and activities could divert time and attention from operating our business.

● Our operating agreement contains provisions that limit remedies available to our investors against the Board of Managers, and the administrative services agreement contains certain provisions that limit the remedies available to our investors against the Administrator and its affiliates and us for actions that might otherwise constitute a breach of duty. Our operating agreement contains provisions limiting the liability of the Board of Managers and the administrative services agreement contains certain provisions limiting the liability of the Administrator and its affiliates which also reduces remedies available to investors for certain acts by such person or entity.

● Scott Lynn, the individual responsible for funding Masterworks.io, is an art collector and is able to control the activities of all of the Masterworks entities. Mr. Lynn is also the Chief Executive Officer of our Administrator. Mr. Lynn could have conflicts between business with his personal art collection and business with the Masterworks entities, or Mr. Lynn could simply stop funding Masterworks and cause it to cease to exist.

● Masterworks may determine to sell the Painting without engaging a third-party intermediary, in which event, it would charge the buyer of the Painting a reasonable fee not to exceed the lowest published buyer’s premium charged by Sotheby’s, Christie’s or Phillips in effect at such time.

● Therefore, the interests of the Administrator and the other affiliates may differ significantly from those of investors in the Offering and subsequent holders of the Class A shares. As a result, we cannot assure investors that we will execute a discretionary sale of the Painting at a time that is in the best interests of holders of the Class A shares.

Selling the Painting

Our intention is to own the Painting for an indefinite period, although we may elect to hold the Painting for a longer period or sell the Painting at any time due to certain circumstances. We, in our sole and absolute discretion, will have the ability, to sell the Painting at any time and in any manner.

The Administrator will continuously offer the Painting for sale and if any person offers to purchase the Painting at any point in time, the Board of Managers will determine whether, and the terms upon which, the Painting will be sold.

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The Company will own the Painting for an indefinite period and may sell the Painting at any time following the final closing of the Offering. There is no guaranty that any such sale of the Painting will be successful, or if successful, that the net proceeds realized by shareholders from such transaction will be reflective of the estimated fair market value of the shares at such time. Masterworks will be entitled to reimbursement for costs and expenses associated with any such transaction and may earn fees from such transactions to the extent permitted by applicable laws, rules and regulations, and there can be no assurance that there will be any remaining net proceeds to be distributed after payment of such costs and expenses.

Following a sale of the Painting, Masterworks will be reimbursed for any expenses for which it is responsible, including applicable sales commissions, income taxes, if any, and other transactional, extraordinary and non-routine expenses and other expenditures to enhance the value of the Painting. Masterworks may determine to sell the Painting without engaging a third-party intermediary, in which event, Masterworks would charge the buyer of the Painting a reasonable fee not to exceed the lowest published buyer’s premium charged by Sotheby’s, Christie’s or Phillips in effect at such time. Following the payment of all of such expenses and fees, we will distribute the remaining proceeds, if any, in accordance with our operating agreement. Following such distribution, we will be liquidated. However, there can be no assurance as to the timing of a liquidating distribution or that we will pay a liquidating distribution at all.

Competition

At the time we attempt to sell the Painting, we may face substantial competition from other entities and individuals who are selling or seeking to sell similar artwork. These other parties may be better funded and may be able to sell their artworks at a lower price than us. Further, we will face significant risks from other competitive factors, such as the available supply of similar artworks for sale.

Government Regulation

Art Market Regulation

Art as tangible personal property is subject to regulation under different city, state and federal statutory schemes. Generally, domestic art transactions that are conducted within the United States are subject to state Uniform Commercial Code statutes, which govern the sale of goods. Some states have additionally enacted art specific legislation, such as New York’s Arts and Cultural Affairs Law and California’s Resale Royalty Act. In addition, federal statutes such as the Holocaust Expropriated Art Recovery Act and the National Stolen Property Act can apply to title disputes in the art market context. International art transactions involving the import and export of art into and out of the United States will subject us to the rules and regulations established by the United States Customs and Border Protection. Further, we and Masterworks will be subject to the requirements of the federal Cultural Property Implementation Act which is the United States’ accession legislation for the 1970 United Nations Educational, Scientific, and Cultural Organization (UNESCO) Convention which protects countries’ cultural property, including artwork. New York City, as a major art auction center, has enacted legislation governing the activities of auctioneers in the New York City Administrative Code and Masterworks may be subject to these regulations through its transactions and financing arrangements with auctioneers.

Patriot Act

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Patriot Act) is intended to strengthen the ability of U.S. law enforcement agencies and intelligence communities to work together to combat terrorism on a variety of fronts. The Patriot Act, to which we are subject, has significant implications for depository institutions, brokers, dealers and other businesses involved in the transfer of money. The Patriot Act required us to implement policies and procedures relating to anti-money laundering, compliance, suspicious activities, and currency transaction reporting and due diligence on customers. The Patriot Act also requires federal banking regulators to evaluate the effectiveness of an applicant in combating money laundering in determining whether to approve a proposed bank acquisition.

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ORGANIZATION

We were formed as a Delaware limited liability company on December 11, 2020 by Masterworks in order to facilitate an investment in the Painting. We are a manager-managed limited liability company managed by a Board of Managers. The Class A shares to be sold in this Offering when issued, together will represent 80% of interests in us and have very limited approval and voting rights in connection with the sale of the Painting as further described in this offering circular and voting on certain amendments to our operating agreement, administrative services agreement and other certain rights pursuant to our operating agreement.

The Board of Managers will have sole voting power over all matters, including: mergers, consolidations, acquisitions, winding up and dissolution; except, the Board of Managers will not have the authority without first obtaining the prior approval or consent of holders of a majority of the voting shares, to amend, waive or fail to comply with any material provision of our operating agreement that adversely and disproportionately affects the Class A shareholders, except as provided therein.

EMPLOYEES

As of January 25, 2021, we had no full-time employees and no part-time employees. All of our day-to-day operations are administered by our Administrator.

LEGAL PROCEEDINGS

There are no legal proceedings currently pending against us which would have a material effect on our business, financial position or results of operations and, to the best of our knowledge, there are no such legal proceedings contemplated or threatened. It is possible that we will find ourselves involved in litigation, in which case we will be wholly reliant on the Administrator to address such litigation as necessary. If the Administrator settles a case or receives and adverse judgment, the Administrator would then be reimbursed upon a sale of the Painting pursuant to the terms of the administrative services agreement.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We were formed as a Delaware limited liability company on December 11, 2020 by Masterworks to facilitate investment in the Painting. We have not conducted any operations prior to the date of this offering circular and will not conduct any business activities except for activities relating to the ownership, maintenance, promotion and the eventual sale of the Painting. We have not yet commenced operations and have no (or nominal) assets or liabilities at this time. Accordingly, we have not presented financial statements in this offering circular, though we have described below certain critical accounting policies that we intend to adopt following our acquisition of the Painting. We plan to engage an auditor to audit our financial statements after the qualification of this Offering by the SEC. Following this Tier II Regulation A offering, we will include audited financial statements in our annual reports with the SEC on Form 1-K containing our financial statements for such fiscal year, presented in accordance with GAAP, including a balance sheet and statements of operations, company equity and cash flows, with such statements having been audited by an accountant selected by the Company.

Our strategy will be to display and promote the Painting in a manner designed to enhance its provenance and increase its exposure and its value. We are not aware of any trends, uncertainties, demands, commitments or events that will materially affect our operations or the liquidity or capital resources of the Administrator.

Critical Accounting Policies and Estimates

The preparation of our financial statements in accordance with generally accepted accounting principles will be based on the selection and application of accounting policies that require us to make significant estimates and assumptions about the effects of matters that are inherently uncertain. We consider the accounting policies discussed below to be critical to the understanding of our post-Offering financial statements. Actual results could differ from our estimates and assumptions, and any such differences could be material to our financial statements.

Investment in Artwork

Investment in artwork will consist of the Painting. Upon acquisition, the Painting will be recorded at the original cost basis. The Painting will be held in a segregated portfolio of Masterworks Cayman. In accordance with ASC 810-10, the Company intends to consolidate the Masterworks Cayman segregated portfolio it owns as if it were a separate legal entity and not consolidate any other segregated portfolio of Masterworks Cayman.

Artwork is determined to have an indefinite life. The Company will review the artwork for impairment in accordance with the requirements of ASC 360-10, Impairment and Disposal of Long-Lived Assets (“ASC 360”). Those requirements will require the Company to perform an impairment analysis whenever events or changes in circumstances indicate that the carrying amount of the artwork might not be recoverable, i.e., information indicates that an impairment might exist. In accordance with ASC 360, the Company will:

● Consider whether indicators of impairment are present; Indicators or triggers of impairment management considers are: deteriorating physical condition of the artwork, trends in the art market, reputation of the artist, recent sales of other paintings by the artist and other events, circumstances or conditions that indicate impairment might exist;

● If indicators are present, perform a recoverability test by comparing the estimated amount realizable upon sale of the Painting, to its carrying value; and

● If the amount realizable upon sale of the Painting is deemed to be less than its carrying value, we would measure an impairment charge.

If it is determined that measurement of an impairment loss is necessary, the impairment loss would be calculated based on the difference between the carrying amount of the Painting and its estimated fair value. An impairment loss would be reported as a component of income from continuing operations before income taxes in the financial statements.

True-up

The true-up payable to Masterworks will be recorded as an expense, which will reduce members’ equity.

Contingencies

We may be subject to lawsuits, investigations and claims (some of which may involve substantial dollar amounts) that can arise out of our normal business operations. We would continually assess the likelihood of any adverse judgments or outcomes to our contingencies, as well as potential amounts or ranges of probable losses, and recognize a liability, if any, for these contingencies based on a thorough analysis of each matter with the assistance of outside legal counsel and, if applicable, other experts. Because most contingencies are resolved over long periods of time, liabilities may change in the future due to new developments (including new discovery of facts, changes in legislation and outcomes of similar cases through the judicial system), changes in assumptions or changes in our settlement strategy.

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Income Taxes

We expect that we will be treated as a partnership for U.S. federal income tax purposes and not as an association or publicly traded partnership subject to tax as a corporation. As a partnership, we generally will not be subject to U.S. federal income tax. Instead, each shareholder that is subject to U.S. tax will be required to take into account its distributive share, whether or not distributed, of each item of our income, gain, loss, deduction or credit. See “Material U.S. Federal Tax Considerations”. The Administrator will have the authority to act on our behalf with respect to tax audits and certain other tax matters and to make such elections under the Internal Revenue Code and other relevant tax laws as the Administrator deems necessary or appropriate.

Liquidity and Capital Resources of the Administrator

Masterworks will pay all costs associated with the development and operation of the Masterworks Platform, costs associated with the acquisition of the Painting and all costs of our organization and this Offering. Masterworks will also be responsible for all ordinary and necessary costs for ongoing administrative expenses relating to our Company, Masterworks Cayman and the Painting. In exchange for administrative and custodial services and paying all ordinary and necessary operating costs and expenses, Masterworks will receive equity interests in us. These equity issuances to Masterworks will result in dilution of 1.5% per annum to Class A shareholders. These dilutive issuances will begin following the final closing of this Offering provided that if the Offering is fully subscribed, but the final closing is delayed due to a delay in our receipt of investor subscription funds, such administrative services fee shall start accruing once at least 95% of the Class A shares offered have been issued. We do not anticipate that we will maintain any material liquid assets and, accordingly, we will rely upon the Administrator to pay for the maintenance of the Painting and the administration of our business in accordance with the administrative services agreement.

The administrator has covenanted to provide us with selected unaudited balance sheet information on a semi-annual basis and we expect to include such information in reports we file with the SEC following the completion of this Offering. The table below summarizes selected unaudited balance sheet information of the Administrator as of June 30, 2019 and 2020, respectively:

	June 30,
	2020		2019
Assets
Current assets	$	673,802	$	137,415
Property and equipment, net		199,240		185,010
Deposits		72,090		46,240
Other assets		47,960		-
Total assets	$	993,092	$	368,665
Liabilities
Current liabilities	$	323,974	$	122,092
Total liabilities	$	323,974	$	122,092
Member’s Equity
Total member’s equity	$	669,118	$	246,573

As of the final closing the Company will have no liabilities, commitments or obligations, other than obligations pursuant to the administrative services agreement as of such dates. We and the Administrator believe that revenues and expense reimbursements from the Company pursuant to the administrative services agreement, together with contributions from Masterworks from earnings generated primarily from sourcing artwork and cash on hand, will be sufficient for the Administrator to perform its obligations under the administrative services agreement for at least the first five-years following the Offering. We do not believe we will need to raise any additional funds through the issuance and sale of securities in the foreseeable future and are not permitted to do so under our operating agreement without first obtaining the prior approval of the Class A shareholders. The Administrator’s source of financing is equity contributions from Masterworks.io, LLC. Masterworks.io, LLC is principally funded through a loan from Scott Lynn. The outstanding principal balance of the Scott Lynn loan as of June 30, 2020 was approximately $11.9 million. Because Scott Lynn controls Masterworks, the loan can effectively be declared due and payable at any time in the discretion of Mr. Lynn. The Administrator will earn fees in the form of additional Class A shares issued by us and other similar issuer entities, which it may periodically sell to obtain additional liquidity. The direct incremental costs incurred by the Administrator to satisfy its obligations under the administrative services agreement are expected to be less than its revenues, though such revenues may be insufficient to cover the Administrator’s overhead. In addition, the Administrator has covenanted in the administrative services agreement that for so long as such agreement remains in effect, the Administrator will maintain on hand cash reserves sufficient to pay at least one year of estimated expenses to satisfy its obligations under the administrative services agreement to fund the Company’s operations until the sale of the Painting.

The Administrator expects to conduct other business activities, including the administration of other entities similar to the Company and expects that, with scale, the Administrator’s revenues will exceed its costs. Further, as noted in the foregoing, the Administrator intends to engage in other business activities, including performing services similar to those to be provided to the Company to other companies, and the Company cannot estimate at this time what the aggregate costs and expenses of the Administrator will be with respect to such activities as they will depend on many factors. Additionally, we intend to own the Painting for an indefinite period, although the Painting will be perpetually available for sale following the Offering and we will evaluate any reasonable third party offers to acquire the Painting.

Commitments from Affiliates to Fund Operations

We have a written commitment from the Administrator to fund our operations until we sell the Painting which is contained in the administrative services agreement.

Commitments from Affiliates to Fund Class A shares, Offering Costs and Expenses

The costs associated with this Offering shall be paid by the Administrator rather than from the net proceeds of the Offering. None of these fees, costs or expenses, including those payable to IndeBrokers will be reimbursable by the Company to Administrator, although Masterworks will receive an upfront payment, or “true-up” which compensates and reimburses Masterworks for general operating costs, offering costs, sourcing and purchasing fees and costs, import taxes (if any) and interest and commitments to purchase the Painting.

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MANAGEMENT

Our Administrator

Our day to day operations are managed by the Administrator. The Administrator performs its duties and responsibilities pursuant to our operating agreement and administrative services agreement. Masterworks appointed the Administrator and the Board of Managers can only terminate the administrative services agreement with the prior written consent of Masterworks Gallery, LLC. The Administrator and its affiliates have the exclusive right and power to manage and operate our Company, subject to the powers of our Board of Managers and other than limited voting rights reserved under our operating agreement for the holders of the Class A shares.

As of the date of this filing, 100% of the membership interests of the Company are held by Masterworks. Our amended and restated operating agreement created two classes of membership interests of the Company in the form of Class A shares which are offered hereby and Class B shares which are owned by Masterworks.

Summary of Administrative Services Agreement

We plan to enter into an administrative services agreement with the Administrator and Masterworks Cayman, prior to the initial closing of this Offering. The following summarizes some of the key provisions of the administrative services agreement. This summary is qualified in its entirety by the administrative services agreement itself, which is included as Exhibit 6.1 to the offering statement of which this offering circular forms an integral part.

Services to be Provided

Pursuant to the administrative services agreement, the Administrator agreed to provide the Company and Masterworks Cayman, itself directly or through its affiliates, with Painting-level services and provide entity-level services on the terms and conditions set forth in the administrative services agreement.

The services to be provided by the Administrator under the administrative services agreement include the following:

(i) Painting-level services with respect to the Painting, including:

(A)	Custodial and storage services for the Painting;
(B)	Maintaining asset-level insurance requirements for the Painting;
(C)	Managing transport for the Painting in the ordinary course of business, including the display and exhibition thereof;
(D)	Research services;
(E)	Appraisal and valuation services; and
(F)	Other services deemed necessary or appropriate by the Administrator at its discretion to maintain the Painting.

(ii) Entity-level services, including:

(A)	Oversight and management of banking activities;
(B)	Management of preparation and filing of SEC and other corporate filings;
(C)	Financial, accounting and bookkeeping services, including retention of an auditor for the Company;
(D)	Record keeping, shareholder registrar, investor relations and regulatory compliance;
(E)	Providing listing services, subject to the approval of the members of our Company as may be required by law;
(F)	Tax reporting services;
(G)	Bill payment;
(H)	Selecting and negotiating insurance coverage for our Company, including operational errors and omissions coverage and members of the Board of Managers’ and officers’ coverage;
(I)	Maintain our stock ledger and coordinating activities of our transfer agent, if any, escrow agent, if any, and related parties; and
(J)	Software services.

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(iii) Non-routine services with respect to the Painting, including:

(A)	Legal and professional transactional services;
(B)	Negotiation of terms of potential sales and the execution thereof;
(C)	Obtaining appraisals and statements of condition in connection with a sale transaction relating to the Painting;
(D)	Other transaction-related services and expenditures relating to the Painting;
(E)	Administrative services in connection with liquidation or winding up of our Company;
(F)	Managing litigation;
(G)	Conservation, restoration (as deemed necessary by the Administrator), reframing and other expenditures that increase the value of the Painting; and
(H)	Other non-routine or extraordinary services.

Third Parties and Exclusivity

Pursuant to the administrative services agreement the Administrator may to the extent it determines that it would be advisable, arrange for and coordinate the services of other professionals, experts and consultants to provide any or all of the services under the administrative services agreement in which case, the costs and expenses of such third parties for providing such services shall be borne by the Administrator with it being understood that the Administrator shall not charge any fees in addition thereto with respect to such outsourced services.

The obligations of the Administrator to us are not exclusive. The Administrator may, in its discretion, render the same or similar services as rendered to us to any person or persons whose business may be in direct or indirect competition with us.

Rights of the Administrator

Pursuant to the administrative services agreement, the Administrator and its affiliates shall have the right to engage in the following activities, and will be responsible for all incremental costs associated with such activities (including taxes):

(a)	Rights to commercialize the Painting for the duration of the operations of our Company;
(b)	Display rights; and
(c)	The right to lend the Painting to museums, galleries, private entities or individuals, and the like; and
(d)	The right to lease the Painting to companies, private entities and individuals.

For such rights, the Administrator will pay us a royalty of $1.00 per annum. The Administrator will display or exhibit the Painting if and when the Administrator reasonably believes that such display or exhibition would increase the exposure, profile and appeal of the Painting. In the event that any revenues are generated from such activities, the Administrator may choose to retain all or a portion of such revenues.

Compensation of the Administrator and Reimbursement

The Administrator will receive fees and expense reimbursement for its services from the Company in the form of Class A shares at a rate of 1.5% of the total Class A shares outstanding, after giving effect to such issuance, per annum, following the final closing of the Offering in respect of administrative services. The foregoing equity issuances to Masterworks will result in dilution to Class A shareholders of 1.5% per annum. Any extraordinary or non-routine services, if any, will be managed and paid for by the Administrator, but such extraordinary costs will be reimbursed upon the sale of the Painting or a sale of our Company, as applicable.

Sale of the Painting without a third-party intermediary:

Masterworks may determine to sell the Painting without engaging a third-party intermediary, in which event, the Administrator would charge the buyer of the Painting a reasonable fee not to exceed the lowest published buyer’s premium charged by Sotheby’s, Christie’s or Phillips in effect at such time.

Ordinary and necessary administrative and maintenance costs and expenses include:

● Storage costs;

● Insurance costs;

● Display or gallery costs;

● Crating and shipping costs related to traveling exhibitions;

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● Costs associated with SEC filings and compliance with applicable laws;

● Transfer agent fees;

● Other fees associated with the Offering; and

● Accounting.

Extraordinary or non-routine costs for which the Administrator shall be entitled to seek reimbursement include:

● Payments associated with litigation, judicial proceedings or arbitration (regardless of whether the Company is named as a defendant or party), including, without limitation, attorneys’ fees, settlements or judgments;

● Costs associated with any material transactions, such as any third-party costs and expenses incurred in connection with any merger, third-party tender offer or other similar transaction;

● Costs and taxes, if any, associated with selling the Painting; and

● Conservation, restoration, reframing and other expenditures that increase the value of the Painting.

Provision of Financial Information

The Administrator will report to the Company on a semi-annual basis its current and total assets, current and total liabilities, and total equity and the Company intends to include such amounts in its SEC reports.

Termination

The term of the administrative services agreement will terminate upon the first to occur of (i) the dissolution of our Company; or (ii) our termination of the administrative services agreement on the terms set forth in the agreement.

Under the administrative services agreement, we may terminate the agreement at any time upon a vote of our members pursuant to our operating agreement following any of the following:

(i) The commission by the Administrator or any of its executive officers of fraud, gross negligence or willful misconduct;

(ii) The conviction of the Administrator of a felony;

(iii) A material breach by the Administrator of the terms of the administrative services agreement which breach is not cured within 30 days after receipt by the Administrator of a notice of such breach from any member of our Company (provided that if such breach is not capable of cure within 30 days, and the Administrator is diligently taking steps to cure the breach, then no such event shall be deemed to have occurred unless and until the Administrator fails to cure such breach within 60 days after receiving notice thereof);

(iv) A material violation by the Administrator or any of its executive officers of any applicable law that has a material adverse effect on our business; or

(v) The bankruptcy or insolvency of the Administrator.

On the date of termination, or if we do not have the available funds on such date, then as soon as practicable after we do have the available funds, we will pay any accrued but unpaid costs subject to reimbursement owed to the Administrator through to such date. Any termination of the Administrative Services Agreement will require the prior written consent of Masterworks Gallery, LLC.

Indemnification

Under the administrative services agreement we agreed to indemnify, hold harmless, protect and defend the Administrator, its affiliates, any officer, member of the Board of Managers, employee or any direct or indirect partner, member or shareholder of the Administrator, any person who serves at the request of the Administrator on behalf of us (referred to herein as the “Indemnified Persons”) against any losses, claims, damages or liabilities, including legal fees, costs and expenses incurred in investigating or defending against any such losses, claims, damages or liabilities or in enforcing the Indemnified Persons’ rights to indemnification under the administrative services agreement. The indemnification under the administrative services agreement shall not apply to any actions, suits or proceedings in which one or more officers, member of the Board of Managers, partners, members or employees of the Administrator are making claims against the Administrator or one or more other officers, member of the Board of Managers, partners, members or employees of the Administrator.

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Amendment of Administrative Services Agreement

Amendments to the administrative services agreement may be proposed only by or with the consent of the Administrator and may be approved by the Board of Managers, provided that any amendment that would be adverse or detrimental to the interests of members of the Company must be approved by holders of a majority of voting shares.

Prohibited transactions under our operating agreement

The Board of Managers will have sole voting power over all matters, including: mergers, consolidations, acquisitions, winding up and dissolution; except, the Board of Managers shall not have the authority to amend, waive or fail to comply with any material provision of our operating agreement that disproportionately and adversely affects the Class A shareholders, except as provided therein, without the prior written consent of the holders of a majority of the voting shares.

Sale of Painting

The Company will own the Painting for an indefinite period and may sell the Painting at any time following the final closing of the Offering. The Painting is effectively perpetually available for sale following the final closing of the Offering and we intend to promote the Painting in ways we believe will enhance its visibility, value and exposure to the market. There is no guaranty that any such sale of the Painting will be successful, or if successful, that the net proceeds realized by shareholders from such transaction will be reflective of the estimated fair market value of the shares at such time. Masterworks will be entitled to reimbursement for costs and expenses associated with any such transaction and may earn fees from such transactions to the extent permitted by applicable laws, rules and regulations, and there can be no assurance that there will be any remaining net proceeds to be distributed after payment of such costs and expenses.

Following a sale of the Painting, the Company will pay or reimburse Masterworks for any expenses for which it is responsible, including applicable third-party sales commissions, income taxes, if any, and other transactional, extraordinary and non-routine expenses and other expenditures to enhance the value of the Painting. Masterworks may determine to sell the Painting without engaging a third-party intermediary, in which event, it would charge the buyer of the Painting a reasonable fee not to exceed the lowest published buyer’s premium charged by Sotheby’s, Christie’s or Phillips in effect at such time. Following the payment of all of such taxes, expenses and fees, we will distribute the remaining proceeds to our shareholders in accordance with our operating agreement. There can be no assurance as to the timing of a liquidating distribution or that we will pay a liquidating distribution at all.

Executive Officers and Members of the Board of Managers of the Company

As of the date of this offering circular, the following sets forth the executive officers and members of the Board of Managers of the Company and their positions and offices are as follows:

Name	Age	Position
Nigel S. Glenday	38	Chief Executive Officer, Chief Financial Officer; Member of the Board of Managers
Joshua B. Goldstein	53	General Counsel and Secretary; Member of the Board of Managers
Eli D. Broverman	41	Member of the Board of Managers; Independent Manager

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Nigel S. Glenday. Mr. Glenday has served as Chief Executive Officer since December 11, 2020 and as Chief Financial Officer and member of the Board of Managers of the Company since December 11, 2020 and has served as Chief Financial Officer of our affiliate Masterworks.io, LLC since April 2019. From March 2015 through April 2019, Mr. Glenday was a Managing Director for Athena Art Finance Corp., a leading independent art-secured finance company. From July 2012 to March 2015, Mr. Glenday was a Vice President at StormHarbour Securities, LLP, a global markets and financial advisory firm. From 2009 to 2012, Mr. Glenday was an Associate at Morgan Stanley in the Financial Institutions Group, Investment Banking Division, and from 2005 through 2009, Mr. Glenday was an Analyst and Associate Director in the Financial Institutions Group at UBS Investment Bank. Mr. Glenday holds a B.A. in Economics and History from the University of Virginia, where he graduated as a member of Phi Beta Kappa Honor Society.

Joshua B. Goldstein. Mr. Goldstein has served as a Board Member, the General Counsel and Secretary of the Company since December 11, 2020 and has served in such capacities with our affiliate Masterworks.io, LLC since February 1, 2018. From September 2016 through December 2017, Mr. Goldstein was a shareholder in the Denver office of Greenspoon Marder, P.A. From April 2015 through August 2016, Mr. Goldstein was self-employed as a corporate attorney. From September 2012 through March 2015, Mr. Goldstein was Executive Vice President, Chief General Counsel and Corporate Secretary of Intrawest Resorts Holdings, Inc., a NYSE-listed resort and adventure company. Prior to joining Intrawest, Mr. Goldstein was a Counsel in the New York office of Skadden, Arps, Slate, Meagher & Flom, LLP from June 2007 to August 2012 and he was an Associate at Skadden from September 1996 until August 2005, where he concentrated on corporate finance, corporate securities and mergers and acquisitions. Mr. Goldstein was also previously a Partner in the New York office of Torys, LLP. Mr. Goldstein holds a B.A. in business administration from the University of Wisconsin-Madison and a J.D. from Fordham University School of Law and is a Certified Public Accountant (inactive).

Eli D. Broverman. Mr. Broverman has served as a Board Member and the Independent Manager of the Company since December 11, 2020 and has served as member of the Board of Managers of Masterworks.io, LLC since April 29, 2020. Mr. Broverman co-founded Betterment in 2007 and served as its President and COO from 2007 to 2017. An expert in securities and financial institutions law, Mr. Broverman has designed a wide range of structuring and compliance initiatives for broker-dealers and investment advisors. From 2005 to 2007, Mr. Broverman practiced law at the international law firm Proskauer Rose LLP, where he advised Fortune 500 companies and their senior management on securities, tax, and compensation matters. Mr. Broverman serves as an adviser and or Board Member of several privately held financial technology companies, including Betterment, Carver Edison, Covered by Sage, Bloom Credit, and Good Money.

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The foregoing individuals have also served in the capacity as executive officers and members of the board of managers of our affiliated entities of Masterworks.

Key Employee of Masterworks

Scott W. Lynn. Mr. Lynn, who is the Founder of Masterworks, has served as the Chief Executive Officer of our affiliate Masterworks.io, LLC since February 1, 2018, the Chief Executive Officer of Masterworks Investor Services since August 5, 2020, and as the Chief Executive Officer of the Administrator since November 28, 2018. Mr. Lynn has been an active collector of contemporary art for more than fifteen years and has built an internationally-recognized collection of Abstract Expressionism that has included works by Clyfford Still, Barnett Newman, Mark Rothko, Willem de Kooning, and more. In 2017, portions of Mr. Lynn’s collection were exhibited at the Royal Academy in London, the Denver Art Museum, the Palm Beach Museum. Mr. Lynn is an Internet entrepreneur and has founded, acquired, or acted as a majority-investor in over a dozen advertising technology, content, and fintech companies. In addition to Masterworks, during the past five years Mr. Lynn has served as Founder, controlling shareholder and a board member of v2 ventures (which is a holding company he controls that owns Adparlor, Inc., Giant Media, Inc., Reachmobi, Inc., Amply, Inc. and Sellozo, Inc.) and Payability, LLC (which he founded and is majority-owner). Mr. Lynn also serves as a board member of the Brooklyn Rail (a non-profit publication in the art industry) and the International Foundation for Art Research (a non-profit; publisher of the IFAR journal, which topically focuses on art authenticity and stolen art research, as well as additional research projects related to artwork authenticity).

Limited Liability and Indemnification of the Board of Managers, the Administrator and Others

Our operating agreement limits the liability of the Board of Managers, any members of our Company, any person who is an officer of our Company and any person who serves at the request of the Board of Managers on behalf of us as an officer, member of the Board of Managers, partner, member, stockholder or employee of such person and the administrative services agreement limits the liability of the Administrator and its affiliates. None of the foregoing persons shall be liable to us or the Administrator or any other of our members for any action taken or omitted to be taken by it or by other person with respect to us, including any negligent act or failure to act, except in the case of a liability resulting from any of the foregoing person’s own actual fraud, gross negligence, willful misconduct, bad faith, breach of fiduciary duty, reckless disregard of duty or any intentional and material breach of our operating agreement or conduct that is subject of a criminal proceeding (where such person has reasonable cause to believe that such conduct was unlawful). With the prior consent of the Board of Managers, any of the foregoing persons may consult with legal counsel and accountants with respect to our affairs (including interpretations of the Masterworks 040, LLC operating agreement) and shall be fully protected and justified in any action or inaction which is taken or omitted in good faith, in reliance upon and in accordance with the opinion or advice of such counsel or accountants. In determining whether any of the foregoing persons acted with the requisite degree of care, such person shall be entitled to rely on written or oral reports, opinions, certificates and other statements of members of the Board of Managers, officers, employees, consultants, attorneys, accountants and professional advisors of our Company selected with reasonable care; provided, that no such person may rely upon such statements if it believed that such statements were materially false. The foregoing limitations on liability reduce the remedies available to the holders of the Class A shares for actions taken which may negatively affect us.

Insofar as the foregoing provisions permit indemnification of members of the Board of Managers, officers or persons controlling us for liability arising under the Securities Act, we have been informed that, in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Term, Withdrawal and Removal of Members of the Board of Managers

Our operating agreement provides that each member of our Board of Managers will serve as our Manager, for an indefinite term, but that a Manager may be removed by a majority of the Board of Managers for any reason, or may choose to withdraw as a Manager.

Our members may only remove a member of the Board of Managers for “Cause,” following the affirmative vote of two-thirds (2/3) of the issued and outstanding voting shares “Cause” is defined as:

● The commission by a member of the Board of Managers of fraud, gross negligence or willful misconduct;

● The conviction of a member of the Board of Managers of a felony;

● A material violation by a member of the Board of Managers of any applicable law that has a material adverse effect on our business; or

● The bankruptcy or insolvency of a member of the Board of Managers.

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Masterworks Shares

As of the date of this filing, 100% of the membership interests of the Company are held by Masterworks in the Form of Class B shares. Our amended restated operating agreement created two classes of membership interests of the Company in the form of Class A shares and Class B shares. Class B shares, which are owned by Masterworks, represent a 20% “profits interest” in our fully diluted equity. The Class B shares will entitle Masterworks to 20% of the profit on sale of the Painting or the ability to convert such shares into Class A shares with a value at the time of conversion equal to 20% of the increase in value of our issued and outstanding shares. Masterworks has agreed to lock-up provisions in our operating agreement that will prohibit it from selling any Class B shares prior to the one-year anniversary of the Offering. After the one-year anniversary, Masterworks will have no restrictions on the disposition of any of its shares, other than restrictions in our operating agreement and restrictions imposed by applicable securities laws.

Masterworks Platform

Overview

We will conduct this Offering on the Masterworks Platform, which will host this Offering in connection with the distribution of the Class A shares offered pursuant to this offering circular. The Masterworks Platform is owned Masterworks.io, and is operated by the principals of Masterworks (including Masterworks Administrative Services, LLC). Through the Masterworks Platform, investors can:

● Browse and screen potential investments,

● Provide us with information, including information required to determine whether they are qualified to invest in an offering, and sufficient to satisfy our compliance obligations under applicable laws,

● Obtain information about offerings, including current and future SEC filings; and

● Indicate interest in participating in offerings and, with respect to offerings that have been qualified by the SEC, sign legal documents electronically.

We intend to distribute the Class A shares exclusively through the Masterworks Platform. We will not pay Masterworks, the owner of the Masterworks Platform, any sales commissions or other remuneration for hosting this Offering on the Masterworks Platform. Neither Masterworks.io, LLC nor any other affiliated entity involved in the offer and sale of the Class A shares is currently a member firm of the Financial Industry Regulatory Authority, Inc., or FINRA, and no person associated with us will be deemed to be a broker solely by reason of his or her participation in the sale of the Class A shares.

Secondary Market

Masterworks operates a bulletin board as part of the Masterworks Platform, referred to as the Masterworks “Secondary Market”. The Secondary Market is intended to facilitate secondary sales of Class A ordinary shares of Masterworks issuers, including the Company. Masterworks intends to make the Secondary Market available for transactions in the Company’s shares commencing on or after the three-month anniversary of the final closing of this Offering. The Secondary Market enables a holder of Class A shares to post an offer to sell those shares that is visible to other users of the Masterworks Secondary Market and provides a mechanism for potential buyers and sellers to communicate, negotiate and transact directly with one another. The Secondary Market does not match buy and sell orders or offers and does not enable the posting of “firm quotes”.

Masterworks will directly notify owners of the Class A shares when they are available for posting on the Secondary Market and will file a notification of such availability on Form 1-U at such time. For so long as the Company exists and its shares are available for posting on the Secondary Market, the Company will continue to file reports under Rule 257 of Regulation A. Masterworks will maintain records of all offers entered into the Secondary Market and transactions executed through the Secondary Market and will make those records available to the SEC upon reasonable request. Masterworks and its affiliates do not and will not: (i) charge or collect any fees or otherwise receive any compensation in connection with the operation or use of the Secondary Market; (ii) hold investor funds; (iii) use the Secondary Market, directly or indirectly, to offer or buy or sell Class A shares, except in compliance with applicable securities laws, including any applicable registration requirements (absent an available exemption therefrom); (iv) be involved in any purchase or sale negotiations arising from the Secondary Market; (v) provide information regarding the advisability of buying or selling Class A shares; or (vi) receive, transfer, or hold funds or securities as an incident of operating the Secondary Market, though transfers will be recorded by the Company, which acts as registrar. In addition, Masterworks will not characterize itself or the Secondary Market as being a “broker,” a “dealer,” or an “exchange.”

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The screens and hard copy by which the Secondary Market is provided to participants includes a discussion of risk factors relating to an investment in Masterworks issuer securities, active hyper-links to all SEC filings of issuers whose shares are available on the Secondary Market and the following additional information:

● The shares that are available for secondary sale transactions on the Secondary Market are not listed on any national securities exchange;

● Masterworks is not a registered national securities exchange, securities information processor, broker, dealer or investment adviser;

● The information on the Secondary Market does not consist of firm quotes, but rather is merely a list of shares which shareholders have indicated a desire to sell, the proposed price at which they would sell such shares and a mechanism for potential buyers to communicate with these potential sellers. Masterworks does not assure any participant that any particular transaction will occur. All transactions between participants must be executed by the participants independent of Masterworks or the issuer or any of their respective affiliates;

● All applicable state and federal securities laws (including the anti-fraud and anti-manipulation provisions) apply to any offer made or transaction consummated using the bulletin board.

● The name, address and telephone number of the issuer’s transfer agent;

● Any person that is a broker-dealer, an associated person of a broker-dealer, or who has a state securities license is responsible for identifying that fact to Masterworks prior to participating on the Secondary Market; and

● The registration requirements of the federal securities laws apply to all offers and sales through the Secondary Market, absent an available exception or exemption.

The Secondary Market is currently only available for use by United States citizens with a United States bank account.

Masterworks intends to refine and improve the Secondary Market’s functionality over time. There can be no assurance that the Secondary Market will provide an effective means of selling your Class A shares. In light of a variety of factors, including, without limitation, the relatively small market capitalization of the Company and the limited number of users participating on the Secondary Market, we do not expect the Secondary Market will provide a reliable or effective means of price discovery. Accordingly, any posted offer prices or historical transaction information reflected on the Secondary Market should not be construed as being representative of the fair value of the Company’s Class A shares or of the painting owned by the Company.

License Agreement

We will enter into a license agreement with Masterworks, effective upon the commencement of this Offering, pursuant to which Masterworks will grant us a non-exclusive, royalty free license to use the name “Masterworks”. Other than with respect to this license, we will have no legal right to use the “Masterworks” name. In the event that the Administrator ceases to administer our operations, we would be required to change our name to eliminate the use of “Masterworks”.

Involvement in Certain Legal Proceedings

No executive officer, member of the Board of Managers, or significant employee or control person of our Company or the Administrator has been involved in any legal proceeding listed in Item 401(f) of Regulation S-K in the past 10 years.

MANAGEMENT COMPENSATION

The Administrator, and its affiliates will receive certain fees and expense reimbursements for services relating to this Offering and the acquisition, maintenance and sale of the Painting. The items of compensation are summarized below. Neither the Administrator nor their affiliates will receive any selling commissions or dealer manager fees in connection with the offer and sale of the Class A shares. In addition, Masterworks owns 1,000 Class B shares, representing a 20% “profits interest” in our fully diluted equity following the final closing of this Offering.

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The following table sets forth the form of compensation and the recipient of such compensation together with the determination of the amount and the estimated amount.

Form of Compensation and Expense Reimbursement	Determination of Amount	Estimated Amount
True-up Payment	Masterworks intends to charge a true-up payment for all art-related issuers which is intended to be reasonable compensation for Masterworks’ capital commitment and outlay.	$165,000.
Administrative Services and Expense Reimbursement Fee	In respect of ordinary administration of our Company and the Painting, we will issue Class A shares to the Administrator.	1.5% of the total Class A shares outstanding, after giving effect to such issuance, per annum, commencing following the final closing of this Offering.
Profits Interest	Masterworks owns 1,000 Class B shares, representing a 20% “profits interest” in our fully diluted equity following the final closing of this Offering.	These amounts, if any, cannot presently be determined.
Reimbursement for Extraordinary and Non-Routine Costs	Extraordinary or non-routine costs, payments and expenses, if any, relating to our Company or the Painting, will be paid for by the Administrator, but such extraordinary or non-routine costs and payments will be reimbursed upon the sale of the Painting or a sale of our Company, as applicable.	These amounts, if any, cannot presently be determined.
Disposition of the Painting without a third-party intermediary	Masterworks may determine to sell the Painting without engaging a third-party intermediary, in which event, it would charge the buyer of the Painting a reasonable fee not to exceed the lowest published buyer’s premium charged by Sotheby’s, Christie’s or Phillips in effect at such time.	These amounts, if any, cannot presently be determined.

Compensation of Executive Officers

We do not currently have any employees, nor do we currently intend to hire any employees who will be compensated directly by us. Each of our executive officers receive compensation for his or her services, including services performed for us, from Masterworks. Although we will indirectly bear some of the costs of the compensation paid to these individuals, through fees we pay to the Administrator, we do not intend to pay any compensation directly to these individuals.

Compensation of the Board of Managers

Members of the Board of Managers who are also officers of Masterworks and the Company receive no compensation in respect of their service on the Board of Managers. The Independent Manager receives compensation from Masterworks for serving in such capacity on multiple issuer entities. Although we will indirectly bear some of the costs of the compensation paid to the Independent Manager, through fees we pay to the Administrator, we do not intend to pay any compensation directly to this individual.

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SECURITY OWNERSHIP OF
MANAGEMENT AND CERTAIN SECURITYHOLDERS

The following table sets forth information about the current beneficial ownership of the Company at January 25, 2021, and the estimated beneficial ownership of the Class A shares at after the Offering for:

● Each person known to us to be the beneficial owner of more than 10% of the Class A shares;

● Each named executive officer;

● Each member of the Board of Managers; and

● All of the executive officers and members of the Board of Managers as a group.

As of the date of this filing, 100% of the membership interests of the Company are held by Masterworks in the form of 1,000 Class B shares.

Unless otherwise noted below, the address for each beneficial owner listed on the table is in care of our Company, 497 Broome Street, New York, New York 10013. We have determined beneficial ownership in accordance with the rules of the SEC. We believe, based on the information furnished to us, that the persons and entities named in the tables below have sole voting and investment power with respect to all Class B shares that they beneficially own, subject to applicable community property laws.

We have presented the beneficial ownership of the Class A shares based on the assumption that all 83,250 Class A shares offered in this Offering will be sold.

In computing the number of Class A shares beneficially owned by a person and the percentage ownership of that person after this Offering, we deemed outstanding Class A shares subject to any securities held by that person that are currently exercisable or convertible or exercisable or convertible within 60 days of January 25, 2021, into Class A shares. In computing the number of Class A shares owned after this Offering, we have assumed that the Class A share value at such time would be $30.00. Please see the Hypothetical Class A share value chart below which sets for the number of Class A shares issuable upon conversion of the Class B shares based on various hypothetical values of the Class A shares for additional information.

	Membership Interests Beneficially Owned Prior to this Offering					Class A shares Beneficially Owned After this Offering(4)
Name of Beneficial Owner	Number		Percent			Number		Percent
Named Executive Officers and Board of Managers:
Nigel S. Glenday, Chief Executive Officer; Chief Financial Officer(1)		-		*			0		*
Joshua B. Goldstein, General Counsel and Secretary(1)		-		*			0		*
Eli D. Broverman, Independent Representative (1)		-		*			0		*
All named executive officers and Members of the Board of Managers as a group (3 persons)		N/A		*			0		*
10% holders:
Masterworks Gallery, LLC(2)(3)		N/A		100	%		6,938		7.69	%

*	Less than 1.0%
(1)	All named individuals are also members of the Board of Managers of the Company.

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(2)	In April 2018, Scott Lynn, the Founder of Masterworks sold 100% of the membership interests of Masterworks.io, LLC, which owns 100% of the membership interests in the other Masterworks entities, including Masterworks Gallery, LLC, to the Lynn Family Trust 001 (the “Trust”) for the benefit of the Lynn family. Mr. Lynn is the Chief Executive Officer of Masterworks.io, LLC and Masterworks Administrative Services, LLC. By contract, Mr. Lynn has the power to vote 100% of the membership interests beneficially owned by the Trust and controls Masterworks.
(3)	Masterworks.io, LLC owns 100% of the membership interests of Masterworks Gallery, LLC and Masterworks Administrative Services, LLC, which will be entitled to receive Class A shares at a rate of 1.5% of the total Class A shares outstanding, after giving effect to such issuance, per annum, for administrative services pursuant to an administrative services agreement after the final closing of the Offering.
(4)	The Class B shares retained by Masterworks will entitle Masterworks to 20% of the profit on sale of the Painting or the ability to convert such shares into Class A shares with a value at the time of conversion equal to 20% of the increase in value of our issued and outstanding Class A and B shares. The following table indicates how many Class A shares would be issuable to Masterworks upon conversion of the Class B shares based on hypothetical changes in the value of our Class A shares:

Hypothetical Class A share Value	$	20.00		$	30.00		$	40.00		$	50.00		$	60.00
No. of Class A shares Masterworks would receive upon conversion of 100% of its Class B shares		0			6,938			10,406			12,488			13,875
Percentage of total outstanding Class A shares Masterworks would receive upon conversion of 100% of its Class B shares		0	%		7.69	%		11.11	%		13.04	%		14.29	%

INTEREST OF MANAGEMENT AND
OTHERS IN CERTAIN TRANSACTIONS

We are subject to various conflicts of interest arising out of our relationship with Masterworks. These conflicts are discussed below, and this section is concluded with a discussion of the corporate governance measures we have adopted to mitigate some of the risks posed by these conflicts. References throughout this offering circular to the Masterworks 040, LLC “operating agreement” refer to the Masterworks 040, LLC amended and restated operating agreement.

In addition to the compensation arrangements discussed in the section titled “Management Compensation,” the following is a description of each transaction since December 11, 2020 (our inception) and each currently proposed transaction in which:

● We have been or will be a participant;

● The amount involved exceeds one percent of our total assets; and

● In which any member of the Board of Managers or executive officer, of the Company or the related Masterworks entities or their applicable beneficial owners, or beneficial owners of more than 5% of the Class A shares or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest.

Funding of Masterworks

Scott W. Lynn is the individual responsible for funding Masterworks.io and is also able to control the activities of all of the Masterworks entities as well as our Company. Mr. Lynn is also the Chief Executive Officer of the Administrator.

Administrative Services Agreement and Fees Paid to Affiliates

Pursuant to an administrative services agreement between us, Masterworks Cayman and the Administrator to be entered into prior to the initial closing of the Offering, the Administrator will manage all of our administrative services and will maintain the Painting. For the foregoing services, the Administrator will be entitled to receive an administrative fee from the Company in the form of Class A shares at a rate of 1.5% of the total Class A shares per annum following the final closing of the Offering, provided that if the Offering is fully subscribed, but the final closing is delayed due to a delay in our receipt of investor subscription funds, such administrative services fee shall start accruing once at least 95% of the Class A shares offered have been issued. Following the initial closing of the Offering, Masterworks will also manage any extraordinary or non-routine services which may be required, from time-to-time, including, without limitation, litigation or services in connection with a sale of the Painting or any sale, merger, third-party tender offer or other similar transaction involving us. Masterworks may determine to sell the Painting without engaging a third-party intermediary, in which event, it would charge the buyer of the Painting a reasonable fee not to exceed the lowest published buyer’s premium charged by Sotheby’s, Christie’s or Phillips in effect at such time. Any third-party costs incurred by the Administrator in connection with litigation or major transactions, together with any fees, will be reimbursed or paid upon the sale of the Painting or our Company, as applicable.

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Beneficial Owner of Affiliated Entities

The Trust is the beneficial owner of all of the Masterworks affiliated entities. Scott W. Lynn, the Chief Executive Officer of Masterworks.io, LLC and Masterworks Administrative Services, LLC, may also be deemed the beneficial owner of the Masterworks entities given his power to exercise voting control through an agreement with the Trust. Mr. Lynn is the individual responsible for funding Masterworks.io and, is an art collector and is also able to control the activities of all of the Masterworks entities as well as our Company. Mr. Lynn could have conflicts with his personal art collection and the collection of Masterworks, or Mr. Lynn could simply stop funding Masterworks and cause it to cease to exist.

Qualification Rights

Masterworks will have the right to request that we qualify on Form 1-A, or a comparable form, the resale of any Class A shares beneficially owned by Masterworks or any entity administered by Masterworks. There are no limitations or restrictions on the size or frequency of such qualification requests, other than pursuant to applicable law, provided, that all costs associated with any such qualification shall be the responsibility of Masterworks. Accordingly, any such qualification will have no economic impact on holders of Class A shares. The qualification rights are set forth in the Company’s Operating Agreement.

Our Affiliates’ Interests in Other Masterworks Entities

General

The officers and members of the Board of Managers who perform services for us are also officers, members of the Board of Managers, managers, and/or key professionals of Masterworks and other Masterworks entities. These persons have legal obligations with respect to those entities that are similar to their obligations to us. In the future, these persons and other affiliates of Masterworks may organize other art-related programs and acquire for their own account art-related assets. In addition, Masterworks has granted non-voting equity interests in Masterworks.io, LLC to certain management personnel performing services, including our executive officers.

Allocation of Our Affiliates’ Time

We rely on Masterworks and its key professionals who act on our behalf and on behalf of the Administrator, including Scott W. Lynn, Nigel S. Glenday and Joshua B. Goldstein for the day-to-day operations of our business. Messrs. Lynn, Glenday and Goldstein are also, respectively, the Chief Executive Officer, Chief Financial Officer and General Counsel/Secretary of the Administrator and are officers of the other Masterworks entities. As a result of their interests in other Masterworks entities, their obligations to other investors and the fact that they engage in and will continue to engage in other business activities on behalf of themselves and others, they will face conflicts of interest in allocating their time among us, the Administrator and other Masterworks entities and other business activities in which they are involved. However, we believe that the Administrator and its affiliates have sufficient professionals to fully discharge their responsibilities to the Masterworks entities for which they work. The Administrator also serves as the Administrator for other entities and the services to be provided to these entities are substantially similar to those to be provided to the Company.

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Duties Owed by Some of Our Affiliates to the Administrator and the Administrator’s Affiliates

Our officers and members of our Board of Managers and the key professionals performing services for us are also officers, members of the Board of Managers, managers and/or key professionals of:

● Masterworks.io, LLC, the owner of the Masterworks Platform;

● Masterworks Administrative Services, LLC, our Administrator;

● Masterworks Gallery LLC, an affiliate of Masterworks, which seeks to purchase the Painting as agent for the Company; and

● Other Masterworks entities.

As a result, they owe duties to each of these entities, their equity holders, members and limited partners. These duties may from time to time conflict with the duties that they owe to us.

Certain Conflict Resolution Measures

Independent Manager

The Board of Managers is made up of Nigel S. Glenday, Joshua B. Goldstein and Eli D. Broverman. One of the members of the Board of Managers, Eli D. Broverman, serves as the Independent Manager on the Board of Managers (the “Independent Manager”). The Independent Manager serves to protect the interests of the holders of the Class A shares and is tasked with reviewing and approving all related party transactions of our Company with our affiliates and address all conflicts of interest that may arise between us and the holders of the Class A shares and our affiliates. The Independent Manager’s role is solely related to governance and he has no involvement in the operations of the Company or Masterworks and does not participate in any offering activities. The Independent Manager and any replacement Independent Manager if the Independent Manager resigns or is removed from such position on the Board of Managers at any time, shall meet the standards of an “independent director” pursuant to the standards set forth in NASDAQ Marketplace Rule 4200(a)(15).

Other Operating Agreement Provisions Relating to Conflicts of Interest

Our operating agreement contains other restrictions relating to conflicts of interest including the following:

Lock-Up Agreement. Masterworks owns 1,000 Class B shares, representing a 20% “profits interest” in our fully diluted equity following the final closing of this Offering. The Class B shares retained by Masterworks will entitle Masterworks to 20% of the profit on sale of the Painting or the ability to convert such shares into Class A shares with a value at the time of conversion equal to 20% of the increase in value of our issued and outstanding Class A and Class B shares. Masterworks and will also own Class A shares if and to the extent the Offering is undersubscribed. Masterworks has agreed to lock-up provisions in our operating agreement that will prohibit it from selling or transferring any Class B shares prior to the one-year anniversary of the Offering, though it is permitted to pledge all of its shares to unaffiliated third-party lenders and such lenders shall not be subject to the lock-up if they obtain ownership of the shares in connection with a default by Masterworks on its indebtedness. After the one-year anniversary, Masterworks will have no restrictions on the disposition of any of its retained shares, other than restrictions imposed by applicable securities laws.

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Term of each Manager. Our operating agreement provides that each member of the Board of Managers will serve for an indefinite term, but that each member of the Board of Managers may be removed by a majority of the Board of Managers for any reason, or may choose to withdraw as a member of the Board of Managers under certain circumstances. In addition, our operating agreement provides that holders of two-thirds (2/3) of the voting shares may affirmatively vote to remove any members of the Board of Managers for “cause.”

DESCRIPTION OF SHARES

As of the date of this filing, 100% of our issued and outstanding membership interests are held by Masterworks in the form of 1,000 Class B shares. The Company has two classes of membership interests: Class A membership interests (referred to herein as the “Class A shares”) and Class B membership interests (referred to herein as the “Class B shares”). References throughout this offering circular to “shares” refer generically to the Class A shares and Class B shares. We are offering 83,250 of our Class A shares, for an aggregate amount of $1,665,000 pursuant to this offering circular. The final closing of the Offering will occur on the earlier of (i) the earliest practical date following the date that subscriptions for the Class A shares offered hereby total $1,665,000 or (ii) a date determined by the Company in its discretion. The following description of the Shares is based upon our certificate of formation, our amended and restated operating agreement, and applicable provisions of law, in each case as in effect prior to the qualification of this offering circular. This discussion does not purport to be complete and is qualified in its entirety by reference to the certificate of formation and the amended and restated operating agreement, copies of which are filed with the SEC as exhibits to the offering statement of which this offering circular forms an integral part.

As of January 25, 2021, Masterworks Gallery is the sole holder of record of 100% of our membership interests represented by 1,000 Class B shares representing a 20% profits interest.

Membership Interests

We were formed as a Delaware limited liability company on December 11, 2020 by Masterworks Gallery, our founder, in order to facilitate investment in the Painting. We are a manager-managed limited liability company. Upon our formation, Masterworks Gallery was issued 100% of our membership interests.

Pursuant to our operating agreement we may not issue any additional Class A shares after the consummation of this Offering, other than as described in this offering circular, including the Class A shares that may be issued to Masterworks to repay the advance and the true-up, Class A shares issuable pursuant to the administrative services agreement and those that may be issued upon conversion of the Class B shares. Masterworks Gallery adopted our operating agreement.

Summary of Operating Agreement

We are governed by an agreement titled the “Amended and Restated Limited Liability Company Operating Agreement” of Masterworks 040, LLC. As of the date of this filing, all of the membership interests of the Company are held by Masterworks in the form of 1,000 Class B shares. References throughout this offering circular to “shares” or “Shares” refer generically to the Class A shares and Class B shares and references throughout this offering circular to the Masterworks 040, LLC “operating agreement” and the “amended and restated operating agreement” of Masterworks 040, LLC, refer to the Masterworks 040, LLC amended and restated operating agreement, the form of which is filed as Exhibit 2.2 to the offering statement of which this offering circular forms an integral part. The following summarizes some of the key provisions of the Masterworks 040, LLC operating agreement. This summary is qualified in its entirety by our operating agreement itself, the form of which is included as Exhibit 2.2 to the offering statement of which this offering circular forms an integral part.

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Organization and Duration

We were formed on December 11, 2020, as a Delaware limited liability company pursuant to the Delaware Limited Liability Company Act. We will remain in existence until liquidated in accordance with the Masterworks 040, LLC operating agreement.

Purpose and Powers

Under the Masterworks 040, LLC operating agreement, we are permitted to engage in such activities as determined by the Board of Managers that lawfully may be conducted by a limited liability company organized under Delaware law and, in connection therewith, to exercise all of the rights and powers conferred upon us and the Board of Managers pursuant to the agreement relating to such business activity, provided that we are prohibited from engaging in certain activities referred to as “Prohibited Acts” without obtaining the approval of the holders of a majority of the voting shares. “Prohibited Acts” consist of amending, waiving or failing to comply with any material provision of our operating agreement that disproportionately and adversely affects the Class A shareholders, except as otherwise provided therein.

Board of Managers and its Powers

We are a manager-managed limited liability company as set forth in Section 401 and Section 101 of the Delaware Limited Liability Company Act. Our amended and restated operating agreement appoints the Board of Managers of the Company.

We plan to enter into an administrative services agreement with our Administrator and Masterworks Cayman, prior to the initial closing of this Offering which is further described in the “Summary of Administrative Services Agreement” section of this document. Pursuant to our operating agreement and the administrative services agreement, the Administrator will have complete and exclusive discretion in the management and control of our affairs and business, subject to the requirement to obtain consent for Prohibited Acts, and shall possess all powers necessary, convenient or appropriate to carrying out the purposes and business of our Company, including doing all things and taking all actions necessary to carry out the terms and provisions of each of the foregoing agreements.

Pursuant to the Masterworks 040, LLC operating agreement, the Board of Managers shall have full authority in their discretion to exercise, on our behalf and in our name of the Company, all rights and powers of a “manager” of a limited liability company under the Delaware Limited Liability Company Act necessary or convenient to carry out our purposes. Any person not a party to our operating agreement dealing with us will be entitled to rely conclusively upon the power and authority of the Board of Managers to us in all respects, and to authorize the execution of any and all agreements, instruments and other writings on behalf of us and in our name.

The Board of Managers will have sole voting power over all matters, including: mergers, consolidations, dispositions, winding up and dissolution, including any action with respect to the sale of the Painting; except, the Board of Managers shall not have the authority to amend, waive or fail to comply with any material provision of our operating agreement that disproportionately and adversely affects the Class A shareholders, except as provided therein, without first obtaining the prior approval of the holders of a majority of the voting shares.

Any member of the Board of Managers may be removed and replaced by a majority of the Board of Managers with or without “Cause.” In addition, any member of the Board of Managers may be removed or replaced by the affirmative vote of members holding two-thirds (2/3) of the voting shares for “Cause” only, as such term is defined in our operating agreement “Cause” is defined as follows:

(a) the commission by a member of the Board of Managers of fraud, gross negligence or willful misconduct;

(b) the conviction of a member of the Board of Managers of a felony;

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(c) a material violation by a member of the Board of Managers of any applicable law that has a material adverse effect on our business;

(d) the bankruptcy or insolvency of a member of the Board of Managers

Classes of Ownership

As of the date of this filing, 100% of the membership interests of the Company are owned by Masterworks in the form of 1,000 Class B shares. We have two classes of membership interests:

Class A shares. The Class A shares being offered in this offering will represent in the aggregate 100% of our members’ capital accounts and an 80% interest in the profits we recognize upon any sale of the Painting and liquidation. There will be up to 83,250 Class A shares outstanding upon the final closing of the Offering, and the number of additional Class A shares that may be issued by our Company following the Offering (subject to issuances pursuant to stock-splits, recapitalizations or similar transactions) is limited to shares issued to Masterworks if this Offering is not fully subscribed in repayment of its advance and the true-up, shares issued to our Administrator (or any successor) pursuant to the administrative services agreement and shares issuable upon conversion of the Class B shares.

Class B shares. The Class B shares held by Masterworks Gallery which will represent in the aggregate less than 1% of our members’ capital accounts and a 20% interest in the profits we recognize upon any sale of the Painting and liquidation. There are currently 1,000 Class B shares outstanding and there will be 1,000 Class B shares outstanding upon the final closing of the Offering.

Voting Rights.

We refer to Class A shares, excluding Class A shares beneficially owned by Masterworks as our “voting shares.” On each matter where the members have a right to vote, each voting share shall be entitled to and shall constitute one (1) vote, and all voting shares shall vote together as a single class, except as otherwise set forth in our operating agreement, or otherwise required by the Delaware Act. In determining any action or other matter to be undertaken by or on behalf of us, each member shall be entitled to cast a number of votes equal to the number of voting shares that such member holds, with the power to vote, at the time of such vote. Unless otherwise set forth in our operating agreement, or otherwise required by the Delaware Act, the taking of any action by us which requires a vote of the members as set forth above shall require the receipt of votes from members holding a majority of the voting shares to constitute a quorum, provided, that in the case of a proposed removal of a member of the Board of Managers for “Cause”, an affirmative vote of holders of two-thirds (2/3) of the voting shares shall be required to authorize and approve such action. In determining the outcome of any vote at a meeting, shareholders that abstain or do not vote will effectively be counted as votes against such action.

Subject to the Delaware Act, the Board of Managers will have sole voting power over all matters, including: mergers, consolidations, acquisitions, winding up and dissolution and sale of the Painting; except, the Board of Managers shall not have the authority to amend, waive or fail to comply with any material provision of our operating agreement that disproportionately and adversely affects the Class A shareholders, except as provided therein, without obtaining the prior approval or consent of the of the holders of a majority of the voting shares.

Conversion of Class B shares

Class B shares will be convertible into Class A shares, in whole or in part, at any time prior to the consummation of a sale of the Painting for no additional consideration pursuant to the following conversion formula:

Class A shares issuable upon conversion	=	(A) Value Increase, multiplied by
		(B) Conversion Percentage, multiplied by
		(C) 20%, divided by
		(D) Class A share Value.

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Definitions for conversion calculation:

“Value Increase”	means, (A) the aggregate value of Shares outstanding at such time, minus the product of (i) the number of Class A shares outstanding at such time and (ii) $20.00, if such difference is positive.
“Conversion Percentage”	means, (A) the number of Class B shares being converted, divided by (B) the number of Class B shares outstanding.
“Class A share Value”	means, as of the close of business on the day preceding the conversion date, the volume weighted average trading price (“VWAP”) of the Class A shares on all trading platforms or trading systems on which the Class A shares are being traded over the forty-five (45) trading days then ended, provided, that if the total aggregate trading volume over such 45-trading-day period is less than 5% of the public float, such period shall be extended to the ninety (90) trading days then ended, provided, further, if the total aggregate trading volume over such 90-trading-day period is less than 5% of the public float, the holder of the Class B shares shall request that the Administrator obtain an appraisal of the Class A share Value from one or more independent nationally-recognized third party appraisal companies and such appraisal shall constitute the Class A share Value.*

* The hypothetical Class A share values represent the assumed VWAP, or in the absence of a trading market, the appraised fair value of the Class A Shares, which, in either case, is assumed to be the amount that a Class A share would receive upon liquidation of the Company (i.e. the appraised value of the Painting divided by the fully diluted number of Class A shares outstanding).  For all purposes of determining the number of Class A shares issuable upon conversion of Class B shares, a bulletin board platform, such as the Masterworks Secondary Market, which does not display firm quotes, shall not constitute a “trading platform” or “trading system.”

Examples of conversion calculation

The following table illustrates the number and percentage of Class A shares that would be issued to Masterworks upon conversion of all of its Class B shares based on hypothetical changes in the trading price or value of the Class A shares:

Hypothetical Class A share Value	$	20.00		$	30.00		$	40.00		$	50.00		$	60.00
No. of Class A shares Masterworks would receive upon conversion of 100% of its Class B shares		0			6,938			10,406			12,488			13,875
Percentage of total outstanding Class A shares Masterworks would receive upon conversion of 100% of its Class B shares		0	%		7.69	%		11.11	%		13.04	%		14.29	%

Powers of the Board of Managers

The Board of Managers will have sole voting power over all matters relating to our Company, including: mergers, consolidations, acquisitions, winding up and dissolution and the Board of Managers will have control over the disposition of Painting; except, the Board of Managers shall not have the authority to amend, waive or fail to comply with any material provision of our operating agreement that disproportionately and adversely affects the Class A shareholders, except as provided therein, without the consent of holders of a majority of the Class A shares.

Shares beneficially owned by Masterworks shall have no voting rights.

Removal

A member of the Board of Managers may only be removed and replaced by a majority of the Board of Managers with or without “cause” and may also be removed and replaced for “cause” as defined in our operating agreement by a vote of the holders of two-thirds (2/3) of the voting shares.

Agreement to be Bound by the Operating Agreement

By purchasing a Class A share, you will be admitted as a member of our Company and will be bound by the provisions of, and deemed to be a party to the Masterworks 040, LLC operating agreement. Pursuant to the Masterworks 040, LLC operating agreement, each holder of Class A shares and each person who acquires a Class A share from a holder must agree to be bound by the terms and conditions of the Masterworks 040, LLC operating agreement.

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Shareholder Voting

Class A shares have one vote per share and we refer to the Class A shares, excluding shares beneficially owned by Masterworks, as “voting shares.” The Class B shares shall have no voting rights other than as may be required pursuant to applicable law. The term “other than as may be required pursuant to applicable law,” takes into account the following considerations (i) pursuant to Section 18-806 of the Delaware Limited Liability Company Act (the “Act”), in the event that a limited liability company is dissolved by the occurrence of an event that causes the last remaining member to cease to be a member, the personal representative of the last remaining member of the limited liability company or the assignee of all of the limited liability company interests in the limited liability company may vote to revoke the dissolution, subject to the approval of any other persons whose approval is required under the limited liability company agreement to revoke a dissolution, such a vote could result in holders of the Class B shares (or more accurately the personal representative of such persons) potentially be deemed to have a “right to vote” and (ii) the Act may be amended in the future to mandate voting rights for all interests in a Delaware limited liability company in certain situations, and if this occurs, without the provision “other than as may be required by law,” the Company could be in a position where its operating agreement would be in violation of the Act.

Whenever holders of Class A shares are required or entitled to vote on any matter, except as otherwise provided, that vote may be taken at a meeting or may be taken via a written consent in lieu of a meeting.

The Company shall provide holders of voting shares with not less than five (5) nor more than sixty (60) days prior notice of any meeting or any action subject to a vote of holders of voting shares at a meeting shall require a quorum, in the form of votes actually cast (whether in person or by proxy), from at least a majority of the voting shares eligible to vote on such matter or such higher percentage of voting shares as may be required for such action. At any meeting or on any matter that is to be voted on or consented to by holders of voting shares, the then holders of our voting shares, may vote in person or by proxy, and such vote may be made, and a proxy may be granted in writing, by means of electronic transmission or as otherwise permitted by applicable law. Shares beneficially owned by Masterworks shall have no voting rights.

We have elected to be governed by paragraphs (b), (c), (d) and (e) of Section of the Delaware General Corporation Law (the “DGCL”) and other applicable provisions of the DGCL, as though we were a Delaware corporation and as though holders of our voting shares were shareholders of a Delaware corporation. Such sections generally regulate proxies for any voting purposes. In the event that we become subject to Regulation 14A under the Exchange Act, pursuant to and subject to the provisions of Rule 14a-16 under the Exchange Act, we may, but are not required to, utilize a Notice of Internet Availability of Proxy Materials, as described in that rule, in conjunction with proxy material posted to an Internet site, in order to furnish any proxy or related material to holders of voting shares pursuant to Regulation 14A under the Exchange Act. We currently intend to utilize the Masterworks platform to the extent possible for meetings of, and votes of our shareholders.

Shareholder Distributions.

The Company does not expect to pay any distributions, other than a liquidating distribution following a sale of the Painting. There can be no assurance as to the timing of a liquidating distribution or that we will pay a liquidating distribution at all. There are no contractual restrictions on our ability to declare or pay dividends and if any are to be paid in the future, such decision will be at the discretion of our Board of Managers and will depend on our then current financial condition and other factors deemed relevant by the Board of Managers.

Limited Liability

The liability of each member of our Company shall be limited as provided in the Delaware Limited Liability Company Act and as set forth in the Masterworks 040, LLC operating agreement. No member of our Company shall be obligated to restore by way of capital contribution or otherwise any deficits in its capital account (if such deficits occur).

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The Delaware Limited Liability Company Act provides that a member of a Delaware limited liability company who receives a distribution from such company and knew at the time of the distribution that the distribution was in violation of the Delaware Limited Liability Company Act shall be liable to the Company for the distribution for three years. Under the Delaware Limited Liability Company Act, a limited liability company may not make a distribution to a member if, after the distribution, all liabilities of the Company, other than liabilities to members on account of their Class A shares and liabilities for which the recourse of creditors is limited to specific property of the company, would exceed the fair value of the assets of the Company. The fair value of property subject to liability for which recourse of creditors is limited shall be included in the assets of the Company only to the extent that the fair value of that property exceeds the nonrecourse liability. Under the Delaware Limited Liability Company Act, an assignee who becomes a substituted member of a company is liable for the obligations of his assignor to make contributions to the Company, except the assignee is not obligated for liabilities unknown to him at the time the assignee became a member and that could not be ascertained from the Masterworks 040, LLC operating agreement.

Exculpation and Indemnification of the Board of Managers and Others

Subject to certain limitations, our operating agreement limits the liability of each member of the Board of Managers and its affiliates, any of our members, any person who is our officer and any person who serves at the request of the Board of Managers on behalf of us as an officer, member of the Board of Managers, managers of the Administrator, independent representative, partner, member, stockholder or employee of such person (referred to together as the “Protected Persons” or in the singular as the “Protected Person”).

Exculpation

No Protected Person shall be liable to us or the Administrator or any other member of our Company for any action taken or omitted to be taken by it or by other person with respect to us, including any negligent act or failure to act, except in the case of a liability resulting from such Protected Person’s own actual fraud, gross negligence, willful misconduct, bad faith, breach of fiduciary duty, reckless disregard of duty or any intentional and material breach of our operating agreement or conduct that is subject of a criminal proceeding (where such Protected Person has reasonable cause to believe that such conduct was unlawful). With the prior consent of the Board of Managers, any Protected Person may consult with legal counsel and accountants with respect to our affairs (including interpretations of our operating agreement) and shall be fully protected and justified in any action or inaction which is taken or omitted in good faith, in reliance upon and in accordance with the opinion or advice of such counsel or accountants. In determining whether a Protected Person acted with the requisite degree of care, such Protected Person shall be entitled to rely on written or oral reports, opinions, certificates and other statements of the members of the Board of Managers, officers, employees, consultants, attorneys, accountants and professional advisors of our Company selected with reasonable care; provided, that no such Protected Person may rely upon such statements if it believed that such statements were materially false.

Indemnification

To the fullest extent permitted by law, we will indemnify, hold harmless, protect and defend each Protected Person against any losses, claims, damages or liabilities, including reasonable legal fees, costs and expenses incurred in investigating or defending against any such losses, claims, damages or liabilities or in enforcing a Protected Person’s right to indemnification under the Masterworks 040, LLC operating agreement, and any amounts expended in respect of settlements of any claims approved by the Board of Managers (collectively referred to herein as the “Liabilities”), to which any Protected Person may become subject:

(i)	by reason of any act or omission or alleged act or omission (even if negligent) arising out of or in connection with the activities of our Company;
(ii)	by reason of the fact that it is or was acting in connection with the activities of our Company in any capacity or that it is or was serving at the request of our Company as a partner, shareholder, member, members of the Board of Managers, managers of the Company or the Administrator, the independent representative, officer, employee, or agent of any Person;
unless, such Liability results from such Protected Person’s own actual fraud, gross negligence, willful misconduct, bad faith, breach of fiduciary duty, reckless disregard of duty or intentional and material breach of our operating agreement or conduct that is subject of a criminal proceeding (where such Protected Person has reasonable cause to believe that such conduct was unlawful).

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Any indemnification provided under our operating agreement is limited thereunder to the extent of our assets only. Further, insofar as the foregoing provisions permit indemnification of members of the Board of Managers, officers or persons controlling us for liability arising under the Securities Act, we have been informed that, in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Reimbursement of Expenses

We will reimburse (and/or advance to the extent reasonably required) each Protected Person for reasonable legal or other costs and expenses (as incurred) of such Protected Person in connection with investigating, preparing to defend or defending any claim, lawsuit or other proceeding relating to any Liabilities for which the Protected Person may be indemnified pursuant to our operating agreement and for all costs and expenses, including fees, expenses and disbursements of attorneys, reasonably incurred by such Protected Person in enforcing the indemnification provisions of our operating agreement; provided, that such Protected Person executes a written undertaking to repay us for such reimbursed or advanced costs and expenses if it is finally judicially determined that such Protected Person is not entitled to the indemnification provided by our operating agreement.

Liquidity Sale

The Company will own the Painting for an indefinite period and may sell the Painting at any time following the final closing of the Offering. There is no guaranty that any such sale of the Painting will be successful, or if successful, that the net proceeds realized by shareholders from such transaction will be reflective of the estimated fair market value of the shares at such time. Masterworks will be entitled to reimbursement for costs and expenses associated with any such transaction and may earn fees from such transactions to the extent permitted by applicable laws, rules and regulations, and there can be no assurance that there will be any remaining net proceeds to be distributed after payment of such costs and expenses.

Amendment of Our Operating Agreement

Amendments to our operating agreement may be proposed only by or with the consent of the Board of Managers and must be approved by a majority vote of holders of the voting shares. Further, the Board of Managers does not need consent of holders of voting shares to amend the Masterworks 040, LLC, operating agreement in the following instances: (i) to evidence the joinder of a new member of the Company; (ii) in connection with the transfer of shares by members; (iii) as otherwise required to reflect capital contributions, distributions and similar actions (iv) to reflect the naming of new managers, officers or replacement of officers of the Company; (v) in connection with the issuance of Class A shares to the Administrator pursuant to the administrative services agreement or (vi) as required to cause the Company to be treated as an association or as a publicly traded partnership taxable as a corporation for U.S. federal (and applicable state and local) income tax purposes, (vii) in connection with the conversion of Class B shares into Class A shares or (viii) any change the Board of Managers deems necessary or appropriate to enable trading of membership interests.

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Termination and Dissolution

We will continue as a limited liability company until terminated under the Masterworks 040, LLC operating agreement. We will commence winding up upon the first to occur of the following (the “Dissolution Event”):

(1) Upon the determination of the members with the approval of the Board of Managers;

(2) Our insolvency or bankruptcy;

(3) The sale of all or substantially all of our assets; or

(4) The entry of a decree of judicial dissolution under Section 18 802 of the Delaware Limited Liability Company Act

The Dissolution Event shall be effective on the day on which such event occurs and immediately thereafter we will commence its winding up during which our affairs shall be wound up in accordance with the terms of the Masterworks 040, LLC operating agreement.

Books and Reports

We are required to keep appropriate books of our business at our principal offices. The books will be maintained for both tax and financial reporting purposes on a basis that permits the preparation of financial statements in accordance with Generally Accepted Accounting Principles in the U.S. (“GAAP”). For financial reporting purposes and federal income tax purposes, our fiscal year and its tax year are the calendar year.

Term and Removal of Members of the Board of Managers

Our operating agreement provides that each member of our Board of Managers will serve as our Manager, for an indefinite term, but that any Manager may be removed by a majority of the Board of Managers for any reason, or may choose to withdraw as a Manager, under certain circumstances.

Our members may only remove a member of the Board of Managers for “cause,” following the affirmative vote of two-thirds (2/3) of the issued and outstanding voting shares excluding those beneficially owned by Masterworks “Cause” is defined as:

● The commission by the applicable member of the Board of Managers of fraud, gross negligence or willful misconduct;

● The conviction of the applicable member of the Board of Managers of a felony;

● A material violation by the applicable member of the Board of Managers of any applicable law that has a material adverse effect on our business; and

● The bankruptcy or insolvency of the applicable member of the Board of Managers.

Anti-Takeover Effects under Delaware Law

We are a limited liability company organized under Delaware law. Some provisions of Delaware law may delay or prevent a transaction that would cause a change in our control. Section 203 of the Delaware General Corporation Law, which restricts certain business combinations with interested shareholders in certain situations, does not apply to limited liability companies unless they elect to utilize it. Our operating agreement does not currently elect to have Section 203 of the Delaware General Corporation Law apply to us. In general, this statute prohibits a publicly held Delaware corporation from engaging in a business combination with an interested shareholder for a period of three years after the date of the transaction by which that person became an interested shareholder, unless the business combination is approved in a prescribed manner. For purposes of Section 203, a business combination includes a merger, asset sale or other transaction resulting in a financial benefit to the interested shareholder, and an interested shareholder is a person who, together with affiliates and associates, owns, or within three years prior did own, 15% or more of voting Class A shares. The Board of Managers may elect to amend the Masterworks 040, LLC operating agreement, subject to majority approval by the members holding the Class A shares, at any time to have Section 203 apply to the Company.

Binding Arbitration under Our Subscription Agreement

By purchasing Class A shares in this Offering, investors agree to be bound by the arbitration provisions contained in our subscription agreement which provide that arbitration is the exclusive means for resolving disputes relating to or arising out of the subscription agreement, the shares, the Masterworks Platform, and/or the activities or relationships that involve, lead to, or result from any of the foregoing. Please note that this arbitration provision does not apply to claims made under the federal securities laws. Purchasers of shares in a secondary transaction would also be subject to the same arbitration provisions that are currently in our subscription agreement. Such arbitration provision limits the ability of investors to bring class action lawsuits or similarly seek remedies on a class basis for claims subject to the provision. If invoked, the arbitration is required to be conducted in New York, NY in accordance with New York law. The subscription agreement allows for either the Company or an investor to elect to enter into binding arbitration in the event of any covered claim in which the Company and the investor are adverse parties. While not mandatory, in the event that the Company were to invoke the arbitration clause, the rights of the adverse shareholder to seek redress in court would be severely limited. These restrictions on the ability to bring a class action lawsuit may result in increased costs and/or reduced remedies, to individual investors who wish to pursue claims against the Company.

Waiver of Jury Trial under our Subscription Agreement

By purchasing Class A shares in this Offering, by executing the subscription agreement investors agree to waive their rights to a jury trial in claims against the Company or Masterworks. However, this waiver of rights to a jury trial does not apply to claims made under the federal securities laws. Purchasers of shares in a secondary transaction would also be required to waive rights to a jury trial, except in connection with claims under the federal securities laws.

Exclusive jurisdiction

Our amended and restated operating agreement provides that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, as amended, subject to and contingent upon a final adjudication in the State of Delaware of the enforceability of such exclusive forum provision. By purchasing Class A shares in this Offering and by executing the subscription agreement, investors acknowledge that any complaint asserting a cause of action under the Securities Act is to be litigated in the federal district courts of the United States of America.

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SHARES ELIGIBLE FOR FUTURE SALE

Shares Eligible for Future Sale

Prior to this Offering, there has been no public or private market for the Class A shares, and we cannot predict the effect, if any, that market sales of the Class A shares or the availability of Class A shares for sale will have on the market price of the Class A shares prevailing from time to time.

Upon the final closing of this Offering 83,250 Class A shares will be outstanding, and 1,000 Class B shares will be outstanding and will be owned by Masterworks. All of the Class A shares sold in this Offering will be freely tradable under federal securities laws unless issued to our affiliates.

Shares sold by Masterworks in private transactions that are exempt from the registration or qualification requirements of the Securities Act will bear a restrictive legend and will be subject to further transfer restrictions for one year from the time such shares are acquired from Masterworks by a non-affiliate. Masterworks has rights to require us to qualify the resale of any Class A shares they own, provided that they shall be responsible for all of the costs and expenses of any such qualification and or secondary offering.

Masterworks has agreed agree to lock-up provisions in our operating agreement that will prohibit it from selling or transferring any Class B shares it owns prior to the one-year anniversary of the final closing of the Offering (other than transfers to affiliates), though Masterworks is permitted to pledge all of its Shares to unaffiliated third-party lenders and such lenders shall not be subject to the lock-up if they obtain ownership of the Shares in connection with a default by Masterworks on its indebtedness. After the one-year anniversary, Masterworks will have no restrictions on the disposition of any of its Shares, other than restrictions in our operating agreement and those imposed by applicable securities laws.

Rule 144

In general, under Rule 144 as currently in effect, Masterworks will be entitled to sell, within any three-month period, a number of Class A shares that does not exceed the greater of:

● 1% of the then-outstanding Class A shares; and

● The average weekly trading volume during the four calendar weeks preceding the sale, subject to the filing of a Form 144 with respect to the sale.

Sales under Rule 144 by our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us. If Masterworks sells its shares in private transactions that are exempt from the registration requirements of the Securities Act to a non-affiliate other than pursuant to Rule 144, such non-affiliate will be able to sell such shares pursuant to Rule 144 after one year has elapsed from the time such shares were acquired from Masterworks and such sales shall not be subject to the volume restrictions set forth above.

We are unable to estimate the number of Class A shares that will be sold under Rule 144 or pursuant to one or more future qualified offerings or the timing of such sales, since this will depend on the market price for the Class A shares, the personal circumstances of the sellers and other factors. Prior to the Offering, there has been no public market for the Class A shares, and there can be no assurance that a significant, or any, public market for the Class A shares will develop or be sustained after the Offering. Any future sale of substantial amounts of the Class A shares in the open market may adversely affect the market price of the Class A shares offered by this offering circular.

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MATERIAL U.S. FEDERAL TAX CONSIDERATIONS

The following is a discussion of material U.S. federal income tax considerations relating to the purchase, ownership and disposition of our Class A shares by Holders (as defined below) as of the date hereof. For purposes of this section, under the heading “Material U.S. Federal Tax Considerations,” references to the “Company,” “we,” “our,” and “us” refer only to Masterworks 040, LLC and not its subsidiaries, and not to Masterworks Cayman which is a Cayman Islands segregated portfolio company. In this discussion of material U.S. federal income tax considerations, the term Masterworks 040 Cayman refers to the segregated portfolio of Masterworks Cayman that will hold title to the Painting. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the “Code”), U.S. Treasury Regulations promulgated or proposed thereunder, and all administrative and judicial interpretations thereof, all as in effect on the date hereof and all of which are subject to change, possibly with retroactive effect, or to different interpretation.

The U.S. federal income taxation of partnerships and partners is extremely complex, involving, among other things, significant issues as to the character, timing of realization and sourcing of gains and losses. This discussion does not address all of the U.S. federal income tax considerations that may be relevant to specific Holders in light of their particular circumstances or to Holders subject to special treatment under U.S. federal income tax law (such as banks, insurance companies, dealers in securities or other Holders that generally mark their securities to market for U.S. federal income tax purposes, tax-exempt entities, retirement plans, regulated investment companies, real estate investment trusts, certain former citizens or residents of the United States or Holders that hold our Class A shares as part of a straddle, hedge, conversion or other integrated transaction) or U.S. Holders that have a “functional currency” other than the U.S. dollar. This discussion does not address any U.S. state or local or non-U.S. tax considerations or any U.S. federal estate (except as discussed below for Non-U.S. Holders), gift or alternative minimum tax considerations. Prospective investors are urged to consult their own tax advisors regarding the purchase, ownership and disposition of our Class A shares with respect to their particular tax situations, including, in the case of prospective Holders subject to special treatment under U.S. federal income tax laws, with reference to any special issues that the purchase, ownership and disposition of our Class A shares may raise for such persons. The activities of a Holder unrelated to such Holder’s status as a member of the Company may affect the tax consequences to such Holder of an investment in the Company.

As used in this discussion, the term “U.S. Holder” means a beneficial owner of a Class A share that, for U.S. federal income tax purposes, is (i) an individual who is a citizen or resident of the United States, (ii) a corporation created or organized under the laws of the United States, any state thereof or the District of Columbia, (iii) an estate, the income of which is subject to U.S. federal income tax regardless of its source, or (iv) a trust (x) with respect to which a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions or (y) that has in effect a valid election under applicable U.S. Treasury Regulations to be treated as a U.S. person. As used in this discussion, the term “Non-U.S. Holder” means a beneficial owner of a Class A share that is neither a U.S. Holder nor a partnership for U.S. federal income tax purposes, and the term “Holder” means a U.S. Holder or a Non-U.S. Holder.

If an entity treated as a partnership for U.S. federal income tax purposes invests in our Class A shares, the U.S. federal income tax considerations relating to such investment will depend in part upon the status and activities of such entity and the particular partner. Any such entity should consult its own tax advisor regarding the U.S. federal income tax considerations applicable to it and its partners relating to the purchase, ownership and disposition of our Class A shares.

PERSONS CONSIDERING AN INVESTMENT IN OUR CLASS A SHARES SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE U.S. FEDERAL, STATE AND LOCAL AND NON-U.S. INCOME, ESTATE AND OTHER TAX CONSIDERATIONS RELATING TO THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR CLASS A SHARES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.

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Taxation of Our Company

Taxation of Masterworks 040, LLC. We expect that we will be treated as a partnership for U.S. federal income tax purposes and not as an association or publicly traded partnership subject to tax as a corporation. As a partnership, we generally will not be subject to U.S. federal income tax. Instead, each Holder that is subject to U.S. tax will be required to take into account its distributive share, whether or not distributed, of each item of our income, gain, loss, deduction or credit. See “—Taxation of U.S. Holders of Class A shares”.

An entity that would otherwise be classified as a partnership for U.S. federal income tax purposes may nonetheless be taxable as a corporation if it is a “publicly traded partnership”, unless an exception applies. An entity that would otherwise be classified as a partnership is a publicly traded partnership if (i) interests in the partnership are traded on an established securities market or (ii) interests in the partnership are readily tradable on a secondary market or the substantial equivalent thereof. We intend that we will be publicly traded for purposes of these rules.

A publicly traded partnership will, however, be treated as a partnership, and not as a corporation, for U.S. federal income tax purposes, if (x) 90% or more of such partnership’s gross income during each taxable year consists of “qualifying income” and (y) such partnership is not required to register as an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). We refer to this exception as the “qualifying income exception.” Qualifying income generally includes certain interest income, dividends, real property rents, gains from the sale or other disposition of real property, gains from the sale or other disposition of capital assets or other property held for the production of income that otherwise constitutes qualifying income and certain other forms of investment income.

We intend to operate such that we will meet the qualifying income exception in each taxable year. We do not expect that the Company will earn any income in any taxable year other than qualifying income including (x) interest income with respect to certain short-term debt investments held by the Company and (y) an income inclusion followed by a liquidating distribution from Masterworks Cayman in the year in which the Painting is sold. At present, we do not expect to seek a ruling from the U.S. Internal Revenue Service (the “IRS”) with respect to our treatment as a partnership for U.S. federal income tax purposes and no assurance can be given that the IRS will not take a contrary position. In the event that such a ruling is sought, and such ruling treats a sale of the Painting as qualifying income, we may structure Masterworks Cayman 040 as an entity disregarded from us for U.S. federal income tax purposes, in which case the tax consequences described herein could be materially different, as described below.

If we fail to meet the qualifying income exception (other than a failure that is determined by the IRS to be inadvertent and that is cured within a reasonable time after discovery) or if we are required to register under the 1940 Act, we will be treated as if, on the first day in which we fail to meet the qualifying income exception or are required to register under the 1940 Act, we had transferred all of our assets, subject to our liabilities, to a newly formed corporation in exchange for stock of such corporation, and then distributed the stock to the Holders in liquidation of their interests in us. This deemed contribution and liquidation should generally be tax-free to the Holders so long as we do not have liabilities in excess of the tax basis of our assets at such time. Thereafter, we would be treated as a corporation for U.S. federal income tax purposes.

If we were treated as a corporation in any taxable year, our items of income, gain, loss, deduction and credit would be reflected our tax return, rather than the returns of our Holders subject to U.S. tax, and we would be subject to U.S. corporate income tax on our taxable income. Distributions of cash or other property to a Holder with respect to our Class A shares generally would be treated as a dividend to the extent such distribution was paid from our current or accumulated earnings and profits (as determined under U.S. federal income tax principles), or in the absence of earnings and profits, as a tax-free return of capital to the extent of such Holder’s adjusted tax basis in such Class A share, and then as capital gain. Accordingly, treatment as a corporation could materially reduce a Holder’s after-tax return and thus could result in a substantial reduction of the value of our Class A shares.

The remainder of this discussion assumes that we will be treated as a partnership for U.S. federal income tax purposes.

Taxation of Masterworks Cayman. Masterworks Cayman, which is a Cayman Islands segregated portfolio company, is referred to in this taxation section as “Masterworks Cayman,” and the specific portfolio that will hold title to the Painting is referred to as “Masterworks 040 Cayman”. Masterworks 040 Cayman intends to file an election with the IRS to be classified as an association taxable as a corporation and not as a partnership or disregarded entity for U.S. federal income tax purposes. We, as the holder of Masterworks 040 Cayman, shares, will not be taxed directly on the earnings of Masterworks 040 Cayman. We intend to treat Masterworks 040 Cayman as a separate non-U.S. corporation for U.S. federal income tax purposes, although this treatment is not free from doubt. The remainder of this discussion assumes that Masterworks 040 Cayman is so treated.

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However, Holders may be required to report directly income earned by Masterworks 040 Cayman in certain circumstances. See “— Controlled Foreign Corporations”.

Subject to the discussion below under “Controlled Foreign Corporations,” distributions of cash or other property to us from Masterworks 040 Cayman (other than certain distributions of Masterworks 040 Cayman, shares or rights to acquire its shares) generally will be treated as a dividend for U.S. federal income tax purposes (without reduction for any non-U.S. tax withheld from such distribution) to the extent of Masterworks 040 Cayman, current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). To the extent the amount of such distribution exceeds such current and accumulated earnings and profits, it generally will be treated first as a non-taxable return of capital to the extent of our adjusted tax basis in Masterworks 040 Cayman shares and then as capital gain.

If, following receipt of a ruling from the IRS, we elected to treat Masterworks 040 Cayman as an entity disregarded as separate from us, we would directly report any income, gain, loss or deduction of Masterworks 040 Cayman, and any distributions from Masterworks 040 Cayman would be disregarded for U.S. federal income tax purposes.

Taxation of U.S. Holders of Shares

Below is a discussion of material U.S. federal income tax considerations applicable to U.S. Holders of our Class A shares.

Taxation of Holders of Shares on Our Profits and Losses. As a partnership for U.S. federal income tax purposes, we generally will not be subject to U.S. federal income tax. Instead, each Holder that is subject to U.S. tax will be required to take into account its distributive share, whether or not distributed, of each item of our income, gain, loss, deduction or credit. It is possible that in any year, a Holder’s tax liability arising from the Company could exceed the distributions made by the Company to such Holder. The Company will file a U.S. federal partnership information return reporting its operations for each year and provide a U.S. Internal Revenue Service Schedule K-1 to each Holder. However, Holders may not receive such Schedule prior to when their tax return reporting obligations become due and may need to file for extensions or file based on estimates.

In addition to regular U.S. federal income tax, certain U.S. Holders that are individuals, estates or trusts are subject to a 3.8% tax on all or a portion of their “net investment income,” which may include all or a portion of any interest income we earn that is allocable to such U.S. Holder.

Allocation of Profits and Losses. For each of our fiscal years, each Holder’s allocable share of our items of income, gain, loss, deduction or credit will be determined by our operating agreement (the “operating agreement”), provided such allocations either have “substantial economic effect” or are determined to be in accordance with such Holder’s interest in the Company. We believe that for U.S. federal income tax purposes, such allocations will be given effect as being in accordance with such Holder’s interest in the Company and we intend to prepare tax returns based on such allocations. If the allocations provided by our operating agreement were successfully challenged by the IRS, the resulting allocations to a particular Holder for U.S. federal income tax purposes may be less favorable than the allocations set forth in our operating agreement.

Section 706 of the Code provides that items of partnership income and deductions must be allocated between transferors and transferees of shares. We will apply certain assumptions and conventions in an attempt to comply with applicable rules and to report income, gain, loss, deduction and credit to Holders in a manner that reflects such Holders’ beneficial shares of our items. These conventions are designed to more closely align the receipt of cash and the allocation of income between Holders of Class A shares, but these assumptions and conventions may not conform with all aspects of existing Treasury Regulations. If the IRS successfully challenges our conventions, our items of income, gain, loss, deduction or credit may be reallocated among the Holders of Class A shares to the possible detriment of certain Holders. The Board of Managers is authorized to revise our method of allocation between transferors and transferees (as well as among Holders whose interests otherwise could vary during a taxable period).

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Adjusted Tax Basis of Class A shares. A Holder’s initial tax basis in its Class A shares will generally equal the amount such Holder paid for the Class A shares plus such Holder’s allocable share of our liabilities, if any. A Holder’s adjusted tax basis will be increased by such Holder’s share of items of our income and gain and any increase in such Holder’s share of our liabilities. A Holder’s adjusted tax basis will be decreased, but not below zero, by distributions from us, such Holder’s allocable share of items of our deductions and losses and by any decrease in such Holder’s allocable share of our liabilities.

Holders who purchase our Class A shares in separate transactions must combine the basis of those Class A shares and maintain a single adjusted tax basis for all of those Class A shares. Upon a sale or other disposition of less than all of the Class A shares held by such Holder, a portion of that tax basis must be allocated to the Class A shares sold.

Restrictions on Deductibility of Expenses and Other Losses. A Holder may deduct its allocable share of our losses (if any) for U.S. federal income tax purposes only to the extent of such Holder’s adjusted tax basis in the Class A shares it is treated as holding at the end of the taxable year in which the losses occur. If the recognition of a Holder’s allocable share of our losses would reduce its adjusted tax basis for its Class A shares below zero, the recognition of such losses by such Holder would be deferred to subsequent taxable years and will be allowed if and when such Holder has sufficient tax basis so that such losses would not reduce such Holder’s adjusted tax basis below zero. In addition, the “at-risk” rules and the limitation on “excess business losses” could limit the deductibility of losses allocable to a Holder. We do not expect to generate income or losses from “passive activities” for purposes of Section 469 of the Code. Therefore, income allocated by us to a Holder may not be offset by the Section 469 passive losses of such Holder and losses allocated to a Holder generally may not be used to offset Section 469 passive income of such Holder.

It is anticipated that our expenses generally will be investment expenses treated as miscellaneous itemized deductions, rather than trade or business expenses, with the result that any individual who is Holder (either directly or through a Holder that is a partnership or other pass-through entity) will not be permitted to claim a U.S. federal income tax deduction for such expenses for taxable years beginning before January 1, 2026 and thereafter may be limited in his or her ability to claim a U.S. federal income tax deduction for such expenses.

In general, neither we nor any Holder may deduct organizational expenses. We may elect to amortize any organizational expenses ratably over fifteen years, or we may elect to capitalize such expenses. No deduction is allowed for offering expenses, including placement fees.

Treatment of Distributions. For U.S. federal income tax purposes, distributions of cash by us generally will not be taxable to a U.S. Holder to the extent of such U.S. Holder’s adjusted tax basis in its Class A shares. Any cash distributions in excess of a U.S. Holder’s adjusted tax basis generally will be considered to be gain from the sale or exchange of our Class A shares. Under current law, such gain generally will be capital gain and will be long-term capital gain if such U.S. Holder has held such Class A share for more than one year at the time of such distribution, subject to certain exceptions.

Disposition of Class Shares. A U.S. Holder generally will recognize gain or loss for U.S. federal income tax purposes upon the sale, exchange or other disposition of our Class A shares in an amount equal to the difference, if any, between the amount realized on the sale, exchange or other disposition and such U.S. Holder’s adjusted tax basis in such Class A share. A U.S. Holder’s adjusted tax basis will be adjusted for this purpose by its allocable share of our income or loss for the year of such sale or other disposition. Any gain or loss so recognized generally will be capital gain or loss and will be long-term capital gain or loss if such Holder has held such Class A share for more than one year at the time of such sale, exchange or other disposition. Certain gain attributable to our investment in Masterworks 040 Cayman will generally be characterized as ordinary income rather than capital gain. See “—Controlled Foreign Corporations”. Net long-term capital gain of certain non-corporate U.S. Holders generally is subject to preferential rates of tax. The deductibility of capital losses is subject to limitations.

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Holders who purchase our Class A shares at different times and intend to sell all or a portion of the Class A shares within a year of their most recent purchase are urged to consult their tax advisors regarding the application of certain “split holding period” rules to them and the treatment of any gain or loss as long-term or short-term capital gain or loss. For example, a selling Holder may use the actual holding period of the portion of its transferred Class A shares, provided such Class A shares are divided into identifiable Class A shares with ascertainable holding periods, the selling Holder can identify the portion of the Class A shares transferred, and the selling Holder elects to use the identification method for all sales or exchanges of our Class A shares.

Controlled Foreign Corporations. In general, a corporation organized outside the United States is treated as a controlled foreign corporation (“CFC”) for U.S. federal income tax purposes in any taxable year in which more than 50% of (i) the total combined voting power of all classes of stock of such non-U.S. corporation entitled to vote or (ii) the total value of the stock of such non-U.S. corporation is owned (or is considered as owned) by “U.S. Shareholders” on any day during the taxable year of such non-U.S. corporation. A “U.S. Shareholder” with respect to a non-U.S. corporation is any U.S. person that owns (or is treated as owning) 10% or more of the total combined voting power of all classes of stock of the non-U.S. corporation entitled to vote or 10% or more of the total value of such non-U.S. corporation’s stock. We expect that Masterworks 040 Cayman will be considered a CFC and that we will be considered a U.S. Shareholder of Masterworks 040 Cayman.

Because we expect Masterworks 040 Cayman to be treated as a CFC, a U.S. Holder of our Class A Shares may have current inclusions of undistributed “Subpart F” income of Masterworks 040 Cayman or other income of Masterworks 040 Cayman that exceeds certain thresholds (“global intangible low-taxed income” or “GILTI”). Subpart F income generally includes passive income such as dividends, interest, net gain from the sale or disposition of securities and non-actively managed rents. The Subpart F income of a CFC is limited to the CFC’s earnings and profits for the taxable year. GILTI consists of a U.S. Shareholder’s pro rata share of a CFC’s earnings, other than Subpart F income and certain other excluded types of income, that exceeds a 10% return on such U.S. Shareholder’s pro rata share of the CFC’s tangible assets that were used to generate such income. U.S. corporations may take a 50% deduction against GILTI, and a 37.5% deduction after 2025. These inclusions are treated as ordinary income (whether or not such inclusions are attributable to net capital gains). Thus, a Holder may be required to report as ordinary income its allocable share of Masterworks 040 Cayman Subpart F or GILTI income without corresponding receipts of cash and may not benefit from capital gain treatment with respect to the portion of our earnings (if any) attributable to net capital gains of Masterworks 040 Cayman. A Holder’s tax basis in our Class A shares will be increased to reflect any required Subpart F or GILTI income inclusions. Such income generally will constitute income from sources within the United States for U.S. foreign tax credit purposes. Amounts included as such income would generally not be taxable again when actually distributed. We do not expect that Masterworks 040 Cayman will earn any income in any taxable year other than gain from the sale of the Painting in the year in which the Painting is sold (other than de minimis dividend income to the extent Masterworks 040 Cayman earns any royalty or other income). Therefore, we do not expect that there will be any Subpart F or GILTI income of Masterworks 040 Cayman to be reported by U.S. Holders on an annual basis prior to a sale of the Painting. However, we expect that gain from the sale of the Painting would be treated as Subpart F income.

Because we expect to be treated as a U.S. Shareholder in a CFC for certain purposes other than for determining current inclusions, regardless of whether Masterworks 040 Cayman has Subpart F or GILTI income, any gain allocated to a Holder from our disposition of Masterworks 040 Cayman (including any gain from a liquidating distribution by Masterworks 040 Cayman) will be treated as ordinary income to the extent of such Holder’s allocable share of the current and/or accumulated earnings and profits of Masterworks 040 Cayman. In this regard, earnings would not include any amounts previously taxed pursuant to the CFC rules, if any. Net losses of Masterworks 040 Cayman will not pass through to our Holders.

If, following receipt of a ruling from the IRS, we elected to treat Masterworks 040 Cayman as an entity disregarded as separate from us, the CFC rules discussed above would not apply. Instead, we would directly report any income, gain, loss or deduction of Masterworks 040 Cayman, and any distributions from Masterworks 040 Cayman would be disregarded for U.S. federal income tax purposes.

Passive Foreign Investment Companies. In general, a corporation organized outside the United States is treated as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes in any taxable year in which either (i) at least 75% of its gross income is “passive income” or (ii) on average at least 50% of the value of its assets is attributable to assets that produce passive income or are held for the production of passive income. Passive income for this purpose generally includes, among other things, dividends, interest, royalties, rents and gains from commodities transactions and from the sale or exchange of property that gives rise to passive income. In determining whether a non-U.S. corporation is a PFIC, a pro rata portion of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) generally is taken into account.

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If Masterworks 040 Cayman is a PFIC in any taxable year, gain on a disposition by us of shares in Masterworks 040 Cayman or gain on the disposition of our Class A shares by a Holder at a time when we own shares of Masterworks 040 Cayman, as well as certain other defined “excess distributions,” will be treated as if the gain or excess distribution were ordinary income earned ratably over the shorter of the period during which the Holder held its Class A shares or the period during which we held our shares in Masterworks 040 Cayman. For a U.S. Holder that is required to include amounts in income with respect to Masterworks 040 Cayman, if any, pursuant to the subheading “Controlled Foreign Corporations”, the consequences described under this subheading would not apply. For U.S. Holders that are not required to include amounts in income with respect to Masterworks 040 Cayman, if any, pursuant to the subheading “Controlled Foreign Corporations”, such Holders may be subject to the PFIC rules in the event Masterworks 040 Cayman is classified as a PFIC. The interaction of these rules is complex, and prospective Holders are urged to consult their tax advisors in this regard.

If, following receipt of a ruling from the IRS, we elected to treat Masterworks 040 Cayman as an entity disregarded as separate from us, neither the CFC nor the PFIC rules would apply to Masterworks 040 Cayman.

Taxation of Non-U.S. Holders of Class A shares

Below is a discussion of material U.S. federal income tax considerations applicable to Non-U.S. Holders of our Class A shares and does not purport to address all of the U.S. federal income tax consequences that may be applicable to any particular Non-U.S. Holder. This discussion does not address the tax consequences of purchasing, holding or disposing of our Class A shares to Non-U.S. Holders subject to special rules under U.S. federal income tax laws, such as non-U.S. governments and their controlled entities, non-U.S. pension plans, trusts, former U.S. citizens or residents and individual Non-U.S. Holders that have a “tax home” in the United States. The discussion assumes that a Non-U.S. Holder is not and will not be engaged in a trade or business within the United States, has and will have no U.S. source income apart from its investment in our Class A shares, and, in the case of a Non-U.S. Holder that is an individual, has not been (and will not be) present in the United States for 183 days or more in any taxable year.

Interest, Dividends, Etc. A Non-U.S. Holder is subject to U.S. federal withholding tax at the rate of 30% (or at a lower rate if provided by an applicable tax treaty and the Non-U.S. Holder provides the documentation (generally, IRS Form W-8BEN or W-8BEN-E) required to claim benefits under such tax treaty to the applicable withholding agent) on its distributive share of any U.S. source interest (subject to certain exemptions), U.S. source dividends (including, in certain cases, dividend equivalent amounts) and certain other income received by us. We expect that distributions from Masterworks 040 Cayman will not be treated as U.S. source dividends for withholding purposes.

Effectively Connected Income. In general, a non-U.S. person that invests in an entity taxable as a partnership for U.S. federal income tax purposes that is (directly or through entities treated as disregarded from their owners or as partnerships for U.S. federal income tax purposes) “engaged in trade or business within the United States” is itself considered to be engaged in trade or business within the United States and is subject to U.S. federal income tax (including, possibly, in the case of a non-U.S. corporation, the “branch profits” tax), withholding and income tax return filing requirements with respect to its income effectively connected (or treated as effectively connected) with the U.S. trade or business (“ECI”). A non-U.S. person that fails to file a timely U.S. federal income tax return in respect of its ECI may subsequently be precluded from claiming deductions related to the ECI and may be subject to interest and penalties. We believe that our activities as currently contemplated generally will not involve being engaged in a trade or business within the United States, and as a result we expect that neither Masterworks 040 Cayman nor any Non-U.S. Holder will be treated as deriving ECI as a result of our activities.

U.S. Federal Estate Taxes for Non-U.S. Persons. Individual Non-U.S. Holders will be subject to U.S. federal estate tax on the value of U.S.-situs property owned at the time of their death. Our Class A shares that are owned or treated as owned by an individual Non-U.S. Holder at the time of such Non-U.S. Holder’s death may be considered U.S.-situs property for U.S. federal estate tax purposes and may be subject to U.S. federal estate tax unless an applicable estate tax treaty provides otherwise. Prospective individual holders who are non-U.S. persons are urged to consult their tax advisors concerning the potential U.S. federal estate tax consequences with regard to our Class A shares.

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Administrative Matters

Tax Elections. The Board of Managers will have the authority to act on our behalf with respect to tax audits and certain other tax matters and to make such elections under the Code and other relevant tax laws as the Board of Managers deems necessary or appropriate. Accordingly, our Board of Managers can change our tax election to have our company taxed as a corporation in its sole and absolute discretion.

Nominee Reporting. Persons who hold our Class A shares as nominees for another person are required to furnish to us (i) the name, address and taxpayer identification number of the beneficial owner and the nominee; (ii) whether the beneficial owner is (1) a person that is not a U.S. person, (2) a foreign government, an international organization or any wholly owned agency or instrumentality of either of the foregoing, or (3) a tax exempt entity; (iii) the amount and description of Class A shares held, acquired or transferred for the beneficial owner; and (iv) specific information including the dates of acquisitions and transfers, means of acquisitions and transfers, and acquisition costs for purchases, as well as the amount of net proceeds from sales. Brokers and financial institutions are required to furnish additional information, including whether they are U.S. persons and specific information on Class A shares they acquire, hold or transfer for their own account. A penalty is imposed by the Code for failure to report that information to us. The nominee is required to supply the beneficial owner of the Class A shares with the information furnished to us.

Taxable Year. We currently intend to use the calendar year as our taxable year for U.S. federal income tax purposes. Under certain circumstances which we currently believe are unlikely to apply, a taxable year other than the calendar year may be required for such purposes.

Partnership Audit Rules. We or the Holders may have potential tax liability in the event of an adjustment imposed as a result of a tax audit by the IRS. An audit resulting in an adjustment to any item of our income, gain, loss, deduction or credit (or adjustment of the allocation of any such items among the Holders), and any tax (including interest and penalties) attributable to such adjustment, may be determined and collected at the Company level in the year of such adjustment. In that event of any adjustment at the Company level, under the operating agreement, the Board of Managers will allocate such tax among the Holders as equitably determined by the Board of Managers, and each Holder may be required to contribute to the Company the amount of such tax allocated to it. As a result, a Holder may bear liability for the adjustment in an amount that exceeds the taxes that the Holder (or its predecessor in interest) would have paid if the adjustment had been applied at the Holder level. Alternatively, the Board of Managers may elect to send an adjusted Schedule K-1 to each person who was a Holder in the taxable year reviewed on audit (the “Push-Out Election”). In that event, each such person (whether a current or former Holder) may elect to pay any resulting tax (including interest and penalties) or, in the case of a person that is itself treated as a partnership or other flow-through vehicle for U.S. federal income tax purposes, such person may further push out the adjustment to the next tier of partners. Non-U.S. Holders may be required to file U.S. tax returns as a result of a Push-Out Election. There is some uncertainty regarding the interpretation and implementation of these partnership audit procedures.

Treatment of Withholding Taxes. We will withhold and pay over any U.S. withholding taxes required to be withheld with respect to any Holder and will treat such withholding as a payment to such Holder. Such payment will be treated as a distribution to the extent that the Holder is then entitled to receive a cash distribution. To the extent that such payment exceeds the amount of any cash distribution to which such Holder is then entitled, such Holder shall be required to make prompt payment to us. Similar provisions would apply in the case of taxes withheld from a distribution to us.

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Information Reporting and Backup Withholding. If we are required to withhold any U.S. tax on distributions made to any Holder of Class A shares, we will pay such withheld amount to the IRS. Amounts withheld generally will be reported annually to the IRS and to the Holders by the applicable withholding agent. Distributions made to a U.S. Holder may be subject to backup withholding, unless such U.S. Holder provides the appropriate documentation certifying that, among other things, its taxpayer identification number (“TIN”) is correct, or otherwise establishes an exemption. Such U.S. Holder should use an IRS Form W-9 for this purpose. If such U.S. Holder does not provide its correct TIN and other required information or an adequate basis for exemption, payments made to such U.S. Holder will be subject to backup withholding (currently, at a rate of 24%) and such U.S. Holder may be subject to a penalty imposed by the IRS. Exempt U.S. Holders (including, among others, all corporations) are not subject to these information reporting and backup withholding requirements, provided that, if required, they properly demonstrate their eligibility for exemption. In order for a Non-U.S. Holder to avoid backup withholding, such Non-U.S. Holder should submit the appropriate version of IRS Form W-8, attesting to such Non-U.S. Holder’s foreign status. The failure of such a Non-U.S. Holder to provide the appropriate IRS Form W-8 may result in backup withholding on some or all of the payments made to such Non-U.S. Holder. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules generally will be allowed as a refund or a credit against a Holder’s U.S. federal income tax liability if the required information is furnished by such Holder on a timely basis to the IRS.

If you do not timely provide us with IRS Form W-8 or IRS Form W-9, as applicable, or such form is not properly completed, we may become subject to U.S. backup withholding taxes in excess of what would have been imposed had we received certifications from all Holders. Such excess U.S. backup withholding taxes may be treated by us as an expense that will be borne by all Holders on a pro rata basis (where we are or may be unable to cost efficiently allocate any such excess withholding tax cost specifically to the Holders that failed to timely provide the proper U.S. tax certifications).

The proper application to us of rules for withholding under Section 1441 of the Code (applicable to certain dividends, interest and similar items) is unclear. Because the documentation we receive may not properly reflect the identities of Holders at any particular time (in light of possible sales of Class A shares), we may over-withhold or under-withhold with respect to a particular Holder. For example, we may impose withholding, remit that amount to the IRS and thus reduce the amount of a distribution paid to a Non-U.S. Holder. It may be determined, however, that the corresponding amount of our income was not properly allocable to such Non-U.S. Holder, and the withholding should have been less than the actual withholding. Such Non-U.S. Holder would be entitled to a credit against such Non-U.S. Holder’s U.S. tax liability for all withholding, including any such excess withholding, but if the withholding exceeded the Non-U.S. Holder’s U.S. tax liability, the Non-U.S. Holder would be required to apply for a refund to obtain the benefit of the excess withholding. Similarly, we may fail to withhold on a distribution, and it may be determined that the corresponding income was properly allocable to a Non-U.S. Holder and withholding should have been imposed. In that event, we may determine to pay the under-withheld amount to the IRS, and we may treat such under-withholding as an expense that will be borne by all partners on a pro rata basis (since we may be unable to allocate any such excess withholding tax cost to the relevant Non-U.S. Holder).

Reportable Transactions

If the U.S. federal tax rules relating to “reportable transactions” are applicable to us (or any of the transactions undertaken by us), Holders that are required to file U.S. federal income tax returns (and, in some cases, certain direct and indirect interest holders of certain Holders) would be required to disclose to the IRS information relating to the Company and our transactions, and to retain certain documents and other records related thereto. Although we do not believe that the purchase of our Class A shares is a reportable transaction, there can be no assurance that the IRS will not take a contrary position. In addition, an interest in the Company could become a reportable transaction for Holders in the future, for example if we generate certain types of losses that exceed prescribed thresholds or if certain other events occur. It is also possible that a transaction undertaken by us will be a reportable transaction for Holders. Substantial penalties may be imposed on taxpayers who fail to comply with these laws.

In addition, other tax laws impose substantial excise taxes and additional reporting requirements and penalties on certain tax-exempt investors (and, in some cases, the managers of tax-exempt investors) that are, directly or in some cases indirectly, parties to certain types of reportable transactions.

Certain Reporting Requirements

Certain U.S. Holders of our Class A shares who either (i) invest (together with any person treated as related under certain U.S. tax rules) more than $100,000 in the Company during a 12-month period or (ii) hold, directly, indirectly or through certain attribution rules under the Code, at least 10% of the total voting power or total value of the Company, may be required to file Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation, reporting certain transfers of cash or other property to foreign corporations. U.S. Holders that fail to comply with these reporting requirements may be subject to substantial penalties.

FATCA

Under the Foreign Account Tax Compliance Act provisions of the Code and related U.S. Treasury guidance (“FATCA”), a withholding tax of 30% will be imposed in certain circumstances on (i) payments of certain U.S. source income (including interest and dividends) and gross proceeds from the sale or other disposition after December 31, 2018, of property that can produce U.S. source interest or dividends (“withholdable payments”) and (ii) payments made after December 31, 2018 (or, if later, the date on which the final U.S. Treasury regulations that define “foreign passthru payments” are published) by certain foreign financial institutions (such as banks, brokers, investment funds or certain holding companies) (“FFIs”) that are “attributable” to withholdable payments (“foreign passthru payments”). It is uncertain at present when payments will be treated as “attributable” to withholdable payments.

FATCA may also apply to certain non-U.S. entities held by or affiliated with us, including Masterworks 040 Cayman.

Although the application of FATCA to a sale or other disposition of an interest in an entity treated as a partnership for U.S. federal income tax purposes is unclear, it is possible that the gross proceeds from the sale or other disposition of an interest in the Company may be subject to tax under FATCA.

Each Holder should consult its own tax advisor regarding the application of FATCA to an investment in the Company.

Certain State, Local and Non-U.S. Tax Considerations

The foregoing discussion does not address the U.S. state and local or non-U.S. tax consequences of the purchase, ownership and disposition of our Class A shares. Holders may be subject to certain U.S. state and local and non-U.S. taxation, and tax return filing requirements, in the jurisdictions of our activities or investments. Holders may not receive the relevant tax information prior to when their tax return reporting obligations become due and may need to file for extensions. Prospective Holders are urged to consult their own tax advisors regarding U.S. state and local and non-U.S. tax matters.

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ADDITIONAL REQUIREMENTS AND RESTRICTIONS

State Securities – Blue Sky Laws

There is no established public market for our Class A shares, and there can be no assurance that any market will develop in the foreseeable future. Transfer of our Class A shares may also be restricted under the securities or securities regulations laws promulgated by various states and foreign jurisdictions, commonly referred to as “Blue Sky” laws. Absent compliance with such individual state laws, our Class A shares may not be traded in such jurisdictions. Because the securities qualified hereunder have not been registered for resale under the blue sky laws of any state, the holders of such Class A shares and persons who desire to purchase them on the Secondary Market or in any trading market that might develop in the future, should be aware that there may be significant state blue-sky law restrictions upon the ability of investors to sell the securities and of purchasers to purchase the securities. Accordingly, investors may not be able to liquidate their investments and should be prepared to hold the Class A shares for an indefinite period of time.

We currently do not intend to and may not be able to qualify securities for resale in states which require Class A shares to be qualified before they can be resold by holders of Class A shares.

Restrictions Imposed by the USA PATRIOT Act and Related Acts

In accordance with the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, or the USA PATRIOT Act, the securities offered hereby may not be offered, sold, transferred or delivered, directly or indirectly, to any “unacceptable investor,” which means anyone who is:

● A “designated national,” “specially designated national,” “specially designated terrorist,” “specially designated global terrorist,” “foreign terrorist organization,” or “blocked person” within the definitions set forth in the Foreign Assets Control Regulations of the United States, or U.S., Treasury Department;

● Acting on behalf of, or an entity owned or controlled by, any government against whom the U.S. maintains economic sanctions or embargoes under the Regulations of the U.S. Treasury Department;

● Within the scope of Executive Order 13224 — Blocking Property and Prohibiting Transactions with Persons who Commit, Threaten to Commit, or Support Terrorism, effective September 24, 2001;

● A person or entity subject to additional restrictions imposed by any of the following statutes or regulations and executive orders issued thereunder: the Trading with the Enemy Act, the National Emergencies Act, the Antiterrorism and Effective Death Penalty Act of 1996, the International Emergency Economic Powers Act, the United Nations Participation Act, the International Security and Development Cooperation Act, the Nuclear Proliferation Prevention Act of 1994, the Foreign Narcotics Kingpin Designation Act, the Iran and Libya Sanctions Act of 1996, the Cuban Democracy Act, the Cuban Liberty and Democratic Solidarity Act and the Foreign Operations, Export Financing and Related Programs Appropriations Act or any other law of similar import as to any non-U.S. country, as each such act or law has been or may be amended, adjusted, modified or reviewed from time to time; or

● Designated or blocked, associated or involved in terrorism, or subject to restrictions under laws, regulations, or executive orders as may apply in the future similar to those set forth above.

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LEGAL MATTERS

The validity of the securities offered by this offering circular will be passed upon for us by Anthony L.G., PLLC, 625 N. Flagler Drive, Suite 600, West Palm Beach, Florida 33401.

WHERE YOU CAN FIND MORE INFORMATION

We have filed an offering statement on Form 1-A with the SEC under Regulation A of the Securities Act with respect to the Class A shares offered by this offering circular. This offering circular, which constitutes a part of the offering statement, does not contain all of the information set forth in the offering statement or the exhibits and schedules filed therewith. Statements contained in this offering circular regarding the contents of any contract or any other document that is filed as an exhibit to the offering statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the offering statement. The offering statement, including its exhibits and schedules, may be inspected without charge at the public reference room maintained by the SEC, located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549, and copies of all or any part of the offering statement may be obtained from such offices upon the payment of the fees prescribed by the SEC. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. The SEC also maintains an Internet website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the site is www.sec.gov.

We also maintain a website at the website address of Masterworks.io located at www.masterworks.io. After the completion of this Offering, you may access these materials at our website free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Information contained on our website is not a part of this offering circular and the inclusion of our website address in this offering circular is an inactive textual reference only.

After the completion of this Tier II, Regulation A offering, we intend to become subject to the information and periodic reporting requirements of the Exchange Act. If we become subject to the reporting requirements of the Exchange Act, we will file periodic reports, proxy statements and other information with the SEC. Such periodic reports, proxy statements and other information will be available for inspection and copying at the public reference room and on the SEC’s website referred to above. Until we become or never become subject to the reporting requirements of the Exchange Act, we will furnish the following reports, statements, and tax information to each holder of Class A shares:

1.	Reporting Requirements under Tier II of Regulation A. Following this Tier II, Regulation A offering, we will be required to comply with certain ongoing disclosure requirements under Rule 257 of Regulation A. We will be required to file: an annual report with the SEC on Form 1-K; a semi-annual report with the SEC on Form 1-SA; current reports with the SEC on Form 1-U; and a notice under cover of Form 1-Z. The necessity to file current reports will be triggered by certain corporate events, similar to the ongoing reporting obligation faced by issuers under the Exchange Act, however the requirement to file a Form 1-U is expected to be triggered by significantly fewer corporate events than that of the Form 8-K. Such reports and other information will be available for inspection and copying at the public reference room and on the SEC’s website referred to above. Parts I & II of Form 1-Z will be filed by us if and when we decide to and are no longer obligated to file and provide annual reports pursuant to the requirements of Regulation A.
2.	Annual Reports. As soon as practicable, but in no event later than one hundred twenty (120) days after the close of our fiscal year, ending on the last Sunday of a calendar year, the Administrator will cause to be mailed or made available, by any reasonable means, to each holder of Class A shares as of a date selected by the Administrator, an annual report containing our financial statements for such fiscal year, presented in accordance with GAAP, including a balance sheet and statements of operations, company equity and cash flows, with such statements having been audited by an accountant selected by the Company. The Company shall be deemed to have made a report available to each holder of Class A shares as required if it has either (i) filed such report with the SEC via its Electronic Data Gathering, Analysis and Retrieval, or EDGAR, system and such report is publicly available on such system or (ii) made such report available on any website maintained by us and our affiliate and available for viewing by holder of Class A shares.
3.	Tax Information. As soon as practicable following the end of our fiscal year, which is currently January 1st through December 31st, we will send to each holder of Class A shares such tax information as shall be reasonably required for federal and state income tax reporting purposes.

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Masterworks 040, LLC

Best Efforts Offering of

$1,665,000 Maximum Offering Amount (83,250 Class A shares)

OFFERING CIRCULAR

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PART III – EXHIBITS

Index to Exhibits

Exhibit
No.	Exhibit Description
1.1	Form of Engagement Letter (IndeBrokers).*
2.1	Certificate of Formation of Masterworks 040, LLC filed with Delaware Secretary of State on December 11, 2020.*
2.2	Form of Amended and Restated Operating Agreement of Masterworks 040, LLC. *
4.1	Form of Subscription Agreement for Regulation A Offering.*
6.1	Form of Administrative Services Agreement. *
6.2	Form of Intercompany Agreement.*
6.3	Form of Art Purchase Agreement of Terms and Conditions of Sale.**
10.1	Power of attorney (included on signature page).*
11.1	Consent of ANTHONY L.G., PLLC (included in Exhibit 12.1).*
12.1	Opinion of ANTHONY L.G., PLLC.*
13.1	Testing the Waters materials.*

* Filed herewith

** To be filed by amendment, as applicable.

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SIGNATURES

Pursuant to the requirements of Regulation A, the registrant has duly caused this Form 1-A to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on January 25, 2021.

Masterworks 040, LLC
By:	/s/ Joshua B. Goldstein
	Joshua B. Goldstein
	General Counsel and Secretary

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Joshua B. Goldstein as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including all pre-qualification and post-qualification amendments) to this Form 1-A offering statement and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorney-in-fact and agent or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of Regulation A, this Form 1-A has been signed by the following persons in the capacities indicated on January 25, 2021.

Name	Title
/s/ Nigel S. Glenday	Chief Executive Officer of Masterworks 040, LLC
Nigel S. Glenday	(Principal Executive Officer)
/s/ Nigel S. Glenday	Chief Financial Officer and Member of the Board of Managers of Masterworks 040, LLC
Nigel S. Glenday	(Principal Financial Officer and Principal Accounting Officer)
/s/ Joshua B. Goldstein	General Counsel,
Joshua B. Goldstein	Secretary and Member of the Board of Managers of Masterworks 040, LLC
/s/ Eli D. Broverman	Member of Board of Managers;
Eli D. Broverman	Independent Manager of Masterworks 040, LLC

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EX1A-1 UNDR AGMT

EXHIBIT 1.1

FORM OF ENGAGEMENT LETTER

Date:              

Company:	Masterworks 040, LLC
	497 Broome Street
	New York, NY 10013

Attention: Josh Goldstein, General Counsel

Dear Mr. Goldstein:

This engagement letter (the “Agreement”) confirms the terms upon which Masterworks 040, LLC (the “Client;” “Masterworks 040”) engages Independent Brokerage Solutions LLC (the “Financial Adviser;” “IndeBrokers”). IndeBrokers is engaged to act as the exclusive underwriter to the Client in connection with a Regulation A Offering (as defined below) of securities on behalf of Client (the “Potential Transaction”).

Accordingly, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties, intending to be legally bound, agree as follows:

1. Scope of Engagement. Client hereby engages Financial Adviser as its exclusive agent in the Potential Transaction to purchasers pursuant to a Tier 2 offering of Regulation A, as amended (“Regulation A+”), securities (the “Securities”) under Title IV of the Jumpstart Our Business Startups (“JOBS”) Act in one or more related transactions to purchasers (the “Regulation A Offering”). Sales of Regulation A+ securities will be executed on a “Best Efforts” basis. Therefore, Client understands that Financial Adviser cannot and does not guarantee that it will be able to successfully complete the Potential Transaction or raise capital for the Client. In addition, Client will be solely responsible for collection and management of investor funds in a segregated account and Financial Adviser will not hold customer funds in any way or safekeep customer securities.

2. Offering Process. In connection with the Regulation A Offering, Financial Adviser will:

a. familiarize itself to the extent it deems appropriate with the business, operations, financial condition and prospects of the Client and the industry;

b. review to its satisfaction the offering documents (the “Regulation A Offering Materials”) in connection with the offering of the Securities; and

c. review to its satisfaction the active and planned operational practices and procedures of the Client in the conduct of the Regulation A Offering and assist the Client to meet certain applicable regulatory obligations.

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If Financial Adviser is satisfied with the results of its due diligence of Client, Financial Adviser will then:

d. identify possible high net-worth, ultra-high net-worth, and institutional investors, which might have an interest in receiving the Regulation A Offering Materials and evaluating participation in the Regulation A Offering;

e. contact one or more potential investors in the Securities (the “Potential Investors”) and distribute the Regulation A Offering Materials to those requesting receipt of the same;

f. attend meetings with Client and Potential Investors, and assist the Client in responding to due diligence requests from Potential Investors;

g. ensure to its satisfaction that Know Your Customer (“KYC”) and Anti-Money Laundering (“AML”) procedures are implemented for all Potential Investors;

h. ensure to its satisfaction that suitability assessments are conducted for all Potential Investors; and

i. assist the Client in closing on the sale of Securities to those Potential Investors accepted by Client in the Regulation A Offering.

3. Compensation.

a. Incentive Compensation. For the services to be rendered hereunder by Financial Adviser, Masterworks Investor Services, LLC (“Masterworks”) has agreed to compensate the Financial Adviser (the “Compensation”) with a variable sales commission and finder’s fee of up to 3% of the total dollar amount of equity capital raised pursuant to the Potential Transaction (the “Sales Commission”).

b. Fixed Compensation. IndeBrokers will receive certain additional fixed compensation pursuant to a separate agreement with Masterworks, which is not tied specifically to this Offering or to any other specific offering, but a portion of which is deemed to be underwriting compensation for this Offering. Such additional fixed compensation includes, $15,000 per month for ancillary support services provided to up to and including thirty (30) representatives and $250 per month for supervisory services for each representative beyond thirty (30) representatives dedicated to working on Masterworks transactions.

c. Expense Reimbursement. Masterworks has separately agreed that it will reimburse the Financial Adviser for all expense relating to the Offering, including, but not limited to, printing, road show, travel, virtual data room, legal fees incurred through the underwriting, filing FINRA documents (e.g. 5110 forms, etc.), and SEC forms to be filed for the Client by the Financial Adviser in connection with the Offering. Such reimbursements shall be capped at 0.20% of the aggregate gross offering proceeds from the Regulation A Offering.

d. Underwriting Compensation Determination and Cap. The maximum amounts set forth in clauses (a) and (c) above are underwriting compensation. A portion of the amounts payable by Masterworks pursuant to clause (b) above along with any amounts paid or payable by Masterworks or the Company to any related person of IndeBrokers is deemed to be underwriting compensation. Any such amounts shall be allocated to the Offering and other offerings in a manner deemed to be reasonable and appropriate by IndeBrokers, consistent with FINRA rules and regulations to determine underwriting compensation relating to the Offering. To the extent such allocation would be determined to result in maximum underwriting compensation being equal to or in excess of 10% of the aggregate gross offering proceeds, the parties will adjust the provisions of this Agreement or the terms of employment of persons affiliated with IndeBrokers in such manner as is reasonable and necessary to ensure that aggregate underwriting compensation does not equal or exceed 10% of the aggregate gross offering proceeds. For the avoidance of doubt, the total amount of all items of compensation from any source payable to underwriters, broker-dealers, or affiliates thereof will not exceed an amount that equals ten percent (10%) of the gross proceeds of the offering.

e. Timing of Payments. All of the forgoing costs and fees referenced in this Section 3 shall become due and payable by Masterworks, and not by Client, contemporaneously with the closing of the Regulation A Offering by Masterworks and not by the Client. Accordingly, all of the capital raised in the Regulation A Offering will be applied to the purpose of Masterworks 040, LLC.

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4. Information. Client shall provide Financial Adviser with such data and information (in reasonable detail) from time to time as Financial Adviser may reasonably request to calculate and verify payments made and required to be made under Paragraph (3) by Masterworks.

5. Certain Covenants, Representations and Warranties of Client.

a. In connection with Financial Adviser’s activities hereunder, Client will cooperate with Financial Adviser and provide it reasonable access to the officers, directors, employees and Advisers of Client, and furnish to Financial Adviser all information and data regarding the business and financial condition of Client that the Financial Adviser deems appropriate for purposes of the Regulation A Offering (the “Information”).

b. The Client represents and warrants that: (i) as of each date of offer of the Securities and each date of closing of the Regulation A Offering, the Regulation A Offering Materials will be complete and correct in all material respects and, except for those statements for which written supplemental corrections or additions have been made or given to the investors participating in such closing, will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; any (ii) any projected financial information or other forward-looking information which the Client provides to Financial Adviser will be made by Client in good faith, based on management’s best estimates at the time and based on facts and assumptions, which management believes are reasonable. A full management’s discussion of the underlying assumptions and risks relating to not achieving such projections will accompany all such projections.

c. The Client acknowledges and agrees that Financial Adviser, in rendering its services hereunder: (i) will be using and relying on the Information provided by Client (as well as information available from public sources and other sources deemed reliable by Financial Adviser) without independent investigation or verification thereof or independent appraisal or evaluation of the Client, or its respective subsidiaries or affiliates, or any of their respective businesses or assets; (ii) is authorized to transmit to any Potential Investor the Regulation A Offering Materials and forms of subscription agreements and any other legal documentation supplied to Financial Adviser for transmission to any Potential Investor by or on behalf of the Client in connection with the Regulation A Offering; and (iii) does not and will not assume responsibility for the accuracy or completeness of the Regulation A Offering Materials or any Information or other Information regarding the Client. Financial Adviser reserves the right to investigate and independently verify the Client’s representations and claims.

d. Client will be solely responsible for the contents of the Regulation A Offering Materials (as amended and supplemented and including any information incorporated therein by reference).

e. If at any time prior to the completion of the offer and sale of the Securities an event occurs or circumstance exists and the Regulation A Offering Materials (as then amended and supplemented) includes any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, Client will promptly notify Financial Adviser of such event and Financial Adviser will suspend solicitations of prospective purchasers of the Securities until such time as Client shall prepare (and Client agrees that, if it shall have notified Financial Adviser to suspend solicitations after Client has accepted orders from prospective purchasers, it will promptly prepare) a supplement or amendment to the Regulation A Offering Materials which corrects such statement(s) or omission(s).

f. The Client acknowledges and agrees that (i) any advice rendered or material provided by Financial Adviser during the term of this Agreement or during the Regulation A Offering process was and is intended solely for the benefit and confidential use of the Client and will not be reproduced, summarized, described or referred to or given to any other person or entity for any purpose without Financial Adviser’s prior written consent; (ii) Financial Adviser will act as an independent contractor and is being retained solely to assist Client in its efforts to effect the Regulation A Offering; (iii) Financial Adviser is not and will not be construed as a fiduciary of the Client and will have no duties or liabilities to the equity holders or creditors of the Client or to any other person or entity by virtue of this Agreement, and the retention of Financial Adviser hereunder, all of which duties and liabilities are hereby expressly waived; (iv) Financial Adviser does not provide legal, accounting and/or tax advice and Client agrees to retain its own counsel concerning any necessary legal, accounting and tax matters; and (v) nothing contained herein shall be construed to obligate Financial Adviser to purchase, as principal, any of the securities offered in the Regulation A Offering.

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g. The Client represents and warrants to Financial Adviser that there are no brokers, representatives, or other persons which have an interest in compensation due to Financial Adviser from any transaction contemplated herein.

h. The Client represents to Financial Adviser that it has not taken, and agrees that it will not take, any action, directly or indirectly, so as to cause the Regulation A Offering to fail to be entitled to the exemption from registration afforded by Regulation A+ of Section 401 of the JOBS Act Section 3(b), as amended. In effecting the Regulation A Offering, the Client agrees to comply in all material respects with applicable provisions of the Securities Act of 1933 (the “Securities Act”) and any regulations thereunder and any applicable state laws and requirements, as well as any federal, state or foreign judicial decisions or opinions related thereto.

i. The Client represents and warrants that it does not and will not make any sale of the Securities with a view to distribution of the Securities (until such Securities become appropriately registered), and that this Regulation A Offering does not and shall not violate any federal, state, local, foreign or other laws, rules, regulations or interpretations, including those rules, regulations and interpretations of the SEC, IRS, FINRA and any other self-regulatory organization or domestic or foreign governmental agency or entity.

j. The Client will not at any time during the term of this engagement, or for a period of six months following completion of the placement of Securities contemplated hereby, make any reference publicly to the transactions contemplated hereby, by way of the issuance of a press release, the placement of an advertisement or otherwise, without the prior consent of Financial Adviser.

k. The Client will provide copies to Financial Adviser of any current or previous filings with the SEC in the last twelve (12) months from the date of this letter.

l. Client will collect and maintain investor funds in a segregated account and will treat investor funds in a manner consistent with the description in the Materials. Client will not remove (or permit the removal of) investor funds from Client’s segregated account without the express consent of the Financial Adviser.

m. The Client will take such action as is necessary to qualify the Securities for offer and sale under the securities laws of such states and other jurisdictions of the United States (including but not limited to Federal) and foreign jurisdictions as may be legally required.

n. The Client agrees (i) that any subscription or other similar agreement pursuant to which Securities are sold shall be in form and substance reasonably satisfactory to Financial Adviser and its counsel, shall comply with all applicable federal, state and foreign laws, rules and regulations and such other terms and conditions as are customary for private placement transactions of securities of such nature (or registration statements), and shall contain a representation and warranty of the Potential Investor for the benefit of Financial Adviser to the effect that the Potential Investor has conducted its own due diligence and not relied on any representation or statement made by Financial Adviser in connection with making its investment decision and (ii) to provide a copy of such executed document to Financial Adviser promptly following the execution and delivery thereof by Potential Investor. The Client agrees that any representations and warranties made by it to any investor in the Regulation A Offering shall be deemed also to be made to Financial Adviser for its benefit.

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6. Indemnification of Financial Adviser.

a. In the event that Financial Adviser becomes involved in any capacity in any action, proceeding, investigation, or inquiry in connection with any matter referred to in this Agreement, or arising out of the matters contemplated by this Agreement (including but not limited to, the Information and Client’s or Masterwork’s failure to comply with, violation of, or alleged violation of the U.S. Securities laws and the rules promulgated thereunder, and the securities laws and regulations of any state or other jurisdiction applicable to their conduct), other than any matter relating to any tax payments payable by Financial Adviser as a result of Financial Adviser’s activities under or in connection with this Agreement, and other than any matter arising solely as a result of a breach by Financial Adviser of its representations and warranties set forth in this Agreement (regarding compliance with securities laws), Client and Masterworks jointly and severally agree to promptly reimburse Financial Adviser for its legal and other expenses (including but not limited to the cost of any investigation and preparation as they are incurred by Financial Adviser in connection therewith), unless and to the extent that it shall be finally judicially determined by a court of competent jurisdiction that such action, proceeding, investigation or inquiry arose out of the gross negligence or willful misconduct of Financial Adviser in performing the services, which are the subject of this Agreement.

b. Client and Masterworks also jointly and severally agree to indemnify Financial Adviser and hold it harmless from and against any and all losses, claims, damages, liabilities, costs and expenses, of every kind, nature and description, fixed or contingent (including, without limitation, counsel’s fees and expenses, and the costs of investigation and preparation for and any other costs associated with any action, proceeding, investigation, or inquiry in which Financial Adviser may be involved in any capacity) incurred by Financial Adviser in connection with or as a result of any matter referred to in this Agreement or arising out of any matter contemplated by this Agreement (including, but not limited to, the Information and Client’s or Masterwork’s failure to comply with, violation of, or alleged violation of the U.S. Securities laws and the rules promulgated there under, and the securities laws and regulations of any state or other jurisdiction applicable to their conduct), other than any matter relating to any tax payments payable by the Financial Adviser as a result of Financial Adviser’s activities under or in connection with this Agreement and other than any matter arising solely as a result of a breach by Financial Adviser of its representations and warranties set forth herein (regarding compliance with securities laws), unless and to the extent that it shall be finally judicially determined by a court of competent jurisdiction that such losses, claims, damages, or liabilities arose out of the gross negligence or willful misconduct of Financial Adviser in performing the services, which are the subject of this Agreement. For purpose of this paragraph, Financial Adviser shall include the officers, directors, employees, agents and controlling persons of IndeBrokers. The foregoing indemnification shall be in addition to any rights that any indemnified Party may have at common law or otherwise.

7. Indemnification of Client. In the event that the Client or Masterworks becomes involved in any capacity in any action, proceeding, investigation, or inquiry in connection with any matter referred to in this Agreement, the Financial Adviser agrees to reimburse the Client or Masterworks for its legal and other expenses (including but not limited to the cost of any investigation and preparation as they are incurred by Client or Masterworks in connection therewith) if, and to the extent that (i) it shall be finally judicially determined by a court of competent jurisdiction that such action, proceeding, investigation, or inquiry arose out of the gross negligence or willful misconduct of Financial Adviser in performing the services, which are the subject of this Agreement; or (ii) such action, proceeding, investigation, or inquiry arose solely out of Financial Adviser’s violation of its representations and warranties set forth in this Agreement regarding compliance with securities laws. Financial Adviser also agrees to indemnify Client and hold it harmless from and against any and all losses, claims, damages, liabilities, costs, and expenses of every kind, nature, and description, fixed or contingent (including, without limitation, counsel’s fees and expenses and the costs of investigation and preparation for and any other costs associated with any action, proceeding, investigation or inquiry in which Client may be involved in any capacity) incurred by Client or Masterworks in connection with or as a result of any matter referred to in this Agreement or arising out of any matter contemplated by this Agreement if (i) it shall be finally judicially determined by a court of competent jurisdiction that such losses, claims, damages, or liabilities arose out of the gross negligence or willful misconduct of Financial Adviser; or, (ii) in the event of Financial Adviser’s violation of its representations and warranties set forth in this Agreement regarding compliance with securities laws.

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8. Covenants, Representations and Warranties of Financial Adviser. Financial Adviser represents, warrants and covenants to Client that:

a. it has and will maintain all registrations and memberships required to perform its obligations and services hereunder in accordance with applicable law;

b. it is in compliance and will comply with all applicable laws, rules and regulations regarding its provision of services hereunder;

c. it has not and will not knowingly take any action, directly or indirectly that would cause the Regulation A Offering to violate the provisions of the Securities Act, the Securities Exchange Act of 1934 (the “1934 Act”), Title IV of the JOBS Act, the respective rules and regulations promulgated thereunder (the “Rules and Regulations”) or applicable “blue sky” laws of any state or jurisdiction; and it will, insofar as is under its control, conduct the Regulation A Offering in a manner prescribed by Title IV of the JOBS Act and Regulation A+;

d. IndeBrokers is a member in good standing of the Financial Industry Regulatory Authority, Inc. (“FINRA”), and is a broker-dealer registered as such under the 1934 Act and under the securities laws of the states in which the Securities will be offered or sold by it unless an exemption for such state registration is available; and

e. it has not taken and will not knowingly take any action, directly or indirectly, that may cause the Regulation A Offering to fail to be entitled to exemption from registration under United States federal securities laws, or applicable state securities or “blue sky” laws, or the applicable laws of the foreign countries in which the securities may be offered or sold by it.

9. Term; Termination; Survival of Provisions. The term of this Agreement, shall commence on the date hereof and shall continue, unless earlier terminated pursuant to the provisions of this section, for twelve (12) months, automatically renewable thereafter for monthly periods unless either party informs the other in writing thirty (30) days prior to the end of the current term of its intent to terminate this Agreement. This Agreement may be terminated prior to the end of the current term, by mutual written consent of the parties hereto:

a. by either party, upon thirty (30) days’ prior written notice; and

b. by Financial Adviser in the event that Client fails to pay any amount due hereunder within thirty (30) days of that due date or otherwise breaches its obligations to Financial Adviser.

Termination of this Agreement will not affect Financial Adviser’s right to receive continuing compensation with respect to investments made prior to such termination. It is understood and agreed that the provisions of this Agreement relating to the payment of fees and expenses, confidentiality and indemnification shall survive any termination of this Agreement.

10. Confidential Information. Each party hereto understands that the other party has disclosed or may disclose confidential and proprietary information relating to its own business, including, without limitation, names and expertise of employees and consultants, names of contacts and investors, and business, financial, customer and product development plans (“Confidential Information”). Each party agrees not to divulge any such Confidential Information of the other party to any third party, except to its affiliates and its and their respective authorized representatives, agents, independent contractors, consultants, attorneys, accountants and financial Advisers, or as may be necessary or appropriate to carry out the terms of this Agreement (including without limitation disclosing Confidential Information to prospective purchasers or investors and their respective attorneys and Advisers), or as may be required or requested to be disclosed by order of a court, administrative agency or governmental body or self-regulatory organization, or by any rule, law or regulation, or by subpoena or any other legal or administrative process, or as requested by any regulator or self-regulatory organization, or to enforce this Agreement, or to prosecute or defend any actual or threatened claim, suit, action or proceeding. Notwithstanding the foregoing, the parties agree that Confidential Information shall not include information which (a) is known by the non-disclosing party prior to its disclosure by the disclosing party and is not subject to other confidentiality obligation, (b) is or becomes publicly known through no breach of this Agreement, (c) is received from a third party without a breach of any confidentiality obligation known to the non-disclosing party, (d) is independently developed by the non-disclosing party or (e) is disclosed with the disclosing party’s prior written consent. Notwithstanding anything to the contrary set forth in this Agreement, (A) this Agreement may be disclosed to any person or entity and (B) either party may disclose to any and all persons, without limitation of any kind, the U.S. tax treatment and U.S. tax structure of the Transaction and all materials of any kind (including opinions or other tax analyses) that are provided to either party relating to such U.S. tax treatment and U.S. tax structure.

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11. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors, legal representatives and assigns. Notwithstanding anything contained herein to the contrary, a party may not assign this Agreement without the prior written consent of the other party.

12. Interpretation and Enforcement; Governing Law. This Agreement and its interpretation and enforcement shall be governed by the laws of the State of New York applicable to contracts to be performed entirely within this state and without regard to its principles of conflicts of law. If any provision of this Agreement is deemed by an authority of competent jurisdiction to be unenforceable or contrary to applicable law, such provision shall be enforced to the maximum extent permitted by law to affect our intentions hereunder, and the remainder of this Agreement shall continue in full force and effect. Neither the failure to insist upon strict compliance with Agreement nor any course of conduct, including without limitation failure on any party’s part to exercise or delay in exercising any rights, shall constitute a waiver by such party of any of its rights hereunder. No single or partial exercise by any party of any right shall preclude any other or future exercise by any party of any such right or the exercises by such party of any other single or partial right. Any waiver by any party must be in writing and signed by such party and shall be effective only for the purpose and in the specific instance for which it is given.

13. Arbitration The parties agree that any dispute relating to or arising out of this Agreement or the interpretation or performance of this Agreement shall be submitted to arbitration in New York, New York under the auspices of FINRA Dispute Resolution, Inc., in accordance with the rules of FINRA with respect to arbitration of disputes between FINRA members and customers. Each party will be responsible for its respective costs of any such arbitration, including forum fees and fees and expenses of legal counsel.

THE PARTIES ACKNOWLEDGE THAT: BY CONSENTING TO ARBITRATION THE PARTIES ARE WAIVING ANY RIGHT TO TRIAL BY A JURY. DISCOVERY IN ARBITRATIONS MAY BE MORE LIMITED THAN IN COURT PROCEEDINGS. ARBITRATORS ARE NOT NECESSARILY BOUND BY RULES OF LAW IN MAKING AWARDS, AND ARE NOT NECESSARILY REQUIRED TO ISSUE A REASONED OPINION IN SUPPORT OF THEIR AWARDS. HERE IS ONLY A LIMITED RIGHT TO APPEAL FROM AN ADVERSE DECISION BY AN ARBITRATION PANEL.

14. Counterparts. For the convenience of the parties, this Agreement may be executed in any number of counterparts by facsimile transmission or electronic .pdf form, each of which shall be, and shall be deemed to be, an original instrument, but all of which taken together shall constitute one and the same agreement.

15. Entire Agreement; Amendments. This Agreement effective as of the Effective Date embodies the entire agreement between the parties with respect to the subject matter hereof, supersedes all prior agreements and understandings, oral or written, and may not be amended, supplemented or modified absent a written instrument signed by the parties hereto.

16. Notices. Unless otherwise specified in this Agreement, all communications under this Agreement will be given in writing, sent by hand delivery, overnight courier or registered mail to the address set forth below the signature of each party or to such other address as such party will have specified in writing to the other party hereto, and will be deemed to have been delivered effective at the earlier of its receipt or within two (2) days after dispatch. Under no circumstances will communication or notification via email be deemed as contemplated by this Agreement.

17. Third Party Rights; Limited Duties; No Recourse to owners of Financial Adviser. Nothing in this Agreement shall be construed to confer upon any third party a right of action under this Agreement or any other right whatsoever. Financial Adviser owes no duty, fiduciary or otherwise, to any officer, director, owner, partner, investor, shareholder or member of, or auditor, attorney or adviser to, the Client, even if advised that any of them may be relying on any written or oral advice or recommendation made by Financial Adviser or any of its affiliates (or any of their respective employees or agents), or receiving any report or advice prepared by Financial Adviser or any of its affiliates. Financial Adviser owes no duty or obligation, fiduciary or otherwise, to the Client, other than the express contractual obligations set forth in this Agreement. No past, present or future director, officer, employee, incorporator, member, partner, stockholder, affiliate, agent, attorney or representative of Financial Adviser or any of their respective affiliates shall have any liability (whether in contract or in tort) for any obligations or liabilities of the Financial Adviser arising under, in connection with or related to this Agreement or for any claim based on, in respect of, or by reason of, the transaction contemplated hereby, including, without limitation, any alleged non-disclosure or misrepresentations made by any such persons or entities.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

[EXECUTION PAGE TO FOLLOW]

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If the foregoing correctly sets forth our agreement, please so indicate by signing below and returning an executed counterpart to Financial Adviser at your earliest convenience. We look forward to working with you to the successful conclusion of this engagement and developing a long-term relationship.

Very truly yours,
Independent Brokerage Solutions LLC
By:
Name:	Bryon H. Lyons
Title:	CEO
Address for notices:
Independent Brokerage Solutions LLC
485 Madison Ave, 15th Floor
New York, NY 10022
ACCEPTED AND AGREED AS OF
Date:
Masterworks Investor Services, LLC
By:
Name:	Josh Goldstein
Title:	General Counsel
Address for Notices:
497 Broome Street
New York, NY 10013
Masterworks 040, LLC
By:
Name:	Josh Goldstein
Title:	General Counsel
Address for notices:
497 Broome Street
New York, NY 10013

ADD EXHB

Exhibit 2.1

 

 

ADD EXHB

EXHIBIT 2.2

FORM OF AMENDED AND RESTATED

LIMITED LIABILITY COMPANY OPERATING AGREEMENT

OF

MASTERWORKS 040, LLC

[  ], 2021

Table of Contents

		Page
ARTICLE 1 GENERAL PROVISIONS		1
1.1	Definitions	5
1.2	Name	5
1.3	Principal Office	5
1.4	Registered Office and Registered Agent	5
1.5	Term	5
1.6	Purpose and Powers	5
1.7	Power of Attorney	5
ARTICLE 2 MANAGEMENT; MEMBERS AND SHARES		6
2.1	Rights and Duties of the Board of Managers	6
2.2	Officers	7
2.3	Members	8
2.4	Shares; Membership Interests	9
2.5	Certificates and Representations of Shares	10
2.6	Record Holders	10
2.7	Registration and Transfer of Shares	11
2.8	Voting	12
2.9	Removal or Replacement of the Managers	13
2.10	Withdrawal of the Managers	13
ARTICLE 3 CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNT; DISTRIBUTIONS; ALLOCATIONS		14
3.1	Capital Contributions	14
3.2	Capital Account	14
3.3	Distributions	14
3.4	Tax Allocations	15
ARTICLE 4 LIABILITY; INDEMNIFICATION		15
4.1	Liability of a Member	15
4.2	Exculpation and Indemnification	16
ARTICLE 5 ACCOUNTING; FINANCIAL AND TAX MATTERS		17
5.1	Accounting Basis	17
5.2	Tax Matters	17
ARTICLE 6 DISSOLUTION; WINDING UP; TERMINATION		18
6.1	Dissolution	18
6.2	Winding Up and Termination	19
6.3	Assets Reserved and Pending Claims	19

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ARTICLE 7 MEMBER MEETINGS		20
7.1	Member Meetings	20
7.2	Notice of Meetings of Members	20
7.3	Record Date	20
7.4	Adjournment	20
7.5	Waiver of Notice; Approval of Meeting	21
7.6	Quorum; Required Vote	21
7.7	Conduct of a Meeting; Member Lists	21
7.8	Action Without a Meeting	21
7.9	Voting and Other Rights	21
7.10	Proxies and Voting	22
ARTICLE 8 MISCELLANEOUS		23
8.1	Addresses and Notices	23
8.2	Amendments; Waiver	23
8.3	Successors and Assigns	23
8.4	No Waiver	23
8.5	Survival of Certain Provisions	23
8.6	Corporate Treatment	23
8.7	Section 7704(e) Relief	24
8.8	Telephone Consumer Protection Act Consent	24
8.9	Electronic Information	24
8.10	Severability	24
8.11	Interpretation	24
8.12	No Third-Party Rights	24
8.13	Entire Agreement	24
8.14	Rule of Construction	25
8.15	Authority	25
8.16	Governing Law	25
8.17	Choice of Forum for Securities Act Disputes	25
8.18	Facsimile Signatures	25
8.19	Counterparts	25

Exhibit A	Members, Capital Contributions, Shares
Schedule 1	Painting

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AMENDED AND RESTATED

LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF

MASTERWORKS 040, LLC

This Amended and Restated Limited Liability Company Operating Agreement (this “Agreement”) of Masterworks 040, LLC, a Delaware limited liability company (the “Company”), is dated as of       , 2021, and is entered into by Masterworks Gallery, LLC as its sole initial Member (the “Initial Member”).

R E C I T A L S:

A. The Company has heretofore been formed as a limited liability company under the Delaware Act (as defined below) pursuant to a Certificate of Formation filed with the Secretary of State of the State of Delaware on December 11, 2020.

B. The Initial Member has entered into that certain Limited Liability Company Operating Agreement, dated as of December 11, 2020 (the “Original Agreement”) and now desires to amend and restate the Original Agreement in its entirety as set forth herein;

C. The Company and the Initial Member acknowledge the status of the Company initially, prior to the admission of one or more additional Persons (defined hereinafter) as Members, as a disregarded entity for U.S. federal income tax purposes whose U.S. federal income taxable attributes, if any, would be deemed attributed solely to the Initial Member as its sole member; provided, however, owing to the contemplation of the imminent admission of one or more Persons as additional Members, upon such occurrence, the Company would be deemed to have become classified as a partnership for U.S. federal income tax purposes by default. Accordingly, this Agreement has been intentionally structured contemplating that eventuality, through its implementation of certain applicable concepts of U.S. federal partnership tax law, and prescription of certain processes and procedures incidental to such tax classification, that would become applicable only upon admission of such one or more Persons as additional Members.

NOW, THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Original Agreement is hereby amended and restated in its entirety to provide as set forth herein, and the Initial Member hereby agrees as follows:

ARTICLE 1 GENERAL PROVISIONS

1.1 Definitions. For the purpose of this Agreement, the following terms shall have the following meanings:

“Adjustment Year” has the meaning ascribed to said phrase under Section 6225(d)(2) of the Code.

“Administrative Services Agreement” has the meaning set forth in Section 2.1(d).

“Administrator” has the meaning set forth in 2.1(d).

“Affiliate” means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person. For the purposes of this definition, the term “controls,” “is controlled by” or “under common control with” means, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of such Person, whether through the ownership of voting securities, by contract or otherwise. No Member shall be deemed to be an “Affiliate” of the Company solely by reason of being a Member of the Company.

“Agreement” has the meaning set forth in the preamble.

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“Beneficial Owner” of a security is a Person who directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of, such security and/or (ii) investment power, which includes the power to dispose, or to direct the disposition of, such security. The terms “Beneficially Own” and “Beneficial Ownership” shall have correlative meanings. Notwithstanding the forgoing, any determination as to whether a Person is a “Beneficial Owner” shall be determined in accordance with Section 13d-3(a) of the Securities Exchange Act, as amended. If such Person would be deemed a Beneficial Owner pursuant to Section 13, such Person shall be deemed a Beneficial Owner for purposes of this Agreement and, conversely, if such Person would not be deemed a Beneficial Owner pursuant to Section 13, such Person shall not be deemed a Beneficial Owner for purposes of this Agreement.

“Board” has the meaning set forth in 2.1.

“Capital Contribution” means, with respect to each Member, the amount of cash or the Fair Value of any property contributed or deemed to be contributed by such Member, if any, to the capital of the Company from time to time pursuant to Section 3.1.

“Cause” has the meaning set forth in Section 2.9.

“Certificate” means a certificate (i) in global form in accordance with the rules and regulations of the Depositary or (ii) in such other form as may be adopted by the Board, issued by the Company evidencing ownership of one or more Shares.

“Change in Tax Classification” has the meaning set forth in Section 5.2(h).

“Class A Member” means a Member holding one or more Class A Ordinary Shares.

“Class A Ordinary Shares” shall have the meaning ascribed to it in Section 2.4(a).

“Class B Member” means a Member holding one or more Class B Ordinary Shares.

“Class B Ordinary Shares” shall have the meaning ascribed to it in Section 2.4(a).

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

“Commission” means the United States Securities and Exchange Commission.

“Company” has the meaning set forth in the preamble.

“Conversion Percentage” shall have the meaning ascribed to it in Section 2.4(d)(ii).

“Delaware Act” means the Chapter 18 of Subtitle II of Title 6 of the Delaware Code, referred to as the Delaware Limited Liability Company Act, as amended from time to time, and any successor thereto.

“Depositary” means, with respect to any Shares issued in global form, The Depository Trust Company and its successors and permitted assigns.

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“DGCL” means the General Corporation Law of the State of Delaware, 8 Del. C. Section 101, et seq., as amended, supplemented or restated from time to time, and any successor to such statute.

“Dissolution Event” has the meaning set forth in Section 6.1.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, supplemented or restated from time to time and any successor to such statute, and the rules and regulations promulgated thereunder.

“Fair Value” means, with respect to securities or any other assets, other than cash, the fair market value determined by the Board.

“Fiscal Year” means each fiscal year of the Company (or portion thereof), which shall end on December 31; provided, however, that, upon Termination of the Company, “Fiscal Year” means the period from the January 1 immediately preceding such Termination to the date of such Termination.

“Initial Member” has the meaning set forth in the introductory paragraph.

“Involuntary Transfer” shall mean any Transfer of Shares, or proposed Transfer of Shares, (i) in the case of a Member who is a natural person, upon such Member’s death or the entry by a court of competent jurisdiction adjudicating such Member incompetent to manage such Member’s person or such Member’s property; (ii) in the case of a Member that is a trust, the termination of the trust, (iii) in the case of a Member that is a partnership, the dissolution and commencement of winding up of the partnership; (iv) in the case of a Member that is an estate, the distribution by the fiduciary of the estate’s interest in the Company; and (v) in the case of a Member that is a corporation, the filing of a certificate of dissolution, or its equivalent, for the corporation or the revocation of its charter.

“Liabilities” has the meaning set forth in Section 4.2(b).

“Liquidating Trustee” has the meaning set forth in Section 6.2(a).

“Masterworks Shares” has the meaning set forth in Section 2.8(c).

“Manager” has the meaning set forth in 2.1.

“Member” has the meaning set forth in the preamble and includes any Person later admitted to the Company as a Member.

“National Securities Exchange” means an exchange registered with the Commission under Section 6(a) of the Exchange Act or any successor thereto.

“Offering” means the offering by the Company of Class A Ordinary Shares for sale to the public pursuant to Regulation A under the Securities Act of 1933, as amended (the “Act”) or, in any replacement offering of Class A Ordinary Shares, as determined by the Board in the event such Offering shall not proceed for any reason.

“Officers” has the meaning set forth in Section 2.2.

“Partnership Representative” has the meaning set forth in Section 5.2(a).

“Painting” has the meaning set forth in Section 1.6(a).

“Person” means an individual, a corporation, a company, a voluntary association, a partnership, a joint venture, a limited liability company, a trust, an estate, an unincorporated organization, a governmental authority or other entity.

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“Prior Interests” has the meaning set forth in Section 2.4(b).

“Protected Person” means: (i) the members of the Board; (ii) the Administrator and its Affiliates; (iii) any Member; (iv) any Officer; or (v) any Person who serves at the request of the Board on behalf of the Company as an officer, director, partner, member, stockholder or employee of any other Person.

“Record Date” means the date established by the Company for determining (a) the identity of the Record Holders entitled to notice of, or to vote at, any meeting of Members or entitled to exercise rights in respect of any lawful action of Members or (b) the identity of Record Holders entitled to receive any report or distribution or to participate in any offer.

“Record Holder” or “holder” means the Person in whose name such Shares are registered on the books of the Company or the Transfer Agent, as applicable, as of the opening of business on a particular Business Day.

“Reviewed Year” has the meaning ascribed to said phrase under Section 6225(d)(1) of the Code.

“Sale of the Painting” means the transfer of title and ownership of the Painting to an un-Affiliated third-party and receipt by the Company of value therefor as determined by the Board.

“Service” has the meaning set forth in Section 5.2(a).

“Share” has the meaning set forth in Section 2.4.

“Substitute Member” means a Person who is admitted as a Member of the Company pursuant to Section 2.7 as a result of a Transfer of Shares to such Person.

“Tax Proceeding” has the meaning set forth in Section 5.2(a). 

“Termination” means the date of the cancellation of the Certificate of Formation of the Company following the end of the Winding Up Period by the filing of a Certificate of Cancellation of the Company with the Secretary of State of the State of Delaware.

“Transfer Agent” means, with respect to any class of Shares, such bank, trust company or other Person (including the Company or one of its Affiliates) as shall be appointed from time to time by the Company to act as registrar and transfer agent for such class of Shares; provided that if no Transfer Agent is specifically designated for such class of Shares, the Administrator or the Company shall act in such capacity.

“Transfer” means, with respect to a Share and the associated membership interest in the Company, a transaction by which the Record Holder of a Share assigns such Share to another Person who is or becomes a Member, and includes a sale, assignment, gift, exchange or any other disposition by law or otherwise, including any transfer upon foreclosure of any pledge, encumbrance, hypothecation or mortgage.

“Treasury Regulations” means the regulations of the U.S. Treasury Department issued pursuant to the Code.

“Value Increase” shall have the meaning ascribed to it in Section 2.4(d)(i).

“Voting Member” means a Member holding one or more Voting Shares.

“Voting Shares” means the Class A Ordinary Shares, excluding any Shares beneficially owned by the Administrator or any of its Affiliates.

“Winding Up Period” means the period from the Dissolution Event to the Termination of the Company.

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1.2 Name. The name of the Company is “Masterworks 040, LLC.” All business of the Company shall be conducted under such name. The Members may elect to change the name of the Company at any time.

1.3 Principal Office. The principal office of the Company shall be at a location as determined by the Board either within or outside of the United States. The Company shall keep its books and records at its principal office.

1.4 Registered Office and Registered Agent. The street address of the registered office of the Company in the State of Delaware shall be as selected by the Board. The Board may elect to change the registered office and the registered agent of the Company at any time.

1.5 Term. The Company was formed on December 11, 2020 and shall continue its regular business activities until the Company is dissolved.

1.6 Purpose and Powers.

(a) The Company is organized for the purposes of undertaking such activities as determined by the Board and, subject to the terms and conditions herein and of the Delaware Act, the Members, which are permitted by applicable law and engaging in activities incidental or ancillary thereto. Notwithstanding the forgoing, the Company has been organized to form a subsidiary which will acquire the artwork as identified on Schedule 1 (the “Painting”) and undertake certain actions with respect thereto.

(b) The Company shall possess and may exercise all the powers and privileges granted by the Delaware Act or by any other law or by this Agreement, together with any powers incidental thereto, which are necessary or convenient to the conduct, promotion or attainment of the business, purposes or activities of the Company.

1.7 Power of Attorney.

(a) Each Member hereby constitutes and appoints each of the Chief Executive Officer, the Chief Financial Officer and the Secretary of the Company and, if a Liquidating Trustee shall have been selected pursuant to Section 6.2(a), the Liquidating Trustee (and any successor to the Liquidating Trustee by merger, transfer, assignment, election or otherwise) and each of their authorized officers and attorneys-in-fact, as the case may be, with full power of substitution, as his true and lawful agent and attorney-in-fact, with full power and authority in his name, place and stead, to:

(i) execute, swear to, acknowledge, deliver, file and record in the appropriate public offices:

(A) all certificates, documents and other instruments (including this Agreement and the Certificate of Formation and all amendments or restatements hereof or thereof) that the Chief Executive Officer, Chief Financial Officer or Secretary of the Company, or the Liquidating Trustee, determines to be necessary or appropriate to form, qualify or continue the existence or qualification of the Company as a limited liability company in the State of Delaware and in all other jurisdictions in which the Company may conduct business or own property;

(B) all certificates, documents and other instruments that the Chief Executive Officer, the Chief Financial Officer or Secretary of the Company, or the Liquidating Trustee, determines to be necessary or appropriate to reflect, in accordance with its terms, any amendment, change, modification or restatement of this Agreement;

(C) all certificates, documents and other instruments (including conveyances and a certificate of cancellation) that the Board or the Liquidating Trustee determines to be necessary or appropriate to reflect the dissolution, liquidation and termination of the Company pursuant to the terms of this Agreement;

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(D) all certificates, documents and other instruments relating to the admission, withdrawal, removal or substitution of any Member pursuant to, or other events described in, ARTICLE 2 or ARTICLE 3; and

(E) all certificates, documents and other instruments (including agreements and a certificate of merger) relating to a merger, consolidation or conversion of the Company; and

(ii) execute, swear to, acknowledge, deliver, file and record all ballots, consents, approvals, waivers, certificates, documents and other instruments that the Board or the Liquidating Trustee determines to be necessary or appropriate to (i) make, evidence, give, confirm or ratify any vote, consent, approval, agreement or other action that is made or given by the Members hereunder or is consistent with the terms of this Agreement or (ii) effectuate the terms or intent of this Agreement; provided, that when required by any provision of this Agreement that establishes a percentage of the Members or of the Members of any class or series required to take any action, the Chief Executive Officer, Chief Financial Officer or Secretary of the Company, or the Liquidating Trustee, may exercise the power of attorney made in this Section 1.7(a)(ii) only after the necessary vote, consent, approval, agreement or other action of the Members or of the Members of such class or series, as applicable.

(b) Nothing contained in this Section 1.7 shall be construed as authorizing the Chief Executive Officer, Chief Financial Officer or Secretary of the Company, or the Liquidating Trustee, to amend, change or modify this Agreement except in accordance with Section 8.2 or as may be otherwise expressly provided for in this Agreement.

(c) The foregoing power of attorney is hereby declared to be irrevocable and a power coupled with an interest, and it shall survive and, to the maximum extent permitted by law, not be affected by the subsequent death, incompetency, disability, incapacity, dissolution, bankruptcy or termination of any Member and the Transfer of all or any portion of such Member’s Shares and shall extend to such Member’s heirs, successors, assigns and personal representatives. Each such Member hereby agrees to be bound by any representation made by the Chief Executive Officer, Chief Financial Officer or Secretary of the Company, or the Liquidating Trustee, acting in good faith pursuant to such power of attorney; and each such Member, to the maximum extent permitted by law, hereby waives any and all defenses that may be available to contest, negate or disaffirm the action of the Chief Executive Officer, Chief Financial Officer or Secretary of the Company, or the Liquidating Trustee, taken in good faith under such power of attorney in accordance with Section 1.7. Each Member shall execute and deliver to the Chief Executive Officer, Chief Financial Officer or Secretary of the Company, or the Liquidating Trustee, within 15 days after receipt of the request therefor, such further designation, powers of attorney and other instruments as any of such Officers or the Liquidating Trustee determines to be necessary or appropriate to effectuate this Agreement and the purposes of the Company.

ARTICLE 2 MANAGEMENT; MEMBERS AND SHARES

2.1 Rights and Duties of the Board of Managers.

(a) The Company is a manager-managed limited liability company. Accordingly, management of the affairs of the Company shall be vested in a Board of Managers (the “Board”). The Persons constituting the Board (each, a “Manager”) will be (i) the “managers” of the Company for all purposes under the Act and (ii) the Board for all purposes under this Agreement. The Board will have the power to act only by a majority of the Managers in accordance with the provisions and in the manner specified herein. A person does not need to be a Member to serve on the Board. The Board will consist of three members and shall initially consist of, Nigel Glenday, Josh Goldstein and the Independent Manager, who shall serve until they resign or are replaced by a majority of the Board, and new members of the Board shall be appointed by a majority of the Board. Provided, however, the Members holding 66 2/3% of the Voting Shares can vote to remove and replace a Manager for “Cause” in accordance with Section 2.9. The size of the Board may be increased or decreased from time to time by action of the Board.

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(b) The Company shall have one Independent Manager serving as one of the members of the Board. To the fullest extent permitted by law, the Independent Manager shall consider only the interests of the Company in acting or otherwise voting on the matters set forth in this Article 2. The Independent Manager shall act where other Managers are excluded from voting on certain matters involving a direct or indirect conflict of interest between any Manager on the one hand and public investors on the other hand. All right, power and authority of the Independent Manager shall be limited to the extent necessary to exercise those rights and perform those duties specifically set forth herein and the Independent Manager shall have no authority to bind the Company.

(c) Except as otherwise expressly provided in this Agreement or as required by the Delaware Act, the Board shall have complete and exclusive discretion in the management and control of the affairs and business of the Company, and shall possess all powers necessary, convenient or appropriate to carrying out the purposes and business of the Company, including doing all things and taking all actions necessary to carry out the terms and provisions of this Agreement. Except as otherwise expressly provided in this Agreement, the Board shall have, and shall have full authority in its discretion to exercise, on behalf of and in the name of the Company, all rights and powers of a “manager” of a limited liability company under the Delaware Act necessary or convenient to carry out the purposes of the Company Except as otherwise expressly provided in this Agreement, the Board or Persons designated by the Board, including officers and agents (including the Administrator) appointed by the Board, will be the only Persons authorized to execute documents which will be binding on the Company. To the fullest extent permitted by Delaware law, but subject to any specific provisions hereof granting rights to one (1) or more Members (e.g., the right of Masterworks Gallery, LLC to designate Board members), the Board will have the power to perform any acts, statutory or otherwise, with respect to the Company (including with respect to any Subsidiary of the Company) or this Agreement, which would otherwise be possessed by the Members under Delaware law, and the Members will have no power whatsoever with respect to the management of the business and affairs of the Company (including with respect to any Subsidiary of the Company) except as expressly provided herein.

(d) The Company shall enter into an administrative services agreement with Masterworks Administrative Services, LLC (the “Administrator”) in form and substance as reasonably determined by the Initial Member (the “Administrative Services Agreement”). The Board has authorized the Administrator to administer all day to day operations of the Company. Any amendment to the Administrative Services Agreement that would be adverse or detrimental to the interests of members of the Company must be approved by holders of a majority of voting shares. Any termination of the Administrative Services Agreement will require the prior written consent of Masterworks Gallery, LLC.

(e) Subject to the terms and conditions herein, all decisions regarding the management and operations of the Company shall be made by the Board, provided, however, that the Administrator shall have all power and authority to take any and all actions necessary to effectuate the intent and purpose of the Administrative Services Agreement and the Board may designate any Officers of the Company to have control or authority with respect to one or more decisions or areas of operation, and may include such limitations or restrictions on such power as they may deem reasonable.

2.2 Officers.

(a) At any time, the Board may appoint and replace individuals as officers or agents of the Company (“Officers”) with such titles as the Board may elect to act on behalf of the Company with such power and authority as the Board may delegate to such persons. Any number of offices may be held by the same person. Officers shall hold their offices for such terms as shall be determined from time to time by the Board. Unless otherwise determined and set forth by the Board and subject to the policies and procedures of the Company applicable to Officers and employees, each Officer shall have the powers, rights and obligations as are customarily held and exercised by other persons in similar positions in limited liability companies organized under the Delaware Act, subject to Section 2.1(c). The Officers shall hold office until their successors are chosen and qualified. Any Officer may be removed at any time, with or without cause, by the Board. The Officers may also be officers or employees of other Persons. The Officers, to the extent of their powers set forth in this Agreement or otherwise vested in them by action of the Board not inconsistent with this Agreement, are agents of the Company for the purpose of the Company’s business and the actions of the Officers taken in accordance with such powers shall bind the Company. Except to the extent otherwise provided herein, each Officer shall have a fiduciary duty of loyalty and care as set forth in the Delaware Act. No Officer shall at any time serve as trustee in bankruptcy for any Affiliate of the Company.

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(b) Notwithstanding the foregoing, it shall be deemed not to be a breach of any duty (including any fiduciary duty) or any other obligation of any type whatsoever of any Manager or any officer or employee or any Affiliates of such Manager, officer or employee (other than any express obligation contained in any agreement to which such Person and the Company or any of its subsidiaries are parties) to engage in outside business interests and activities in preference to or to the exclusion of the Company or in direct competition with the Company; provided such Person does not engage in such business or activity as a result of or using confidential information provided by or on behalf of the Company to such Person; provided, further, that a Person shall not be deemed to be in direct competition with the Company solely because of such Person’s ownership, directly or indirectly, solely for investment purposes, of securities of any publicly traded entity if such Person does not, together with such Person’s Affiliates, collectively own 5% or more of any class or securities of such publicly traded entity, and such Person is not a director or officer (and does not hold an equivalent position) in such publicly traded entity. Neither the Board, not any officer or employee shall have no obligation hereunder or as a result of any duty expressed or implied by law to present business opportunities to the Company that may become available to Affiliates of such Person. None of any Member or any other Person shall have any rights by virtue of the Board’s or any officer’s or employee’s or any Affiliates of the Board, officer or employee duties as the Board or any Manager, officer or employee or this Agreement in any business ventures of the Administrator or any Manager or any officer or employee or any Affiliates of the Administrator or any such Manager, officer or employee.

(c) Nigel S. Glenday is hereby designated as the Chief Executive Officer and Chief Financial Officer and Josh Goldstein is designated the General Counsel and Secretary of the Company, each to serve in such capacity until his earlier death, resignation or removal from office.

2.3 Members.

(a) A Person shall be admitted as a Member and shall become bound by, and shall be deemed to have agreed to be bound by, the terms of this Agreement if such Person purchases or otherwise lawfully acquires any Share, and such Person shall become the Record Holder of such Share, in accordance with the provisions of this Agreement. A Member may be a Class A Member and or a Class B Member, and, in such case, shall have the rights and obligation accorded to the Class A Ordinary Shares with respect to such Class A Ordinary Shares and the rights and obligations accorded to the Class B Ordinary Shares with respect to such Class B Ordinary Shares. A Person may become a Record Holder without the consent or approval of any of the Members and without physical execution of this Agreement. A Person may not become a Member without acquiring a Share.

(b) The name and mailing address of each Member or such Member’s representative shall be listed on the books and records of the Company maintained for such purpose by the Company or the Transfer Agent.

(c) Except as otherwise provided in the Delaware Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and the Members shall not be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a Member of the Company.

(d) Except to the extent expressly provided in this Agreement: (i) no Member shall be entitled to the withdrawal or return of any Capital Contribution, except to the extent, if any, that distributions made pursuant to this Agreement or upon dissolution of the Company may be considered as such by law and then only to the extent provided for in this Agreement; (ii) no Member shall have priority over any other Member either as to the return of Capital Contributions or as to profits, losses or distributions; (iii) no interest shall be paid by the Company on Capital Contributions; and (iv) no Member, in its capacity as such, shall participate in the operation or management of the Company’s business, transact any business in the Company’s name or have the power to sign documents for or otherwise bind the Company by reason of being a Member.

(e) Any Member shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Company, including business interests and activities in direct competition with the Company. Neither the Company nor any of the other Members shall have any rights by virtue of this Agreement in any such business interests or activities of any Member.

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2.4 Shares; Membership Interests.

(a) The total of the membership interests in the Company shall be divided into (i) Class A Ordinary Shares having the rights and preferences as set forth herein (the “Class A Ordinary Shares”) and (ii) Class B Ordinary Shares having the rights and preferences as set forth herein (the “Class B Ordinary Shares” and, together with the Class A Ordinary Shares, the “Shares” and each a “Share”) all of which shall have the same rights, powers and duties, except as otherwise set forth in this Agreement. The number of Class A Ordinary Shares shall be limited to the maximum number of Class A Ordinary shares offered in the Offering, plus (i) the number of Class A Ordinary Shares which may be issued pursuant to the Administrative Services Agreement, plus (ii) the number of Class A Ordinary Shares which may be issued upon conversion of the Class B Ordinary Shares. The number of Class B Ordinary Shares shall be limited to up to 1,000. The Shares of the Members shall be as set forth on Exhibit A attached hereto, which may be updated as set forth herein. For the avoidance of doubt, in the event that all of the Class A Ordinary Shares are not sold pursuant to the Offering, the Board shall, upon the final closing of the Offering, issue a number of Class A Ordinary Shares to the Initial Member equal to the aggregate number of Class A Ordinary Shares that remain unsold in the Offering, as repayment in full of any and all obligations owing to the Initial Member in respect of advances made to acquire the Painting and true-up fees payable to the Initial Member. The name and mailing address of each Member or such Member’s representative shall be listed on the books and records of the Company maintained for such purpose by the Company or the Transfer Agent.

(b) Prior to the date hereof and as set forth in the Original Agreement, the Initial Member has been issued 100% of the membership interests in the Company in return for a capital contribution of $100 (the “Prior Interests”). Upon execution of this Agreement, the Prior Interests shall be automatically converted into 1,000 Class B Ordinary Shares. As of the date of such conversion, the Class B Ordinary Shares shall constitute all of the membership interests of the Company and, prior to the issuance of Class A Ordinary Shares, shall have all of the rights and privileges of 100% of the membership interests in the Company afforded pursuant to this Agreement and applicable law.

(c) Notwithstanding any provision to the contrary in this Agreement, the Board shall have full power and authority to schedule one or more closings to issue Class A Ordinary Shares and admit Members to the Company in accordance with the provisions of this Agreement. Any Person that acquires Class A Ordinary Shares and is admitted as a Member of the Company after the date hereof, shall, in connection with such Member’s acquisition of such Class A Ordinary Shares, pay to the Company such Member’s pro rata share of (i) any true-up fees payable by the Company to the Initial Member and (ii) any other amounts paid to the Company by the previously admitted Members, including, to the extent the Painting has been acquired prior to the admission of such Member, any amounts in respect of advances made by the Initial Member to the Company to acquire the Painting. 

(d) The Class B Members may elect to convert their Class B Ordinary Shares into Class A Ordinary Shares, in whole or in part, at any time prior to the consummation of the Sale of the Painting, subject to the terms and conditions herein, for no additional consideration pursuant and to the following conversion formula: The number of Class A Ordinary Shares issuable per Class B Ordinary Share upon conversion shall equal (A) the Value Increase, multiplied by (B) the Conversion Percentage, multiplied by (C) 20%, divided by (D) the Class A Ordinary Share Value. For purposes herein:

(i) “Value Increase” means, the aggregate value of Shares outstanding at such time, minus the product of (A) the number of Class A Ordinary Shares outstanding at such time and (B) $20.00, if such difference is positive.

(ii) “Conversion Percentage” means, (A) the number of Class B Ordinary Shares being converted, divided by (B) the total number of Class B Ordinary Shares issued and outstanding (i.e. up to 1,000).

(iii) “Class A Ordinary Share Value” means, as of the close of business on the day preceding the date, the volume weighted average trading price of the Class A Ordinary Shares on all trading platforms or trading systems on which the Class A Ordinary Shares are being traded over the forty-five (45) trading days then ended, provided, that if the total aggregate trading volume over such 45-trading-day period is less than 5% of the public float, such period shall be extended to the ninety (90) trading days then ended, provided, further, if the total aggregate trading volume over such 90-trading-day period is less than 5% of the public float, the holder of the Class B Ordinary Shares shall request that the Board obtain an appraisal of the value of the Class A Ordinary Shares from one or more independent nationally-recognized third party appraisal companies and such appraisal shall constitute the Class A Ordinary Share Value.

(e) Any investor in the Offering, generally cannot own, or be deemed to beneficially own, as “beneficial ownership” is determined pursuant to Section 13(d) and 13(g) of the Securities Act, more than 19.99% of the total number of Class A Ordinary Shares outstanding. In addition, if a Member holds more than 10% of the Class A Ordinary Shares offered in the Offering, such Member acknowledges that the Member’s name, address and holdings may be reported in the Company’s ongoing SEC filings.

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2.5 Certificates and Representations of Shares.

(a) Shares may be recorded in book entry form or may be evidenced by certificates or electronic or crypto tokens or coins, or in any other form, as determined by the Board as may be permitted by the Delaware Act. Notwithstanding anything to the contrary herein, unless the Board shall determine otherwise in respect of one or more classes of Shares or as may be required by the Depository with respect to any specific class of Shares, Shares shall not be evidenced by physical Certificates. No Member shall have the right to require the Company to issue physical Certificates representing Shares for any reason, except as may be required by applicable law. If the Board authorizes the issuance of Shares to any Person in the form of physical Certificates, the Company shall issue one or more Certificates in the name of such Person evidencing the number of such Shares being so issued. Certificates shall be executed on behalf of the Company by the Board. If and to the extent a Transfer Agent has been appointed with respect to any class or series of Shares, no Certificate representing such class or series of Shares shall be valid for any purpose until it has been countersigned by the Transfer Agent; provided, however, that if the Board elects to issue Shares in global form, the Certificates representing Shares shall be valid upon receipt of a certificate from the Transfer Agent certifying that the Shares have been duly registered in accordance with the directions of the Company. Any or all of the signatures required on the Certificate may be by facsimile. If any officer or Transfer Agent who shall have signed or whose facsimile signature shall have been placed upon any such Certificate shall have ceased to be such officer or Transfer Agent before such Certificate is issued by the Company, such Certificate may nevertheless be issued by the Company with the same effect as if such Person were such officer or Transfer Agent at the date of issue. Certificates for any class or series of Shares shall be consecutively numbered and shall be entered on the books and records of the Company as they are issued and shall exhibit the holder’s name and number and type of Shares.

(b) If any mutilated Certificate is surrendered to the Company or the Transfer Agent, the appropriate officers on behalf of the Company shall execute, and the Transfer Agent shall countersign and deliver in exchange therefor, a new Certificate evidencing the same number and class or series of Shares as the Certificate so surrendered. The appropriate officers on behalf of the Company shall execute, and the Transfer Agent shall countersign and deliver, a new Certificate in place of any Certificate previously issued if the Record Holder of the Certificate: (i) makes proof by affidavit, in form and substance satisfactory to the Company, that a previously issued Certificate has been lost, destroyed or stolen; (ii) requests the issuance of a new Certificate before the Company has notice that the Certificate has been acquired by a purchaser for value in good faith and without notice of an adverse claim; (iii) if requested by the Company, delivers to the Company a bond, in form and substance satisfactory to the Company, with surety or sureties and with fixed or open penalty as the Company may direct to indemnify the Company and the Transfer Agent against any claim that may be made on account of the alleged loss, destruction or theft of the Certificate; and (iv) satisfies any other reasonable requirements imposed by the Company. If a Member fails to notify the Company within a reasonable time after he has notice of the loss, destruction or theft of a Certificate, and a Transfer of the Shares represented by the Certificate is registered before the Company or the Transfer Agent receives such notification, the Member shall be precluded from making any claim against the Company or the Transfer Agent for such Transfer or for a new Certificate. As a condition to the issuance of any new Certificate under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Transfer Agent) reasonably connected therewith.

2.6 Record Holders. The Company shall be entitled to recognize the Record Holder as the owner of a Share and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Share on the part of any other Person, regardless of whether the Company shall have actual or other notice thereof, except as otherwise provided by law or any applicable rule, regulation, guideline or requirement of any National Securities Exchange on which such Shares are listed for trading. Without limiting the foregoing, when a Person (such as a broker, dealer, bank, trust company or clearing corporation or an agent of any of the foregoing) is acting as nominee, agent or in some other representative capacity for another Person in acquiring and/or holding Shares, as between the Company on the one hand, and such other Persons on the other, such representative Person shall be the Record Holder of such Shares.

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2.7 Registration and Transfer of Shares.

(a) Any Transfer of any Shares shall only be completed subject to the compliance by the Member and the proposed transferee with all applicable laws; and furthermore may only be completed in accordance with the provisions of this Agreement.

(b) Other than (i) any Transfer of Shares which is an Involuntary Transfer or (ii) any Transfer that occurs on an alternative trading system that has been approved by the Company in writing, and Transfer of Shares shall be subject to the prior written approval of the Company, which the Company may give or withhold in its sole discretion.

(c) The Company shall keep or cause to be kept on behalf of the Company a register (which may be in electronic form) that will provide for the registration and Transfer of Shares. The Company may appoint a Transfer Agent to act as registrar and transfer agent for the purpose of registering any class of Shares and Transfers of such class of Shares as herein provided. For Shares represented by Certificates, upon surrender of a Certificate for registration of Transfer of any Shares evidenced by a Certificate, the appropriate Officers of the Company shall execute and deliver, and in the case of Shares for which a Transfer Agent has been appointed, the Transfer Agent shall countersign and deliver, in the name of the holder or the designated transferee or transferees, as required pursuant to the Record Holder’s instructions, one or more new Certificates evidencing the same aggregate number and type of Shares as were evidenced by the Certificate so surrendered, provided that a transferor shall provide the address and facsimile number for each such transferee as set forth on Exhibit A at any time.

(d) The Company shall not recognize any Transfer of Shares evidenced by Certificates until the Certificates evidencing such Shares are surrendered for registration of Transfer. No charge shall be imposed by the Company for such Transfer; provided, that as a condition to the issuance of Shares, whether or not such Shares are evidenced by Certificates, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed with respect thereto.

(e) By acceptance of the Transfer of any Share, each transferee of a Share (including any nominee holder or an agent or representative acquiring such Shares for the account of another Person) (i) shall be admitted to the Company as a Substitute Member with respect to the Shares so Transferred to such transferee when any such Transfer or admission is reflected in the books and records of the Company or the Transfer Agent, as applicable, (ii) shall be deemed to agree to be bound by the terms of this Agreement, (iii) shall become the Record Holder of the Shares so transferred, (iv) grants powers of attorney to the Officers of the Company and any Liquidating Trustee, as specified herein, and (v) makes the consents and waivers contained in this Agreement. The Transfer of any Shares and the admission of any new Member shall not constitute an amendment to this Agreement.

(f) Nothing contained in this Agreement shall preclude electronic book-entry only Transfer of Shares or the settlement of any transactions involving Shares entered into through electronic systems maintained by the Administrator on behalf of the Company, facilities of the Depository or any National Securities Exchange on which such Shares are listed for trading.

(g) Prior to the one-year anniversary of the final closing of the Offering, the Initial Member and its Affiliates shall not be permitted to Transfer any Shares that are Beneficially Owned by them except to a Masterworks Affiliate or as required by law or in any bankruptcy or similar proceeding, provided, however, notwithstanding the definition of the term “Transfer,” the Initial Member and its Affiliates shall be permitted, during such one-year period, to pledge any or all of such Shares to unaffiliated third-party lenders and, for the avoidance of doubt, such lenders shall not be subject to the provisions of this Section 2.7(g) if they obtain Beneficial Ownership of such Shares in connection with a default by the Initial Member and its Affiliates pursuant to the transactions in which such third-party lenders obtained such Shares.

(h) Any Transfer or attempted Transfer of any Share(s) in contravention of this Agreement shall be absolutely null and void ab initio and of no force or effect, on or against the Company, any Member, any creditor of the Company or any claimant against the Company and may be enjoined, and shall not be recorded on the books and records of the Company. No distributions of cash or property of the Company shall be made to any transferee of any Share(s) which is/are Transferred in violation hereof, nor shall any such Transfer be registered on the books of the Company. The Transfer or attempted Transfer of any Share(s) in violation hereof shall not affect the Beneficial Ownership of such Share(s), and, notwithstanding such Transfer or attempted Transfer, the Member making such prohibited Transfer or attempted Transfer shall retain the right to vote, if any, and the right to receive liquidation proceeds and any other distributions with respect to the Shares.

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2.8 Voting.

(a) Each Voting Share shall be entitled to and shall constitute one (1) vote. Except as otherwise set forth in this Agreement, the Voting Shares shall vote together as a single class on all matters submitted for approval of Members. Upon the issuance of the Class B Ordinary Shares in exchange for the Prior Interests, the Class B Ordinary Shares shall constitute Voting Shares and have the right to vote on any matter on which the Members are entitled to vote on hereunder or on which the Members are required to vote pursuant to the Delaware Act and shall be entitled to and shall constitute one (1) vote. Upon any issuance of any Class A Ordinary Shares, the Class B Ordinary Shares shall no longer constitute Voting Shares and shall have no further voting rights except as specifically set forth herein, unless such right to vote is specifically required and mandated by the Delaware Act or as set forth herein.

(b) In determining any action or other matter to be undertaken by or on behalf of the Company, each Member shall be entitled to cast a number of votes equal to the number of Voting Shares that such Member holds, with the power to vote, at the time of such vote unless otherwise set forth in this Agreement. Unless otherwise set forth in this Agreement, or otherwise required by the Delaware Act, the taking of any action by the Company which required a vote of the Members as set forth above shall be authorized by the affirmative vote of a majority of the Voting Shares, subject to any approval of the Board as required herein.

(c) Notwithstanding the forgoing, any Class A ordinary shares issued to any Affiliate of the Administrator pursuant to the Administrative Services Agreement, as set forth in Section 2.4 or otherwise held by any Affiliate of the Administrator (the “Masterworks Shares”), shall not, while such Shares are Beneficially Owned by any Affiliate of the Administrator, be entitled to vote on any matter on which the Class A Members are entitled or required to vote hereunder or pursuant to the Delaware Act, and shall not be considered in determining the existence of a quorum or in the total number of votes available or required hereunder or pursuant to the Delaware Act. Once the Masterworks Shares, if any, are Transferred to any Person who is not an Affiliate of the Administrator, the Masterworks Shares shall thereafter have all voting rights that any other Voting Shares held by any Class A Member have hereunder or pursuant to the Delaware Act. In the event that the Delaware Act or any other law requires, at any time, that the Masterworks Shares vote on any matter notwithstanding the provisions herein, the Masterworks Shares shall be required to be, and shall be, voted in the same proportion as the Voting Shares that are not Masterworks Shares are voted by the Class A Members. Any Masterworks Shares shall bear a customary “restricted” legend, which may be a virtual legend, evidencing the restricted nature thereof.

(d) In addition to the other matters on which the Members holding Voting Shares have the right to vote as set forth herein, the approval of Members holding a majority of the Voting Shares shall be required for the Company to undertake any of the following actions, except as otherwise set forth herein:

(i) acquiring any additional material assets, other than those incidental to the direct or indirect ownership, maintenance and promotion of the Painting or the eventual Sale of the Painting and other than the ownership of any equity or membership interests of any subsidiary of the Company which owns or holds the Painting;

(ii) conducting any business activities, except for activities relating to its direct or indirect investment in the Painting and the ownership, maintenance and promotion of the Painting or the eventual Sale of the Painting; and

(iii) incurring any material loans or material borrowing arrangements to be entered into by the Company as a debtor other than those incidental to the direct or indirect investment in the Painting and the ownership, maintenance and promotion of the Painting or the eventual Sale of the Painting;

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(iv) amending, waiving or failing to comply with any material provision of this Agreement, including amending this Agreement to increase the number of Shares that may be issued hereunder; and

(e) The Company will own the Painting for an indefinite period and may sell the Painting at any time following the final closing of the Offering.

(f) In any vote of the Voting Members pursuant to Section 2.8(d), any Shares that are Beneficially Owned by the Initial Member or any Affiliate of the Initial Member, shall not be entitled to vote of any such matter and shall not be considered in determining the total number of votes available or required hereunder or pursuant to the Delaware Act, provided, however, that, in the event that the Delaware Act or any other law requires that such Shares that are Beneficially Owned by the Initial Member or any Affiliate of the Initial Member vote on any matter notwithstanding this Section 2.8(f), such Shares shall be required to be, and shall be, voted in the same proportion as the Voting Shares that are Beneficially Owned by Members holding Voting Shares other than the Initial Member or any Affiliate of the Initial Member.

2.9 Removal or Replacement of a Manager. Any Manager, as selected by the Initial Member, may only be removed or replaced (i) without “Cause” at any time by a majority of the Board or (ii) for “Cause” and only upon the approval of Voting Members holdings at least two-thirds of the Voting Shares. For purposes herein, “Cause” shall mean:

(a) the commission by the applicable Manager of fraud, gross negligence or willful misconduct;

(b) the conviction of the applicable Manager of a felony;

(c) a material violation by the applicable Manager of any applicable law that has a material adverse effect on the business of the Company;

(d) the bankruptcy or insolvency of the applicable Manager.

2.10 Withdrawal of Administrator. The Administrator may withdraw for any reason upon notice to the Initial Member, provided that such withdrawal shall be effective only following a Sale of the Painting and distribution of the proceeds.

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ARTICLE 3 CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNT; DISTRIBUTIONS; ALLOCATIONS

3.1 Capital Contributions. Persons seeking to become a Member shall be required to purchase or acquire Shares and make capital contributions in such forms and in such amounts and at such times as the Board may require, if any, in its sole discretion (any, a “Capital Contribution”) whereupon a capital account for a new Member will be established, and, if applicable, accreted, in the amount of such Member’s Capital Contribution or based upon the fair market value of property contributed, and the new Member shall be issued a number of Class A Ordinary Shares as determined by the Board, and the Board shall update Exhibit A attached hereto accordingly. The provisions of this Section 3.1 are solely intended for the benefit of the Members and, to the fullest extent permitted by law, shall not be construed as conferring any benefit upon any creditor of the Company (and no such creditor shall be a third-party beneficiary of this Agreement). The Members shall have no duty or obligation to any creditor of the Company to make any contribution to the Company.

3.2 Capital Account

(a) There shall be established for each Member on the books of the Company a Capital Account in accordance with Section 704 of the Code and the Treasury Regulations promulgated thereunder.

(b) At the close of each Fiscal Year, and at certain other periods, as in the case of a withdrawal, there shall be determined for each Member, such Member’s closing Capital Account for such period which shall be determined by adjusting such Member’s opening Capital Account for such period, as the case may be, as follows: (i) by increasing such Member’s Capital Account by (A) such Member’s allocable share of each item of the Company’s income and gain for such period (allocated in accordance with Section 3.2(d)), and (B) the Capital Contributions, if any, made by such Member during such period and (ii) by decreasing such Member’s Capital Account by (A) the amount of cash or the Fair Value of any property distributed in kind to such Member by the Company during such period and (B) such Member’s allocable share of each item of the Company’s loss and deduction for such period (allocated in accordance with Section 3.2(d)). Each Member’s Capital Account shall be further adjusted with respect to any special allocations or adjustments pursuant to this Agreement.

(c) In the event the Company is terminated during any period in accordance with ARTICLE 6, the closing Capital Accounts of the Members for such Fiscal Year then completed will be determined as of the date of termination of the Company in the manner provided in this Section 3.2.

(d) For each Fiscal Period, as of the end of such Fiscal Period, each item of income, deduction, gain or loss of the Company (determined in accordance with U.S. tax principles as applied to the maintenance of capital accounts) shall be allocated among the Capital Accounts of the Members in such manner that as closely as possible gives economic effect to the provisions of Section 3.3 and Section 6.2(b).

(e) If all or a portion of a Member’s Shares are Transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the Shares so transferred.

3.3 Distributions

(a) The Company, in the sole discretion of the Board, in the event there are Available Funds, may make distributions thereof (“Distributions”) to Members as set forth herein. “Available Funds” means the Company’s gross cash receipts from operations, less the sum of: (1) payments of principal, interest, charges and fees pertaining to any of the Company’s indebtedness; (2) costs and expenses incurred in the conduct of the Company’s business; and (3) amounts reserved to meet the reasonable needs of the Company’s business. Notwithstanding anything herein to the contrary, no Member may receive a Distribution to the extent that, after giving effect to the Distribution, all liabilities of the Company (other than to a Member on account of its Shares and liabilities for which the recourse of creditors is limited to specific property of the Company) exceed the fair market value of the assets of the Company (except that property that is subject to a liability for which the recourse of the creditors is limited to such property shall be included in the assets of the Company only to the extent the Fair Market Value of such property exceeds that liability). In the event of a Distribution to a Member that would be deemed violative of applicable law, the applicable Member may be required to return such Distribution to the Company. Each Distribution in respect of any Shares shall be paid by the Company, directly or through the Transfer Agent or through any other Person or agent, only to the Record Holder of such Shares as of the Record Date set for such Distribution. Such payment shall constitute full payment and satisfaction of the Company’s liability in respect of such payment, regardless of any claim of any Person who may have an interest in such payment by reason of an assignment or otherwise.

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(b) If the Administrator declares and determines to make any Distribution of cash or other assets to the Members, all such Distributions shall be made to the Members as follows:

(A) 100% to the Class A Members, pro rata in proportion to the number of Class A Ordinary Shares held by each such Member until the aggregate Distributions (including all prior Distributions made pursuant to this Section 3.3, if any) paid per Class A Ordinary Share equals $20.00; and

(B) In the event any funds remain available for distribution after payments referenced in clause (A), (1) 80% of such remaining amount to the Class A Members, pro rata in proportion to the number of Class A Ordinary Shares held by each such Member and (2) 20% of such remaining amount to the Class B Members, pro rata in proportion to the number of Class B Ordinary Shares held by each such Member, provided that the percentage of such remaining amount required to be distributed to the Class B Members shall be reduced (and the percentage distributed to the Class A Members shall be correspondingly increased) to the extent any Class B Ordinary Shares have been previously converted into Class A Ordinary Shares, by the percentage of Class B Ordinary Shares previously converted into Class A Ordinary Shares.

(c) By way of examples and not limitation, (i) in the event of a Distribution pursuant to Section 3.3(b)(B) prior to the conversion of any Class B Ordinary Shares, such Distribution shall be apportioned 20% to the Class B Ordinary Shares and 80% to the Class A Ordinary Shares, pro rata, and (ii) in the event of a Distribution pursuant to Section 3.3(b)(B) following the conversion of 25% of the Class B Ordinary Shares, the Distribution apportioned to the Class B Ordinary Shares shall be proportionately reduced by 25% of 20%, to 15%.

(d) Except as otherwise provided herein or as required by law, no Member shall be required to restore or repay to the Company any funds properly distributed to it pursuant to this Section 3.3.

3.4 Tax Allocations. Each item of income, gain, loss or deduction recognized by the Company shall be allocated among the Members for U.S. federal, state and local income tax purposes in the same manner that each such item is allocated to the Member’s Capital Accounts pursuant to Section 3.2(d) or as otherwise provided herein, provided that the Board may adjust such allocations as long as such adjusted allocations have substantial economic effect or are in accordance with the interests of the Members in the Company, in each case within the meaning of the Code and the Treasury Regulations. Tax credits and tax credit recapture shall be allocated in accordance with the Members’ interests in the Company as provided in Treasury Regulations section 1.704-1(b)(4)(ii). Items of Company taxable income, gain, loss and deduction with respect to any property (other than cash) contributed to the capital of the Company or revalued shall, solely for tax purposes, be allocated among the Members, as determined by the Board in accordance with Section 704(c) of the Code, so as to take account of any variation between the adjusted basis of such property to the Company for U.S. federal income tax purposes and its fair market value at the time of contribution or revaluation, as the case may be. All of the Members agree that the Board is authorized to select the method or convention, or to treat an item as an extraordinary item, in relation to any variation of any Member’s interest in the Company described in section 1.706-4 of the Treasury Regulations in determining the Members’ distributive shares of Company items. All matters concerning allocations for U.S. federal, state and local and non-U.S. income tax purposes, including accounting procedures, not expressly provided for by the terms of this Agreement shall be determined by the Board in its sole discretion. Each Class B Ordinary Share is intended to be treated as a profits interest for U.S. federal income tax purposes, and all of the Members agree to report consistently with, and to take any action requested by the Board to ensure, such treatment.

ARTICLE 4 LIABILITY; INDEMNIFICATION

4.1 Liability of a Member. The liability of each Member shall be limited as provided in the Delaware Act and as set forth in this Agreement. No Member shall be obligated to restore by way of Capital Contribution or otherwise any deficits in its Capital Account (if such deficits occur).

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4.2 Exculpation and Indemnification.

(a) No Protected Person shall be liable to the Company or any Manager or any other Member for any action taken or omitted to be taken by it or by other Person with respect to the Company, including any negligent act or failure to act, except in the case of a liability resulting from such Protected Person’s own actual fraud, gross negligence, willful misconduct, bad faith, breach of fiduciary duty, reckless disregard of duty or any intentional and material breach of this Agreement or conduct that is subject of a criminal proceeding (where such Protected Person has reasonable cause to believe that such conduct was unlawful). With the prior consent of the Board, any Protected Person may consult with legal counsel and accountants with respect to Company affairs (including interpretations of this Agreement) and shall be fully protected and justified in any action or inaction which is taken or omitted in good faith, in reliance upon and in accordance with the opinion or advice of such counsel or accountants. In determining whether a Protected Person acted with the requisite degree of care, such Protected Person shall be entitled to rely on written or oral reports, opinions, certificates and other statements of the directors, officers, employees, consultants, attorneys, accountants and professional advisors of the Company selected with reasonable care; provided that no such Protected Person may rely upon such statements if it believed that such statements were materially false.

(b) To the fullest extent permitted by law, the Company shall indemnify, hold harmless, protect and defend each Protected Person against any losses, claims, damages or liabilities, including reasonable legal fees, costs and expenses incurred in investigating or defending against any such losses, claims, damages or liabilities or in enforcing a Protected Person’s right to indemnification under this Agreement, and any amounts expended in respect of settlements of any claims approved by the Board (collectively, “Liabilities”), to which any Protected Person may become subject:

(i) by reason of any act or omission or alleged act or omission (even if negligent) arising out of or in connection with the activities of the Company;

(ii) by reason of the fact that it is or was acting in connection with the activities of the Company in any capacity or that it is or was serving at the request of the Company as a partner, shareholder, member, director, officer, employee, or agent of any Person;

unless, such Liability results from such Protected Person’s own actual fraud, gross negligence, willful misconduct, bad faith, breach of fiduciary duty, reckless disregard of duty or intentional and material breach of this Agreement or conduct that is subject of a criminal proceeding (where such Protected Person has reasonable cause to believe that such conduct was unlawful).

(c) The Administrator may, on behalf of the Company, reimburse (and/or advance to the extent reasonably required) each Protected Person for reasonable legal or other costs and expenses (as incurred) of such Protected Person in connection with investigating, preparing to defend or defending any claim, lawsuit or other proceeding relating to any Liabilities for which the Protected Person may be indemnified pursuant to this Section 4.2 and for all costs and expenses, including fees, expenses and disbursements of attorneys, reasonably incurred by such Protected Person in enforcing the indemnification provisions of this Section 4.2; provided, that such Protected Person executes a written undertaking to repay the Company for such reimbursed or advanced costs and expenses if it is finally judicially determined that such Protected Person is not entitled to the indemnification provided by this Section 4.2. Upon any liquidation of the Company, such reimbursements or advancement of expenses shall be reimbursed by the Company to the Administrator prior to any other distributions hereunder.

(d) The provisions of this Section 4.2 shall continue to afford protection to each Protected Person regardless of whether such Protected Person remains in the position or capacity pursuant to which such Protected Person became entitled to indemnification under this Section 4.2 and regardless of any subsequent amendment to this Agreement; provided, that, no such amendment shall reduce or restrict the extent to which these indemnification provisions apply to actions taken or omissions made prior to the date of such amendment.

(e) Any indemnification under this Section 4.2 or otherwise shall be paid out of and to the extent of the Company’s assets only.

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ARTICLE 5 ACCOUNTING; FINANCIAL AND TAX MATTERS

5.1 Accounting Basis. The Company shall use such method of accounting as may be determined by the Board that is consistent with United States generally accepted accounting principles or such other accounting methods and conventions as the Board may from time to time determine to be used in the preparation of the Company’s tax returns.

5.2 Tax Matters.

(a) The Board (shall designate a Person as the partnership representative of the Company for purposes of Section 6223 of the Code (“Partnership Representative”) and any similar provision under any state or local or non-U.S. tax laws, and such Person shall be responsible for acting as the liaison between the Company and the Internal Revenue Service (“Service”). The Partnership Representative shall have the exclusive authority and discretion to determine all matters and shall be authorized to take any actions necessary with respect to preparing and filing any U.S. federal, state or local or non-U.S. tax returns of the Company, to make or cause the Company to make any elections required or permitted to be made by the Company under any provisions of the Code or any other applicable laws and has the sole authority under the Code to deal with the Service regarding any audit, examination or investigation (including any judicial or administrative proceeding) of the Company by any U.S. federal, state or local or non-U.S. taxing authority (“Tax Proceeding”) to the exclusion of all Members. At any time during an audit by the Service of the Company, the Board shall have the authority to remove, with or without cause, the Partnership Representative and appoint a replacement Partnership Representative.

(b) Each of the Members consents to and agrees to become bound by all actions of the Partnership Representative, including any contest, settlement or other action or position which the Partnership Representative may deem proper under the circumstances. The Members specifically acknowledge, without limiting the general applicability of this Section 5.2, that the Partnership Representative will not be liable, responsible or accountable in damages or otherwise to the Company or any Member with respect to any action taken by it in its capacity as a Partnership Representative, except for bad faith, fraud, gross negligence, willful misconduct or breach of fiduciary duty. All reasonable out-of-pocket expenses incurred by the Partnership Representative in such capacity will be considered expenses of the Company for which the Partnership Representative will be entitled to full reimbursement.

(c) In connection with any Tax Proceeding, the Partnership Representative shall resolve each issue in the Tax Proceeding only in accordance with the affirmative accession of the Board to the advice of the Partnership Representative made, either independently or in consultation with the Company’s tax preparer, after appropriately articulating to it the issues involved and the dynamics of the impact upon the Company and the Members respective to any such proposed posture.

(d) If, in connection with a Tax Proceeding, the Service assesses a tax against the Company, the Partnership Representative, acting under Section 6225(c)(2) of the Code, may require all of the Members, or Persons who were previously Members as to an applicable Reviewed Year but not as of an applicable Adjustment Year, and the Persons signing this Agreement as a condition to becoming a Member hereby agree in such case, to file amended tax returns for the Reviewed Year and to pay their share of such assessed tax for such applicable period, in proportion to the share of partnership income or loss ascribed to each for such year, or, as necessary, upon such substantially similar allocation basis as the former basis of allocation may under then existing circumstances be required to be modified to address in a case in which the obligated Person would not as of such an applicable Adjustment Year then be a Member. This provision shall survive each Person’s cessation as a Member of the Company or any amendment or termination of this Agreement for so long as a return of a Reviewed Year of the Company as to which any Person was a Member would be open to audit, and each Person signing this Agreement as a Member hereby agrees to indemnify the Company and the other Members from and against any amounts of assessed taxes as they would be otherwise obligated to pay in accordance with this Section 5.2, in a case in which such Person would not do so, as well as against all reasonable attorneys’ fees and costs that would be incurred by the Company or such other one or more Members in the event undertakings, including legal proceedings, to enforce such obligation hereunder against such Person were commenced.

(e) The Members acknowledge that the Board reserves the right to supplement or amend any applicable provisions of this Agreement, including as to this Section 5.2, to address such additional processes or procedures as may be indicated as such unresolved issues are prospectively addressed as to reasonably facilitate the Company’s compliance with the Code.

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(f) The Members shall provide the Company with such information, which may be necessary or desirable in connection with preparing and filing tax elections or otherwise in connection with the compliance with applicable tax laws, including providing information in connection with Section 743 of the Code and elections permitted thereunder. The Board shall cause to be prepared and filed all tax returns of the Company that are required for U.S. federal, state or local or non-U.S. tax purposes and shall make all determinations as to tax elections by the Company. The Company shall use reasonable efforts to furnish to all Members tax information as is reasonably required for U.S. federal, state and local income tax reporting purposes as soon as practicable following the end of the fiscal year. Each Member shall be required to report for all tax purposes consistently with such information provided by the Company.

(g) Notwithstanding anything otherwise to the contrary herein, the Board is authorized to take any action that may be required to cause the Company to comply with any withholding or other similar requirements established pursuant to the Code or any other provision of U.S. federal, state or local or non-U.S. tax law or otherwise. To the extent the Company is required to or elects to withhold and pay over or otherwise pay any withholding or other taxes payable, or required to be deducted, by the Company or any of its Affiliates pursuant to the Code or any provision of U.S. federal, state or local or non-U.S. tax law or otherwise, attributable to a Member (including taxes attributable to income or gain allocable to such Member) or resulting from such Member’s participation in the Company or a Transfer to such Member, the Board may treat the amount withheld as a distribution of cash pursuant to Section 3.4 to the extent such Member would have received a cash distribution but for such withholding or other taxes. To the extent that such payment exceeds the cash distribution that such Member would have received but for such withholding or other taxes, the Board shall notify such Member as to the amount of such excess and such Member shall make a prompt payment to the Company of such amount by wire transfer, which payment shall not constitute a Capital Contribution of such Member.

ARTICLE 6 DISSOLUTION; WINDING UP; TERMINATION

6.1 Dissolution. The Company shall commence its winding up upon the first to occur of the following (the “Dissolution Event”):

(a) upon the determination of the Voting Members with the approval of the Board, at any time;

(b) the insolvency or bankruptcy of the Company;

(c) the sale of all or substantially all of the Company’s assets, which for the avoidance of doubt includes a sale of 100% of the equity interests of any subsidiary of the Company which owns the Painting or the Sale of the Painting by the Company or such subsidiary; or

(d) the entry of a decree of judicial dissolution under Section 18-802 of the Delaware Act.

The Dissolution Event shall be effective on the day on which such event occurs and immediately thereafter the Company shall commence the Winding Up Period during which its affairs shall be wound up in accordance with Section 6.2 and Section 6.3.

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6.2 Winding Up and Termination.

(a) Upon the occurrence of a Dissolution Event, the property and business of the Company shall be wound up by the Board or, in the event of the unavailability of the Board, by a Person designated as a liquidating trustee by the Board (the Board or such liquidating trustee, the “Liquidating Trustee”). Subject to the requirements of applicable law and the further provisions of this Section 6.2, the Liquidating Trustee shall have discretion in determining whether to sell or otherwise dispose of Company assets or to distribute the same in kind and the timing and manner of such disposition or distribution. While the Company continues to hold assets, the Liquidating Trustee may in its discretion expend funds, acquire additional assets and borrow funds. The Liquidating Trustee may also authorize the payment of fees and expenses reasonably required in connection with the winding up of the Company and any fees and expenses payable pursuant to any agreement to which the Company is party.

(b) Within a reasonable period of time following the occurrence of a Dissolution Event, after allocating all items of income, gain, loss or deduction pursuant to Section 3.4, the Company’s assets (except for assets reserved pursuant to Section 6.3) shall be applied and distributed in the following manner and order of priority:

(i) the claims of all creditors of the Company (including Members except to the extent not permitted by law) shall be paid and discharged other than liabilities for which reasonable provision for payment has been made; and

(ii) to the Members in the same manner as Distributions under Section 3.3.

Notwithstanding anything to the contrary in this Agreement, liquidating distributions shall be made no later than the last to occur of (x) 90 days after the date of disposition (including pursuant to Section 6.3 of the last remaining asset of the Company and (y) the end of the Company’s taxable year in which the disposition referred to in clause (x) shall occur.

(c) The Liquidating Trustee shall allocate securities for distribution in kind to the Members. Notwithstanding any other provision of this Agreement, the amount by which the Fair Value of any property to be distributed in kind to the Members (including property distributed in liquidation and property distributed pursuant to Section 3.3) exceeds or is less than the adjusted basis of such property shall, to the extent not otherwise recognized by the Company, be taken into account in computing income, gains and losses of the Company for purposes of crediting or charging the Capital Account of, and distributing proceeds to, the Members, pursuant to this Agreement.

(d) When the Liquidating Trustee has completed the winding up described in this Section 6.2, the Liquidating Trustee shall cause the Termination of the Company.

6.3 Assets Reserved and Pending Claims.

(a) If, upon the occurrence of a Dissolution Event, there are any assets that, in the judgment of the Liquidating Trustee, cannot be sold or distributed in kind without sacrificing a significant portion of the value thereof or where such sale or distribution is otherwise impractical at the time of the Dissolution Event, such assets may be retained by the Company if the Liquidating Trustee determines that the retention of such assets is in the best interests of the Members. Upon the sale of such assets or a determination by the Liquidating Trustee that circumstances no longer require their retention, such assets (at their Fair Value) or the proceeds of their sale shall be taken into account in computing Capital Account on winding up and amounts distributable pursuant to Section 6.2(b), and distributed in accordance with such value.

(b) If there are any claims or potential claims (including potential Company expenses in connection therewith) against the Company (either directly or indirectly, including potential claims for which the Company might have an indemnification obligation) for which the possible loss cannot, in the judgment of the Liquidating Trustee, be definitively ascertained, then such claims shall initially be taken into account in computing The Capital Account upon winding up and distributions pursuant to Section 6.2(b) at an amount estimated by the Liquidating Trustee to be sufficient to cover any potential loss or liability on account of such claims (including such potential Company expenses), and the Company shall retain funds (or assets) determined by the Liquidating Trustee in its discretion as a reserve against such potential losses and liabilities, including expenses associated therewith, and for any other Company purpose. The Liquidating Trustee may in its discretion obtain insurance or create escrow accounts or make other similar arrangements with respect to such losses and liabilities. Upon final settlement of such claims (including such potential Company expenses) or a determination by the Liquidating Trustee that the probable loss therefrom can be definitively ascertained, such claims (including such potential Company expenses) shall be taken into account in the amount at which they were settled or in the amount of the probable loss therefrom in computing the Capital Account on winding up and amounts distributable pursuant to Section 6.2(b), and any excess funds retained shall be distributed as such funds would be distributed under Section 6.2(b).

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ARTICLE 7 MEMBER MEETINGS

7.1 Member Meetings.

(a) There shall be no meetings of the Members unless called by the Board or as otherwise specifically required by the Delaware Act. No Members or group of Members, acting in its or their capacity as Members, shall have the right to call a meeting of the Members.

(b) All acts of Members to be taken hereunder shall be taken in the manner provided in this Agreement. If authorized by the Board, and subject to such guidelines and procedures as the Board may adopt, if a meeting of the Members is called Members and proxyholders not physically present at a meeting of Members may by means of remote communication participate in such meeting and be deemed present in person and vote at such meeting.

(c) A majority of the Shares present at such meeting, either in person or by proxy, and entitled to vote thereat, shall constitute a quorum for the purpose of such meeting. The Delaware Court of Chancery may issue such orders as may be appropriate, including orders designating the time and place of such meeting, the record date for determination of Members entitled to vote, and the form of notice of such meeting.

(d) No Members or group of Members, acting in its or their capacity as Members, shall have the right to call a meeting of the Members.

7.2 Notice of Meetings of Members.

(a) Notice, stating the place, day and hour of any meeting of the Members, as determined by the Board, and the purpose or purposes for which the meeting is called, as determined by the Board, shall be delivered by the Company not less than 5 calendar days nor more than 60 calendar days before the date of the meeting, in a manner and otherwise in accordance with the terms herein to each Record Holder who is entitled to vote at such meeting. Such further notice shall be given as may be required by Delaware or applicable federal law or any exchange on which any Shares are then listed. Only such business shall be conducted at a meeting of Members as shall have been brought before the meeting pursuant to the Company’s notice of meeting. Any previously scheduled meeting of the Members may be postponed, and any meeting of the Members may be canceled, by resolution of the Board upon public notice given prior to the date previously scheduled for such meeting of the Members.

(b) The Board shall designate the place of meeting for any meeting of the Members. If no designation is made, the place of meeting shall be the principal office of the Company.

7.3 Record Date. For purposes of determining the Members entitled to notice of or to vote at a meeting of the Members, the Board may set a Record Date, which shall not be less than 5 nor more than 60 days before the date of the meeting (unless such requirement conflicts with any rule, regulation, guideline or requirement of any National Securities Exchange on which the Shares are listed for trading, in which case the rule, regulation, guideline or requirement of such exchange shall govern). If no Record Date is fixed by the Board, the Record Date for determining Members entitled to notice of or to vote at a meeting of Members shall be at the close of business on the day next preceding the day on which notice is given. A determination of Members of record entitled to notice of or to vote at a meeting of Members shall apply to any adjournment or postponement of the meeting; provided, however, that the Board may fix a new Record Date for the adjourned or postponed meeting.

7.4 Adjournment. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting and a new Record Date need not be fixed, if the time and place thereof are announced at the meeting at which the adjournment is taken, unless such adjournment shall be for more than 30 days. At the adjourned meeting, the Company may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days or if a new Record Date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given in accordance with this ARTICLE 7.

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7.5 Waiver of Notice; Approval of Meeting. Whenever notice to the Members is required to be given under this Agreement, a written waiver, signed by the Person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a Person at any such meeting of the Members shall constitute a waiver of notice of such meeting, except when the Person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Members need be specified in any written waiver of notice unless so required by resolution of the Board. All waivers and approvals shall be filed with the Company records or made part of the minutes of the meeting.

7.6 Quorum; Required Vote. At any meeting of the Members, the holders of a majority of the Voting Shares entitled to vote represented in person or by proxy shall constitute a quorum unless any such action by the Members requires approval by holders of a greater percentage of Voting Shares entitled to vote, in which case the quorum shall be such greater percentage. The submission of matters to Members for approval shall occur only at a meeting of the Members duly called and held in accordance with this Agreement at which a quorum is present; provided, however, that the Members present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough Members to leave less than a quorum, if any action taken (other than adjournment) is approved by the required percentage of Shares entitled to vote specified in this Agreement. Any meeting of Members may be adjourned from time to time by the chairman of the meeting to another place or time, without regard to the presence of a quorum.

7.7 Conduct of a Meeting; Member Lists.

(a) The Board shall have full power and authority concerning the manner of conducting any meeting of the Members, including the determination of Persons entitled to vote, the existence of a quorum, the satisfaction of the requirements of this ARTICLE 7, the conduct of voting, the validity and effect of any proxies and the determination of any controversies, votes or challenges arising in connection with or during the meeting or voting. The Board shall designate a Person to serve as chairman of any meeting and shall further designate a Person to take the minutes of any meeting. All minutes shall be kept with the records of the Company maintained by the Board. The Board may make such other regulations consistent with applicable law and this Agreement as it may deem advisable concerning the conduct of any meeting of the Members, including regulations in regard to the appointment of proxies, the appointment and duties of inspectors of votes, the submission and examination of proxies and other evidence of the right to vote.

(b) A complete list of Members entitled to vote at any meeting of Members, arranged in alphabetical order and showing the address of each such Member and the number of Shares registered in the name of such Member, shall be open to the examination of any Member, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days before the meeting, at the principal place of business of the Company. The Member list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any Member who is present.

7.8 Action Without a Meeting. On any matter that is to be voted on, consented to or approved by Members, the Members may take such action without a meeting, without prior notice and without a vote if a consent or consents in writing, setting forth the action so taken, shall be approved by the Members having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all Members entitled to vote thereon were present and voted.

7.9 Voting and Other Rights.

(a) Only those Record Holders of Voting Shares on the Record Date set pursuant to Section 7.3 shall be entitled to notice of, and to vote at, a meeting of Members or to act with respect to matters as to which the holders of the Voting Shares have the right to vote or to act. All references in this Agreement to votes of, or other acts that may be taken by, the Voting Shares shall be deemed to be references to the votes or acts of the Record Holders of such Voting Shares on such Record Date.

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(b) With respect to Voting Shares that are held for a Person’s account by another Person (such as a broker, dealer, bank, trust company or clearing corporation, or an agent of any of the foregoing), in whose name such Voting Shares are registered, such other Person shall, in exercising the voting rights in respect of such Voting Shares on any matter, and unless the arrangement between such Persons provides otherwise, vote such Voting Shares in favor of, and at the direction of, the Person who is the Beneficial Owner, and the Company shall be entitled to assume it is so acting without further inquiry.

(c) No Members shall have any cumulative voting rights.

7.10 Proxies and Voting.

(a) On any matter that is to be voted on by Members, the Members may vote in person or by proxy, and such vote may be made, or proxy may be granted in writing, by means of electronic transmission or as otherwise permitted by applicable law. Any such proxy shall be delivered in accordance with the procedure established for the relevant meeting.

(b) For purposes of this Agreement, the term “electronic transmission” means any form of communication not directly involving the physical transmission of paper that creates a record that may be retained, retrieved and reviewed by a recipient thereof and that may be directly reproduced in paper form by such a recipient through an automated process. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this paragraph may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.

(c) The Board may, and to the extent required by law, shall, in advance of any meeting of Members, appoint one or more inspectors to act at the meeting and make a written report thereof. The Board may designate one or more alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of Members, the chairman of the meeting may, and to the extent required by law, shall, appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. Every vote taken by ballots shall be counted by a duly appointed inspector or inspectors.

(d) With respect to the use of proxies at any meeting of Members, the Company shall be governed by paragraphs (b), (c), (d) and (e) of Section 212 of the DGCL and other applicable provisions of the DGCL, as though the Company were a Delaware corporation and as though the Members were shareholders of a Delaware corporation.

(e) In the event that the Company becomes subject to Regulation 14A under the Exchange Act, pursuant to and subject to the provisions of Rule 14a-16 under the Exchange Act, the Company may, but is not required to, utilize a Notice of Internet Availability of Proxy Materials, as described in such rule, in conjunction with proxy material posted to an Internet site, in order to furnish any proxy or related material to Members pursuant to Regulation 14A under the Exchange Act.

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ARTICLE 8 MISCELLANEOUS

8.1 Addresses and Notices. Any notice, demand, request, report or proxy materials required or permitted to be given or made to a Member under this Agreement shall be in writing and shall be deemed given or made when delivered in person or when sent by first class United States mail or by other means of written communication (including electronic communication) to the Member at the address described below. Any notice, payment or report to be given or made to a Member hereunder shall be deemed conclusively to have been given or made, and the obligation to give such notice or report or to make such payment shall be deemed conclusively to have been fully satisfied, upon sending of such notice, payment or report to the Record Holder of such Shares at his address as shown on the records of the Transfer Agent or delivered electronically as otherwise shown on the records of the Company (including on Exhibit A attached hereto), regardless of any claim of any Person who may have an interest in such Shares by reason of any assignment or otherwise. An affidavit or certificate of making of any notice, payment or report in accordance with the provisions of this Section 8.1 executed by the Company, the Board or the Transfer Agent or the mailing organization shall be prima facie evidence of the giving or making of such notice, payment or report. If any notice, payment or report addressed to a Record Holder at the address of such Record Holder appearing on the books and records of the Transfer Agent or the Company is returned by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver it or is returned or there is a delivery failure through any electronic communication, such notice, payment or report and any subsequent notices, payments and reports shall be deemed to have been duly given or made without further mailing (until such time as such Record Holder or another Person notifies the Transfer Agent or the Company of a change in his address or electronic address, as applicable) if they are available for the Member at the principal office of the Company for a period of one year from the date of the giving or making of such notice, payment or report to the other Members. Any notice to the Company shall be deemed given if received by the Secretary at the principal office of the Company designated pursuant to the terms and conditions herein. The Board and the Officers may rely and shall be protected in relying on any notice or other document from a Member or other Person if believed by it to be genuine.

8.2 Amendments; Waiver. Except as otherwise expressly provided in this Agreement, any provision of this Agreement may be amended or waived only by an instrument in writing executed by the Board and Class A Members holding a majority of the Voting Shares, provided, however, any amendment which disproportionately and adversely affects the Class A Members, must be approved by the Class A Members holding a majority of the Class A Ordinary Shares voting as a separate class. Notwithstanding the foregoing, the Board may amend this Agreement and the schedules and exhibits hereto, without the approval of the Members (i) to evidence the joinder to this Agreement of a new Member of the Company; (ii) in connection with the Transfer of Shares; (iii) in connection with any issuance of Shares to the Administrator or to any existing members, whether as a result of issuances to the Administrator pursuant to the Administrative Services Agreement, upon conversion of the Series B Ordinary Shares pursuant to Section 2.4(d), or otherwise, (iv) as otherwise required to reflect Capital Contributions, distributions and similar actions hereunder; (v) to reflect the naming of new officers, members of the Board or replacement of officers or managers of the Company; (vi) pursuant to Section 8.7, and (vii) any change the Board deems necessary or appropriate to enable trading of membership interests. Notwithstanding the forgoing the Board is authorized to make such amendments to this Agreement as required in order to comply with any applicable law, including, without limitation, any securities law or tax law, whether currently in place or promulgated in the future.

8.3 Successors and Assigns. This Agreement shall inure to the benefit of, and shall be binding upon, the successors and permitted assigns of the Members.

8.4 No Waiver. Except as set forth in Section 8.17 hereof with respect to forum selection, no failure or delay by any party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

8.5 Survival of Certain Provisions. The covenants and agreements set forth in Section 4.1, Section 4.2 and Section 5.2 shall survive the Termination of the Company.

8.6 Telephone Consumer Protection Act Consent. Each Member expressly consents to receiving calls and messages, including auto-dialed and pre-recorded message calls, and SMS messages (including text messages) from the Administrator, its affiliates, agents and others calling at their request or on their behalf, at any telephone numbers that the Member has provided to the Company or Masterworks (including any cellular telephone numbers). Member’s cellular or mobile telephone provider will charge Member according to the type of plan Member carries. Any Member may unsubscribe from receiving text messages or promotional calls at any time by (i) replying STOP, STOPALL, UNSUBSCRIBE, CANCEL, END or QUIT to any text message such Member receives from the Company or Masterworks or (ii) email to support@Masterworks.io with one of the forgoing words in the subject line. Each Member acknowledges and consents that following such a request to unsubscribe, such Member may receive one final text message from Masterworks confirming such request.

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8.7 Corporate Treatment. The Board shall use its reasonable best efforts to take such actions as are necessary or appropriate to preserve the status of the Company as a partnership for U.S. federal (and applicable state and local) income tax purposes. If, however, the Board determines, in its sole discretion, for any reason (including the proposal, formally or informally, of legislation that could affect the Company’s status as a partnership for U.S. federal and/or applicable state and local income tax purposes) that it is not in the best interests of the Company to be characterized as a partnership, the Board may take whatever steps, if any, are needed to cause the Company to be or confirm that the Company will be treated as an association or as a publicly traded partnership taxable as a corporation for U.S. federal (and applicable state and local) income tax purposes, including by making an election to be taxed as a “C” corporation pursuant to the Code (a “Change in Tax Classification”), without any approval or vote of the Members required, and to make such filings, including without limitation, a Form 8832 with the Service, and to undertake such actions as required to effect such Change in Tax Classification. At the time and following any Change of Tax Classification, the Board shall have the right, without any approval or vote of the Members being required, to amend this Agreement as reasonably required to effect the Change in Tax Classification and to provide for the operations of the Company following such event. Notwithstanding anything in this Agreement to the contrary, in the event U.S. federal (and/or applicable state and local) income tax laws, rules or regulations are enacted, amended, modified or applied after the date hereof in such a manner as to require or necessitate that the Company no longer be treated as a partnership for U.S. federal (and/or applicable state and local) income tax purposes, then the first sentence of this Section 8.7 shall no longer apply.

8.8 Section 7704(e) Relief. In the event that the Board determines the Company should seek relief pursuant to Section 7704(e) of the Code to preserve the status of the Company as a partnership for U.S. federal (and applicable state) income tax purposes, the Company and each Member shall agree to adjustments required by the tax authorities, and the Company shall pay such amounts as required by the tax authorities, to preserve the status of the Company as a partnership.

8.9 Electronic Information. Each Member hereby agrees that all current and future notices, confirmations and other communications may be made by the Company via email, sent to the email address of record of the Member provided to the Company as changed or updated from time to time, without necessity of confirmation of receipt, delivery or reading, and such form of electronic communication is sufficient for all matters regarding the relationship between the Company and the Members except as otherwise required by law. If any such electronically sent communication fails to be received for any reason, including but not limited to such communications being diverted to the recipients spam filters by the recipients email service provider, or due to a recipient’s change of address, or due to technology issues by the recipients service provider, the parties agree that the burden of such failure to receive is on the recipient and not the sender, and that the sender is under no obligation to resend communications via any other means, including but not limited to postal service or overnight courier, and that such communications shall for all purposes, including legal and regulatory, be deemed to have been delivered and received. Except as required by law, no physical, paper documents will be sent to Members, and a Member desires physical documents then such Member agrees to be satisfied by directly and personally printing, at such Member’s own expense, the electronically sent communication(s) and maintaining such physical records in any manner or form that a Member desires.

8.10 Severability. In case any provision in this Agreement shall be deemed to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired hereby.

8.11 Interpretation The headings in this Agreement are inserted for convenience of reference only and shall not affect the interpretation of this Agreement. As used herein, masculine pronouns shall include the feminine and neuter, neuter pronouns shall include the masculine and the feminine, and the singular shall be deemed to include the plural. The use of the word “including” herein shall not be considered to limit the provision that it modifies but instead shall mean “including, without limitation.”

8.12 No Third-Party Rights. Except as expressly provided in this Agreement, this Agreement is intended solely for the benefit of the parties hereto and is not intended to confer any benefits upon, or create any rights in favor of, any Person other than the parties hereto.

8.13 Entire Agreement. This Agreement constitutes the entire agreement of the Company, the Initial Member and any Person who becomes a Member hereafter with respect to the matters described herein and supersedes any prior agreement or understanding among them with respect to such subject matter.

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8.14 Rule of Construction. The general rule of construction for interpreting a contract, which provides that the provisions of a contract should be construed against the party preparing the contract, is waived by the parties hereto. Each party acknowledges that such party was represented by separate legal counsel in this matter who participated in the preparation of this Agreement or such party had the opportunity to retain counsel to participate in the preparation of this Agreement but elected not to do so.

8.15 Authority. Whenever in this Agreement or elsewhere it is provided that consent is required of, or a demand shall be made by, or an act or thing shall be done by or at the direction of, the Company, or whenever any words of like import are used, all such consents, demands, acts and things are to be made, given or done by the consent of the Board or Person acting under the authority of the Board, unless a contrary intention is expressly indicated.

8.16 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to the conflict of laws principles thereof.

8.17 Choice of Forum for Securities Act Disputes. Unless the Company consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended, subject to and contingent upon a final adjudication in the State of Delaware of the enforceability of such exclusive forum provision. Any person or entity purchasing or otherwise acquiring any interest in any security of the Company shall be deemed to have notice of and consented to the provisions of this Agreement.

8.18 Facsimile Signatures. The use of facsimile signatures affixed in the name and on behalf of the transfer agent and registrar of the Company on certificates representing Shares is expressly permitted by this Agreement.

8.19 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.

8.20 Qualification Rights. Masterworks will have the right to request that the Company qualify on Form 1-A, or a comparable form, the resale of any Class A shares beneficially owned by Masterworks or any entity administered by Masterworks. There are no limitations or restrictions on the size or frequency of such qualification requests, other than pursuant to applicable law, provided, that all costs associated with any such qualification shall be the responsibility of Masterworks.

[Signatures appear on following page]

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IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the date first written above.

Masterworks Gallery, LLC

Sole Member

By:

Name:

Title:

Members:

All members now and hereafter admitted as Members of the Company, pursuant to powers of attorney now and hereafter executed in favor of, and granted and delivered to the Company or without execution hereof or thereof by purchasing or otherwise lawfully acquiring any Share, pursuant to Section 1.7.

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Exhibit A

Members, Capital Contributions, Shares

Member Name	Address	Capital Contribution	Number of Class A Ordinary Shares		Number of Class B Ordinary Shares
Masterworks Gallery, LLC	497 Broome Street New York, NY 10013	Services Rendered & $100		0		1,000

Exhibit B

Form of Counterpart Signature Page

The undersigned hereby accepts, and becomes a party to, the Amended and Restated Limited Liability Company Agreement (the “Agreement”) of Masterworks 040, LLC, a Delaware limited liability company (the “Company”), in connection with the acquisition of Shares (as defined in the Agreement) of the Company, and by its signature below signifies its agreement to be bound by the terms and conditions of the Agreement.

Member Name:

By:

Name:

Title:

Number of Shares:

Agreed and Accepted:

Masterworks 040, LLC
By:
Name:
Title:	Manager
By:
Name:
Title:	Manager
By:
Name:
Title:	Manager

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SCHEDULE 1

PAINTING

“Painting” refers to that certain painting by                  , entitled                .

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EX1A-4 SUBS AGMT

Exhibit 4.1

FORM OF SUBSCRIPTION AGREEMENT

MASTERWORKS 040, LLC

A DELAWARE LIMITED LIABILITY COMPANY

NOTICE TO INVESTORS

Investing in membership interests represented by Class A ordinary shares (“Shares”) of Masterworks 040, LLC (the “Company”) involves significant risks. This investment is suitable only for persons who can afford to lose their entire investment and such investment could be illiquid for an indefinite period of time. No public market currently exists for the Shares, and if a public market develops following this offering, it may not continue.

The Shares have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities or blue-sky laws and are being offered and sold in reliance on exemptions from the registration requirements of the Securities Act and state securities or blue-sky laws. Although an offering statement (“Offering Statement”) has been filed with the Securities and Exchange Commission (the “SEC”), that offering statement does not include the same information that would be included in a registration statement under the Securities Act. The Shares have not been approved or disapproved by the SEC, any state securities commission or other regulatory authority, nor have any of the foregoing authorities passed upon the merits of this offering or the adequacy or accuracy of the offering circular or any other materials or information made available to subscriber in connection with this offering. Any representation to the contrary is unlawful.

No sale may be made to persons in this offering who are not “accredited investors” if the aggregate purchase price is more than 10% of the greater of such investors’ annual income or net worth. The Company is relying on the representations and warranties set forth by each subscriber in this subscription agreement and the other information provided by subscriber in connection with this offering to determine compliance with this requirement.

Prospective investors may not treat the contents of the subscription agreement, the offering circular or any of the other materials available (collectively, the “Offering Materials”) or any prior or subsequent communications from the Company or any of its affiliates, officers, employees or agents (including “testing the waters” materials) as investment, legal or tax advice. In making an investment decision, investors must rely on their own examination of the Company and the terms of this offering, including the merits and the risks involved. Each prospective investor should consult the investor’s own counsel, accountant and other professional advisor as to investment, legal, tax and other related matters concerning the investor’s proposed investment.

The Company reserves the right in its sole discretion and for any reason whatsoever to modify, amend and/or withdraw all or a portion of the offering and/or accept or reject in whole or in part any prospective investment in the Shares or to allot to any prospective investor less than the amount of Shares such investor desires to purchase.

Except as otherwise indicated, the Offering Materials speak as of their date. Neither the delivery nor the purchase of the Shares shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since that date.

MASTERWORKS 040, LLC

A DELAWARE LIMITED LIABILITY COMPANY

This subscription agreement (“Agreement”) is made as of the date set forth below by and between the undersigned (“Subscriber” or “you”) and MASTERWORKS 040, LLC, a Delaware limited liability company (the “Company” or “we” or “us” or “our”) formed for the purpose of acquiring a painting by [  ], and is intended to set forth certain representations, covenants and agreements between Subscriber and the Company with respect to the offering (the “Offering”) for sale by the Company of its Class A ordinary membership interests (referred to herein as the “Shares”) as described in the Company’s Offering Circular dated as of the date of its qualification by the SEC, as amended by any post-qualification amendment (the “Offering Circular”).

1. Subscription and Purchase of Shares.

a.	Maximum and Minimum. The maximum investment amount per investor is $100,000 (5,000 Shares). The minimum investment amount per investor is $10,000 (500 Shares), however, we can waive the maximum or minimum purchase restriction on a case-by-case basis in our sole discretion and such waiver shall be evidenced by our acceptance of any such subscription and our countersignature on this Agreement.
b.	Irrevocable Subscription. Subject to the terms and conditions hereof, you irrevocably subscribe for and agree to purchase from the Company the number of Shares set forth on the signature page to this Agreement at a purchase price of $20.00 per Share for the total amount set forth on the signature page (the “Purchase Price”).
c.	Rejection. We have the right to reject or cancel your subscription, in whole or in part, whether or not we consummate the Offering. If we reject or cancel your subscription, we will refund to you amounts paid relating to such portion of the subscription that is rejected or cancelled, without interest. We may deduct third party processing fees, if any, from amounts refunded.
d.	Operating Agreement. You haves received and read a copy of the Company’s Operating Agreement (the “Operating Agreement”) and agree that your execution of this Agreement constitutes your consent to and execution of the Operating Agreement, and, that upon acceptance of this Agreement by the Company, you will become a member of the Company as a holder of Shares. When this Agreement is countersigned by the Company, the Operating Agreement shall be binding upon you as of the applicable closing date.
e.	Masterworks Platform. The Offering is described in the Offering Circular, that is available through the online website platform www.masterworks.io (the “Masterworks Platform”), which is owned and operated by Masterworks.io, LLC (together with its subsidiaries, other than the Company and any subsidiary of the Company, “Masterworks”), an affiliated entity of the Company, as well as on the SEC’s EDGAR website at www.sec.gov. Please read this Agreement, the Offering Circular, and the Operating Agreement. While they are subject to change, as described below, we advise you to print and retain a copy of these documents for your records. By signing electronically below, you agree to the terms of this Agreement and the Operating Agreement, together with the Terms and Conditions and the Terms of Use, Masterworks’ Privacy Policy, and agree to transact business with us and to receive communications, including voting and proxy materials, relating to the Shares electronically.

2. Subscription Procedures, Payment and Delivery

a. Subscription Procedures. The procedures for subscribing to the Offering are set forth in Annex A to this Subscription Agreement.

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b.	Payment. Contemporaneously with the electronic execution and delivery of this Agreement through the Masterworks Platform, you will pay the Purchase Price for the Shares in the form of ACH debit transfer, wire transfer, credit card (any credit card subscriptions shall not exceed the lesser of $15,000 or the amount permitted by applicable law, per Subscriber) or an alternative payment method as specified by you on the Masterworks Platform, if applicable, into a segregated non-interest-bearing account held by the Company until the applicable closing date of the Offering. Investors contemplating using their credit card to invest are urged to carefully review “Risk Factors – Risks of investing using a credit card” in the Offering Circular.  Credit card investment will result in incurrence of third-party fees and charges, interest obligations which will lower your expected investment returns and could exceed your actual returns. In addition, if you cannot meet your minimum payment obligation, you may damage your credit profile which would make it more difficult and more expensive to borrow in the future. Your subscription is irrevocable. We will maintain all such funds for Subscriber’s benefit until the earliest to occur of: (i) the applicable closing date, (ii) the rejection of such subscription or (iii) the termination of the Offering by us in our sole discretion.
c.	Acceptance. This subscription shall be deemed to be accepted only when this Agreement has been signed by the Company and delivered to you electronically. The deposit of the payment of the Purchase Price for clearance will not be deemed an acceptance of this Agreement.
d.	Rejection or Termination. The payment of the Subscription Amount (or, in the case of rejection of a portion of the Subscriber’s subscription, the part of the payment relating to such rejected portion) will be returned, without interest, but subject to deduction of third party processing fees, if any, if Subscriber’s subscription is rejected in whole or in part or if the Offering is terminated or canceled.
e.	Issuance of Shares. We will not issue Shares until the initial closing and your funds will be stored in a segregated account until the applicable closing date. Upon the release of your Purchase Price to the Company at the applicable closing, you will receive notice and evidence of the digital book-entry (or other manner of record) of the number of Shares owned by you reflected on the books and records of the Company, which books and records shall bear a notation that the Shares were sold in reliance upon Regulation A.

3. Representations, Warranties and Agreements of Subscriber. By executing this Subscription Agreement, Subscriber represents, warrants and agrees as of the date of execution of this Agreement and as of the applicable closing date of the Offering:

a. Requisite Power and Authority and Related Matters. Subscriber has all necessary power and authority under all applicable provisions of law to execute and deliver this Agreement. All action on Subscriber’s part required for the lawful execution and delivery of this Agreement has been or will be effectively taken prior to the applicable closing. If Subscriber is a natural person, Subscriber is at least 21 years of age (or eighteen (18) years of age jurisdictions with such applicable age limit on contracting) and competent to enter into a contractual obligation. If an entity, Subscriber, represents that such entity was not formed for the specific purpose of acquiring the Shares, such entity is duly organized, validly existing and in good standing under the laws of the state of its organization, the consummation of the transactions contemplated hereby is authorized by, and will not result in a violation of state law or its charter or other organizational documents, such entity has full power and authority to execute and deliver this Agreement and all other related agreements or certificates and to carry out the provisions hereof and thereof and to purchase and hold the Shares, the execution and delivery of this Subscription Agreement has been duly authorized by all necessary action, this Subscription Agreement has been duly executed and delivered on behalf of such entity and is a legal, valid and binding obligation of such entity; or if executing this Agreement in a representative or fiduciary capacity, represents that it has full power and authority to execute and deliver this Agreement in such capacity and on behalf of the subscribing individual, ward, partnership, trust, estate, corporation, or limited liability company or partnership, or other entity for whom the Purchaser is executing this Agreement, and such individual, partnership, ward, trust, estate, corporation, or limited liability company or partnership, or other entity has full right and power to perform pursuant to this Subscription Agreement and make an investment in the Company, and represents that this Agreement constitutes a legal, valid and binding obligation of such entity. The execution and delivery of this Subscription Agreement will not violate or be in conflict with any order, judgment, injunction, agreement or controlling document to which the Subscriber is a party or by which it is bound. Upon execution and delivery, this Agreement will be a valid and binding obligation of Subscriber, enforceable in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights and (b) as limited by general principles of equity that restrict the availability of equitable remedies.

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b. Investment Representations. Subscriber understands that the Shares have not been registered under the Securities Act. Subscriber also understands that the Shares are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon Subscriber’s representations contained in this Agreement. Subscriber is purchasing the Shares for Subscriber’s own account. Subscriber has received and reviewed this Agreement, the Offering Circular and the Operating Agreement. Subscriber and/or Subscriber’s advisors, who are not affiliated with and not compensated directly or indirectly by the Company or an affiliate thereof, have such knowledge and experience in business and financial matters as will enable them to utilize the information which they have received in connection with the Offering to evaluate the merits and risks of an investment, to make an informed investment decision and to protect Subscriber’s own interests in connection with an investment in the Shares.

c.

Illiquidity and Continued Economic Risk. Subscriber acknowledges and agrees that there is no ready public market for the Shares and that there is no guarantee that a market for their resale will ever exist. Subscriber must bear the economic risk of this investment indefinitely and the Company has no obligation to list the Shares on any market or take any steps (including registration under the Securities Act or the Securities Exchange Act of 1934, as amended) with respect to facilitating trading or resale of the Shares. Subscriber acknowledges that it is able to bear the economic risk of losing its entire investment in the Shares. Subscriber also understands that an investment in the Company involves significant risks and understand all of the risk factors relating to the purchase of Shares.

d.

Investor Status. Subscriber represents that either:

● Subscriber is an “accredited investor” within the meaning of Rule 501 of Regulation D under the Securities Act; or

● The Purchase Price set out in signature page to this Agreement, together with any other amounts previously used to purchase Shares in this Offering, does not exceed 10% of the greater of Subscriber’s annual income or net worth (excluding Subscriber’s primary residence and automobiles).

e.

Shareholder Information. Within five days after receipt of a request from the Company, you agree to provide such information with respect to your status as a shareholder (or potential shareholder) and to execute and deliver such documents as may reasonably be necessary to comply with any and all laws and regulations to which the Company is or may become subject, including, without limitation, the need to determine the accredited status of the Company’s shareholders. You further agree that in the event you transfer any Shares, you will require the transferee of such Shares to agree to provide such information to the Company as a condition of such transfer.

f.

Company Information. You have had the opportunity to review the Offering Circular filed with the SEC, including the section titled “Risk Factors.” You have had an opportunity to discuss the Company’s business, management and financial affairs with managers, officers and management of the Company and has had the opportunity to review the Company’s operations and facilities. Subscriber has also had the opportunity to ask questions of and receive answers from the Company and its management regarding the terms and conditions of this investment. Subscriber acknowledges that Subscriber is making an investment decision based on the information if the Offering Circular and except as set forth in the Offering Circular and herein, no representations or warranties have been made to Subscriber, or to Subscriber’s advisors or representative, by the Company or others with respect to the business or prospects of the Company or its financial condition.

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g.	Additional Subscriber Information; Payment Information. Subscriber agrees to provide any additional documentation the Company may reasonably request, including documentation as may be required by the Company to form a reasonable basis that the Subscriber qualifies as an “accredited investor” as that term is defined in Rule 501 under Regulation D promulgated under the Act, or otherwise as a “qualified purchaser” as that term is defined in Regulation A promulgated under the Act, or as may be required by the securities administrators or regulators of any state, to confirm that the Subscriber meets any applicable minimum financial suitability standards and has satisfied any applicable maximum investment limits. Subscriber acknowledges that Subscriber’s responses to questions on the Masterworks Platform (as defined in the Offering Circular) are true, complete and accurate in all respects. Payment information provided by Subscriber through the Masterworks Platform is true, accurate and correct and such payment information shall be deemed to be a part of this Agreement as if and to the same extent that such information was set forth herein.
h.	Neither the Company nor Masterworks is an Investment Adviser. Subscriber understands that neither the Company nor Masterworks is registered under the Investment Company Act of 1940 or the Investment Advisers Act of 1940.
i.	Valuation; Use of Proceeds. Subscriber acknowledges that the price of the Shares was set by the Company on the basis of dividing (X) the sum of (i) the purchase price that a Masterworks affiliate paid for the Painting, plus (ii) 11% of such amount by (Y) the number of shares offered in the Offering. The net proceeds of the Offering together with any unsold shares, if any, will be paid to Masterworks to acquire the Painting from an affiliated entity.
j.	Domicile. Subscriber maintains Subscriber’s domicile (and is not a transient or temporary resident) at the address shown on the signature page and provided on the Masterworks Platform.
k.	Power of Attorney. Any power of attorney of the Subscriber granted in favor of the Chief Executive Officer, the Chief Financial Officer and the Secretary of the Company and any Liquidating Trustee contained in the Operating Agreement has been executed by the Subscriber in compliance with the laws of the state, province or jurisdiction in which such agreements were executed.
l.	Underwriter Fees. No fees or commissions will be payable by the Company to brokers, finders or investment bankers with respect to the Offering. Please note that Masterworks has engaged Independent Brokerage Solutions LLC (“IndeBrokers”) as an underwriter in connection with this Offering and IndeBrokers may engage other broker-dealers to assist us in finding potential investors. IndeBrokers will receive certain fees and commissions and expense reimbursements from Masterworks in respect of its activities, but no commissions, fees or expense reimbursements of IndeBrokers shall be paid by the Company or from the proceeds of this Offering. IndeBrokers is acting solely on a “best efforts” basis and will not acquire any Class A ordinary shares.

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m.

Foreign Investors. If Subscriber is not a United States person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended), Subscriber hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Shares or any use of this Agreement, including (a) the legal requirements within its jurisdiction for the purchase of the Shares, (b) any foreign exchange restrictions applicable to such purchase, (c) any governmental or other consents that may need to be obtained, and (d) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of the Shares. Subscriber’s subscription and payment for and continued beneficial ownership of the Shares will not violate any applicable securities or other laws of the Subscriber’s jurisdiction.

n.

Patriot Act; Anti-Money Laundering; OFAC. The Subscriber should check the Office of Foreign Assets Control (“OFAC”) website at http://www.treas.gov/ofac before making the following representations. Subscriber hereby represents and warrants to the Company as follows:

● Subscriber represents that (i) no part of the funds used by the Subscriber to acquire the Shares has been, or shall be, directly or indirectly derived from, or related to, any activity that may contravene United States federal or state or non-United States laws or regulations, including anti-money laundering laws and regulations, and (ii) no payment to the Company by the Subscriber and no distribution to the Subscriber shall cause the Company to be in violation of any applicable anti-money laundering laws or regulations including, without limitation, Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001 and the United States Department of the Treasury Office of Foreign Assets Control regulations. Subscriber acknowledges and agrees that, notwithstanding anything to the contrary contained in the Offering Circular or any other agreement, to the extent required by any anti-money laundering law or regulation, the Company may restrict distributions or take any other reasonably necessary or advisable action with respect to the Shares, and the Subscriber shall have no claim, and shall not pursue any claim, against the Company or any other person in connection therewith. U.S. federal regulations and executive orders administered by OFAC prohibit, among other things, the engagement in transactions with, and the provision of services to, certain foreign countries, territories, entities and individuals. The lists of OFAC prohibited countries, territories, persons and entities can be found on the OFAC website at http://www.treas.gov/ofac. In addition, the programs administered by OFAC (the “OFAC Programs”) prohibit dealing with individuals¹ or entities in certain countries regardless of whether such individuals or entities appear on the OFAC lists.

● To the best of the Subscriber’s knowledge, none of: (1) the Subscriber; (2) any person controlling or controlled by the Subscriber; (3) if the Subscriber is a privately-held entity, any person having a beneficial interest in the Subscriber; or (4) any person for whom the Subscriber is acting as agent or nominee in connection with this investment is a country, territory, individual or entity named on an OFAC list, or a person or entity prohibited under the OFAC Programs. Subscriber agrees to promptly notify the Company should the Subscriber become aware of any change in the information set forth in these representations. Subscriber understands and acknowledges that, by law, the Company may be obligated to “freeze the account” of the Subscriber, either by prohibiting additional subscriptions from the Subscriber, declining to make any distributions and/or segregating the assets in the account in compliance with governmental regulations, and any broker may also be required to report such action and to disclose the Subscriber’s identity to OFAC. Subscriber further acknowledges that the Company may, by written notice to the Subscriber, suspend the redemption rights, if any, of the Subscriber if the Company reasonably deems it necessary to do so to comply with anti-money laundering regulations applicable to the Company or any broker or any of the Company’s other service providers. These individuals include specially designated nationals, specially designated narcotics traffickers and other parties subject to OFAC sanctions and embargo programs.

● To the best of the Subscriber’s knowledge, none of: (1) the Subscriber; (2) any person controlling or controlled by the Subscriber; (3) if the Subscriber is a privately-held entity, any person having a beneficial interest in the Subscriber; or (4) any person for whom the Subscriber is acting as agent or nominee in connection with this investment is a senior foreign political figure², or any immediate family³ member or close associate⁴ of a senior foreign political figure, as such terms are defined in the footnotes below.

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1	These individuals include specially designated nationals, specially designated narcotics traffickers and other parties subject to OFAC sanctions and embargo programs.
2	A “senior foreign political figure” is defined as a senior official in the executive, legislative, administrative, military or judicial branches of a foreign government (whether elected or not), a senior official of a major foreign political party, or a senior executive of a foreign government-owned corporation. In addition, a “senior foreign political figure” includes any corporation, business or other entity that has been formed by, or for the benefit of, a senior foreign political figure.
3	“Immediate family” of a senior foreign political figure typically includes the figure’s parents, siblings, spouse, children and in-laws.
4	A “close associate” of a senior foreign political figure is a person who is widely and publicly known to maintain an unusually close relationship with the senior foreign political figure, and includes a person who is in a position to conduct substantial domestic and international financial transactions on behalf of the senior foreign political figure.

● If the Subscriber is affiliated with a non-U.S. banking institution (a “Foreign Bank”), or if the Subscriber receives deposits from, makes payments on behalf of, or handles other financial transactions related to a Foreign Bank, the Subscriber represents and warrants to the Company that: (1) the Foreign Bank has a fixed address, other than solely an electronic address, in a country in which the Foreign Bank is authorized to conduct banking activities; (2) the Foreign Bank maintains operating records related to its banking activities; (3) the Foreign Bank is subject to inspection by the banking authority that licensed the Foreign Bank to conduct banking activities; and (4) the Foreign Bank does not provide banking services to any other Foreign Bank that does not have a physical presence in any country and that is not a regulated affiliate.

● Subscriber acknowledges that, to the extent applicable, the Company will seek to comply with the Foreign Account Tax Compliance Act provisions of the U.S. Internal Revenue Code and any rules, regulations, forms, instructions or other guidance issued in connection therewith (the “FATCA Provisions”). In furtherance of these efforts, the Subscriber agrees to promptly deliver any additional documentation or information, and updates thereto as applicable, which the Company may request in order to comply with the FATCA Provisions. The Subscriber acknowledges and agrees that, notwithstanding anything to the contrary contained in the Offering Circular, any side letter or any other agreement, the failure to promptly comply with such requests, or to provide such additional information, may result in the withholding of amounts with respect to, or other limitations on, distributions made to the Subscriber and such other reasonably necessary or advisable action by the Company with respect to the Shares (including, without limitation, required withdrawal), and the Subscriber shall have no claim, and shall not pursue any claim, against the Company or any other person in connection therewith.

4. Ownership Limitation and Reporting. Subscriber acknowledges and agrees that, pursuant to the terms of the Company’s Operating Agreement, Subscriber generally cannot own, or be deemed to beneficially own, as “beneficial ownership” is determined pursuant to Section 13(d) and 13(g) of the Securities Act, more than 19.99% of the total number of Class A shares outstanding. In addition, if Subscriber purchases more than 10% of the Class A shares offered in the Offering, Subscriber acknowledges that Subscriber’s name, address and holdings may be reported in the Company’s ongoing SEC filings.

5. Survival; Indemnification. All representations, warranties and covenants contained in this Agreement and the indemnification contained herein shall survive (a) the acceptance of this Agreement by the Company, (b) changes in the transactions, documents and instruments described herein which are not material or which are to the benefit of Subscriber, and (c) the death or disability of Subscriber. Subscriber acknowledges the meaning and legal consequences of the representations, warranties and agreements in Section 3 hereof and that the Company has relied upon such representations, warranties and covenants in determining Subscriber’s qualification and suitability to purchase the Shares. Subscriber hereby agrees to indemnify, defend and hold harmless the Company, its officers, directors, employees, agents and controlling persons, from and against any and all losses, claims, damages, liabilities, expenses (including attorneys’ fees and disbursements), judgments or amounts paid in settlement of actions arising out of or resulting from the untruth of any representation of Subscriber herein or the breach of any warranty or covenant herein by Subscriber. Notwithstanding the foregoing, however, except as set forth in Section 14 hereof with respect to forum selection, no representation, warranty, covenant or acknowledgment made herein by Subscriber shall in any manner be deemed to constitute a waiver of any rights granted to it under the Securities Act or state securities laws.

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6. Tax Forms. Subscriber will also need to complete an IRS Form W-9 or the appropriate Form W-8, which should be returned directly to us via the Masterworks Platform. The Subscriber certifies that the information contained in the executed copy (or copies) of IRS Form W-9 or appropriate IRS Form W-8 (and any accompanying required documentation), as applicable, when submitted to the Company or Masterworks will be true, correct and complete. Subscriber shall (i) promptly inform the Company of any change in such information, and (ii) furnish to us a new properly completed and executed form, certificate or attachment, as applicable, as may be required under the Internal Revenue Service instructions to such forms, the Code or any applicable Treasury Regulations or as may be requested from time to time by us. In addition, Subscriber understands that if Subscriber invests an amount equal to or exceeding $100,000 or purchases 10% or more of the total Class A shares offered in the Offering and Subscriber is a U.S. citizen, U.S. resident or U.S. entity, Subscriber will be required to file IRS Form 926.

7. No Advisory Relationship. Subscriber acknowledges and agrees that the purchase and sale of the Shares pursuant to this Agreement is an arms-length transaction between you and the Company. In connection with the purchase and sale of the Shares, neither the Company nor Masterworks is acting as your agent or fiduciary. Neither the Company nor Masterworks assumes any advisory or fiduciary responsibility in your favor in connection with the Shares. Neither the Company nor Masterworks has provided you with any legal, accounting, regulatory or tax advice with respect to the Shares, and you have consulted your own respective legal, accounting, regulatory and tax advisors to the extent you have deemed appropriate.

8. Telephone Consumer Protection Act Consent. Subscriber hereby expressly consents to receiving calls and messages, including auto-dialed and pre-recorded message calls, and SMS messages (including text messages) from the Administrator, its affiliates, agents and others calling at their request or on their behalf, at any telephone numbers that Subscriber has provided to the Company or Masterworks (including any cellular telephone numbers). Subscriber’s cellular or mobile telephone provider will charge Subscriber according to the type of plan Subscriber carries. To unsubscribe from text messages or promotional calls at any time, Subscriber may (i) reply STOP, STOPALL, UNSUBSCRIBE, CANCEL, END or QUIT to any text message such Subscriber receives from the Administrator or Masterworks or (ii) email support@Masterworks.io with one of the forgoing words in the subject line. Each Subscriber consents that following such a request to unsubscribe, such Subscriber may receive one final text message from Masterworks confirming such request. Subscriber understands that unsubscribing from promotional and/or account-related texts or calls will not prevent Masterworks from sending Subscriber text messages or telephone calls for purposes other than promotion and marketing.

9. Masterworks Platform. Subscriber acknowledges that it has read, understands and agrees to the terms and conditions, privacy policy and disclaimers on the Masterworks Platform.

10. Transfer Restrictions. Subscriber acknowledges and agrees that the Shares are subject to restrictions on transfer as described in the Offering Materials. The Shares may only be transferred by operation of law or with the consent of the Company:

● to an immediate family member or an affiliate of the owner of the Class A shares,

● to a trust or other entity for estate or tax planning purposes,

● as a charitable gift, or

● on a trading platform approved by Masterworks or in a transaction otherwise approved by Masterworks.

The Company may withhold consent in its sole discretion, including when the Administrator determines that such transfer, assignment or pledge would result in (a) the Painting being deemed “plan assets” for purposes of ERISA, (b) the transferee holding in excess of 19.9% of the total voting shares, (c) a change of US federal income tax treatment of the Company and the Class A ordinary shares, or (d) the Company or the Administrator being subject to additional regulatory requirements.

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As a condition to recording any transfer on our books and records, the transferring holder may be required to pay a transfer fee equal to the actual third-party transaction cost of recording such transfer. These costs will be charged on a per transaction basis irrespective of the number of Shares transferred. Transfers will also be subject to restrictions imposed under state and international securities laws. Certificates or other instruments representing the Shares (including crypto-tokens) shall bear a digital or physical restrictive legend in substantially the following form (and a stop transfer order may be placed against transfer of such certificates or instruments):

THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO SIGNIFICANT RESTRICTIONS ON TRANSFER PURSUANT TO THE COMPANY’S OPERATING AGREEMENT AND THE SUBSCRIPTION AGREEMENT PURSUANT TO WHICH THESE SECURITIES WERE ORIGINALLY SOLD. ANY PURPORTED TRANSFER IN VIOLATION OF SUCH PROVISIONS SHALL BE VOID, AB INITIO.

11. Arbitration.

a.	Either party may, at its sole election, require that the sole and exclusive forum and remedy for resolution of a Claim be final and binding arbitration pursuant to this Section 11 (this “Arbitration Provision”). The arbitration shall be conducted in New York, NY. As used in this Arbitration Provision, “Claim” shall include any past, present, or future claim, dispute, or controversy involving you (or persons claiming through or connected with you), on the one hand, and the Company and or Masterworks (or persons claiming through or connected with the Company or Masterworks), on the other hand, relating to or arising out of this Agreement, the Shares, the Masterworks Platform, and/or the activities or relationships that involve, lead to, or result from any of the foregoing, including (except to the extent provided otherwise in the last sentence of Section (e) below) the validity or enforceability of this Arbitration Provision, any part thereof, or the entire Agreement, provided that this provision shall not apply to any Claims arising under Federal securities laws. Claims are subject to arbitration regardless of whether they arise from contract; tort (intentional or otherwise); a constitution, statute, common law, or principles of equity; or otherwise. Claims include (without limitation) matters arising as initial claims, counter-claims, cross-claims, third-party claims, or otherwise. The scope of this Arbitration Provision is to be given the broadest possible interpretation that is enforceable.
b.	The party initiating arbitration shall do so with the American Arbitration Association (the “AAA”) or JAMS. The arbitration shall be conducted according to, and the location of the arbitration shall be determined in accordance with, the rules and policies of the administrator selected, except to the extent the rules conflict with this Arbitration Provision or any countervailing law. In the case of a conflict between the rules and policies of the administrator and this Arbitration Provision, this Arbitration Provision shall control, subject to countervailing law, unless all parties to the arbitration consent to have the rules and policies of the administrator apply.
c.	If we elect arbitration, we shall pay all the administrator’s filing costs and administrative fees (other than hearing fees). If you elect arbitration, filing costs and administrative fees (other than hearing fees) shall be paid in accordance with the rules of the administrator selected, or in accordance with countervailing law if contrary to the administrator’s rules. We shall pay the administrator’s hearing fees for one full day of arbitration hearings. Fees for hearings that exceed one day will be paid by the party requesting the hearing, unless the administrator’s rules or applicable law require otherwise, or you request that we pay them and we agree to do so. Each party shall bear the expense of its own attorney’s fees, except as otherwise provided by law. If a statute gives you the right to recover any of these fees, these statutory rights shall apply in the arbitration notwithstanding anything to the contrary herein.
d.	Within 30 days of a final award by the arbitrator, a party may appeal the award for reconsideration by a three-arbitrator panel selected according to the rules of the arbitrator administrator. In the event of such an appeal, an opposing party may cross-appeal within 30 days after notice of the appeal. The panel will reconsider de novo all aspects of the initial award that are appealed. Costs and conduct of any appeal shall be governed by this Arbitration Provision and the administrator’s rules, in the same way as the initial arbitration proceeding. Any award by the individual arbitrator that is not subject to appeal, and any panel award on appeal, shall be final and binding, except for any appeal right under the Federal Arbitration Act (the “FAA”), and may be entered as a judgment in any court of competent jurisdiction.

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e.	We agree not to invoke our right to arbitrate an individual Claim that you may bring in Small Claims Court or an equivalent court, if any, so long as the Claim is pending only in that court. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, NO ARBITRATION SHALL PROCEED ON A CLASS, REPRESENTATIVE, OR COLLECTIVE BASIS (INCLUDING AS PRIVATE ATTORNEY GENERAL ON BEHALF OF OTHERS), EVEN IF THE CLAIM OR CLAIMS THAT ARE THE SUBJECT OF THE ARBITRATION HAD PREVIOUSLY BEEN ASSERTED (OR COULD HAVE BEEN ASSERTED) IN A COURT AS CLASS REPRESENTATIVE, OR COLLECTIVE ACTIONS IN A COURT.
f.	Unless otherwise provided in this Agreement or consented to in writing by all parties to the arbitration, no party to the arbitration may join, consolidate, or otherwise bring claims for or on behalf of two or more individuals or unrelated corporate entities in the same arbitration unless those persons are parties to a single transaction. Unless consented to in writing by all parties to the arbitration, an award in arbitration shall determine the rights and obligations of the named parties only, and only with respect to the claims in arbitration, and shall not (i) determine the rights, obligations, or interests of anyone other than a named party, or resolve any Claim of anyone other than a named party, or (ii) make an award for the benefit of, or against, anyone other than a named party. No administrator or arbitrator shall have the power or authority to waive, modify, or fail to enforce this sub-section (e), and any attempt to do so, whether by rule, policy, arbitration decision or otherwise, shall be invalid and unenforceable. Any challenge to the validity of this sub-section (e) shall be determined exclusively by a court and not by the administrator or any arbitrator.
g.	This Arbitration Provision is made pursuant to a transaction involving interstate commerce and shall be governed by and enforceable under the FAA. The arbitrator will apply substantive law consistent with the FAA and applicable statutes of limitations. The arbitrator may award damages or other types of relief permitted by applicable substantive law, subject to the limitations set forth in this Arbitration Provision. The arbitrator will not be bound by judicial rules of procedure and evidence that would apply in a court. The arbitrator shall take steps to reasonably protect confidential information.
h.	This Arbitration Provision shall survive (i) suspension, termination, revocation, closure, or amendments to this Agreement and the relationship of the parties; (ii) the bankruptcy or insolvency of any party hereto or other party; and (iii) any transfer of any loan or Common Share or any amounts owed on such loans or notes, to any other party. If any portion of this Arbitration Provision other than sub-section (e) is deemed invalid or unenforceable, the remaining portions of this Arbitration Provision shall nevertheless remain valid and in force. If arbitration is brought on a class, representative, or collective basis, and the limitations on such proceedings in sub-section (e) are finally adjudicated pursuant to the last sentence of sub-section (e) to be unenforceable, then no arbitration shall be had. In no event shall any invalidation be deemed to authorize an arbitrator to determine Claims or make awards beyond those authorized in this Arbitration Provision.

12. Waiver of Court & Jury Rights. THE PARTIES ACKNOWLEDGE THAT THEY HAVE A RIGHT TO LITIGATE CLAIMS THROUGH A COURT BEFORE A JUDGE, BUT WILL NOT HAVE THAT RIGHT IF ANY PARTY ELECTS ARBITRATION PURSUANT TO THIS ARBITRATION PROVISION. THE PARTIES HEREBY KNOWINGLY AND VOLUNTARILY WAIVE THEIR RIGHTS TO LITIGATE SUCH CLAIMS IN A COURT UPON ELECTION OF ARBITRATION BY ANY PARTY. THE PARTIES HERETO WAIVE A TRIAL BY JURY IN ANY LITIGATION RELATING TO THIS AGREEMENT, THE SHARES OR ANY OTHER AGREEMENTS RELATED THERETO. THIS WAIVER OF THE RIGHT TO A JURY TRIAL DOES NOT APPLY TO ANY CLAIMS MADE UNDER THE FEDERAL SECURITIES LAWS.

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13. Damage Limitation. IN NO EVENT SHALL THE COMPANY BE LIABLE TO THE SUBSCRIBER FOR ANY LOST PROFITS OR SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES, EVEN IF INFORMED OF THE POSSIBILITY OF SUCH DAMAGES. THE FOREGOING SHALL BE INTERPRETED AND HAVE EFFECT TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, RULE OR REGULATION.

14. Choice of Forum for Securities Act Disputes. Subscriber acknowledges that the Company’s amended and restated operating agreement contains a provision that requires any complaint asserting a cause of action under the Securities Act to be litigated in the federal district courts of the United States of America.

15. Miscellaneous.

a.	Captions and Headings. The Article and Section headings throughout this Agreement are for convenience of reference only and shall in no way be deemed to define, limit or add to any provision of this Agreement.
b.	Notification of Changes. Subscriber agrees and covenants to notify the Company immediately upon the occurrence of any event prior to the consummation of this Offering that would cause any representation, warranty, covenant or other statement contained in this Agreement to be false or incorrect or of any change in any statement made herein occurring prior to the consummation of this Offering.
c.	Assignability. This Agreement is not assignable by Subscriber, and may not be modified, waived or terminated except by an instrument in writing signed by the party against whom enforcement of such modification, waiver or termination is sought.
d.	Binding Effect. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of the parties and their heirs, executors, administrators, successors, legal representatives and assigns, and the agreements, representations, warranties and acknowledgments contained herein shall be deemed to be made by and be binding upon such heirs, executors, administrators, successors, legal representatives and assigns.
e.	Obligations Irrevocable. The obligations of Subscriber shall be irrevocable, except with the consent of the Company, until the consummation or termination of the Offering.
f.	Entire Agreement; Amendment. This Agreement states the entire agreement and understanding of the parties relating to the matters contained herein, superseding all prior contracts or agreements, whether oral or written. No amendment of the Agreement shall be made without the express written consent of the parties.
g.	Severability. The invalidity or unenforceability of any particular provision of this Agreement shall not affect any other provision hereof, which shall be construed in all respects as if such invalid or unenforceable provision were omitted.

h.

Hardware and Software Requirements. In order to access and retain documents electronically, you must satisfy the following computer hardware and software requirements: access to the Internet; an email account and related software capable of receiving email through the Internet; a web browser which is SSL-compliant and supports secure sessions; and hardware capable of running this software. You will also need a printer if you wish to print electronic documents on paper, and electronic storage if you wish to download and save documents to your computer.

i.

Governing Law; Venue. This Agreement shall be governed by and construed in accordance with the laws of Delaware, without regard to the conflicts of laws principles thereof. To the extent of any disagreement or matter relating to this Agreement, the Shares or the Masterworks Platform, including, without limitation, the enforceability of the arbitration provisions of this Agreement or the enforcement of any arbitration award, such disagreement or matter shall be exclusively submitted to the federal or state courts located in the City of New York.

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j.

Notices. All notices and communications to be given or otherwise made to the Subscriber shall be deemed to be sufficient if sent by electronic mail to such address as set forth for the Subscriber at the records of the Company and or Masterworks (or that you submitted to us via the Masterworks Platform). You shall send all notices or other communications required to be given hereunder to the Company via email at support@masterworks.io (with a copy to be sent concurrently via prepaid certified mail to: Masterworks Administrative Services, LLC, 497 Broome St., New York, New York, 10013, Attention: Investor Relations. Any such notice or communication shall be deemed to have been delivered and received on the first business day following that on which the electronic mail has been sent (assuming that there is no error in delivery). As used in this Section, “business day” shall mean any day other than a day on which banking institutions in the State of Delaware are legally closed for business.

k.

Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which together shall be deemed to be one and the same agreement.

l.

Digital Signatures. Digital (“electronic”) signatures, often referred to as an “e-signature”, enable paperless contracts and help speed up business transactions. The 2002 E-Sign Act was meant to ease the adoption of electronic signatures. The mechanics of this Subscription Agreement’s electronic signature include your signing this Agreement below by typing in your name, with the underlying software recording your IP address, your browser identification, the timestamp, and a securities hash within an SSL encrypted environment. This electronically signed Subscription Agreement will be available to both you and the Company, as well as any associated brokers, so they can store and access it at any time, and it will be stored and accessible on the Masterworks Platform and hosting provider, including backups. You and the Company each hereby consents and agrees that electronically signing this Agreement constitutes your signature, acceptance and agreement as if actually signed by you in writing. Further, all parties agree that no certification authority or other third-party verification is necessary to validate any electronic signature; and that the lack of such certification or third party verification will not in any way affect the enforceability of your signature or resulting contract between you and the Company. You understand and agree that your e-signature executed in conjunction with the electronic submission of this Subscription Agreement shall be legally binding and such transaction shall be considered authorized by you. By signing electronically below, you agree your electronic signature is the legal equivalent of your manual signature on this Subscription Agreement you consent to be legally bound by this Subscription Agreement. Alternatively, you may opt-out of this provision by printing a copy of this Agreement, signing it manually and returning it to the Company and, if your subscription is accepted, the Company will manually countersign it and return a countersigned copy to you via email.

m.

Consent to Electronic Delivery of Tax Documents. Please read this disclosure about how we will provide certain documents that we are required by the Internal Revenue Service (the “IRS”) to send to you (“Tax Documents”) in connection with your Shares. A Tax Document provides important information you need to complete your tax returns. Tax Documents include Form 1099 and/or Form K-1. Occasionally, we are required to send you CORRECTED Tax Documents. Additionally, we may include inserts with your Tax Documents. We are required to send Tax Documents to you in writing, which means in paper form. When you consent to electronic delivery of your Tax Documents, you will be consenting to delivery of Tax Documents, including these corrected Tax Documents and inserts, electronically instead of in paper form. By executing this Agreement on the Masterworks Platform, you are consenting in the affirmative that we may send Tax Documents to you electronically, and acknowledging that you are able to access Tax Documents from the site which are made available under “My Account.” If you subsequently withdraw consent to receive Tax Documents electronically, a paper copy will be provided. Your consent to receive the Tax Documents electronically continues for every tax year until you withdraw your consent. You can withdraw your consent before the Tax Document is furnished by mailing a letter including your name, mailing address, effective tax year, and indicating your intent to withdraw consent to the electronic delivery of Tax Documents to:

Masterworks Administrative Services, LLC

Attn: General Counsel

497 Broome Street

New York, NY 10013

(203) 518-5172

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If you withdraw consent to receive Tax Documents electronically, a paper copy will be provided. You Must Keep Your E-mail Address Current With Us. You must promptly notify us of a change of your email address. If your mailing address, email address, telephone number or other contact information changes, you may also provide updated information by contacting us at support@Masterworks.io.

n. Electronic Delivery of Information. Subscriber and the Company each hereby agrees that all current and future notices, confirmations and other communications regarding this Agreement, the Operating Agreement and future communications in general between the parties, may be made by email, sent to the email address of record as set forth in this Agreement or as otherwise from time to time changed or updated and disclosed to the other party, without necessity of confirmation of receipt, delivery or reading, and such form of electronic communication is sufficient for all matters regarding the relationship between the parties. If any such electronically sent communication fails to be received for any reason, including but not limited to such communications being diverted to the recipients spam filters by the recipients email service provider, or due to a recipient’s change of address, or due to technology issues by the recipients service provider, the parties agree that the burden of such failure to receive is on the recipient and not the sender, and that the sender is under no obligation to resend communications via any other means, including but not limited to postal service or overnight courier, and that such communications shall for all purposes, including legal and regulatory, be deemed to have been delivered and received. No physical, paper documents will be sent to you, and if you desire physical documents then you agree to be satisfied by directly and personally printing, at your own expense, the electronically sent communication(s) and maintaining such physical records in any manner or form that you desire.

* * * * *

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MASTERWORKS 040, LLC

SUBSCRIPTION AGREEMENT SIGNATURE PAGE

IN WITNESS WHEREOF, Subscriber or its duly authorized representative has electronically executed and delivered this Subscription Agreement by clicking “I Agree” above and acknowledges that all of the information below is true and correct.

Number of Class A Shares:
	(See *NOTE* below)

*NOTE* A Purchase Price denominated in number of BT or ETH will represent the $USD equivalent thereof based on the exchange rate in effect at time of payment, less any fees or charges of the third-party exchange agent deducted from such amount. The number of Class A ordinary shares subscribed for in BT or ETH will be included on the Company’s countersigned signature page when the subscription has been finally accepted at the applicable closing.

SIGNATURE:

[By clicking “I Agree” I, Subscriber, have executed this Agreement intending to be legally bound]

(Signature of subscriber or authorized officer)

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MASTERWORKS 040, LLC

SUBSCRIPTION AGREEMENT SIGNATURE PAGE

(This countersigned Signature Page will be returned to Subscriber when and if a

subscription has been accepted immediately prior to the applicable closing)

ACCEPTED AND AGREED TO:
MASTERWORKS 040, LLC
By:
Name:
Title:	Chief Executive Officer

Masterworks 040, LLC

Attn: General Counsel

497 Broome Street

New York, NY 10013

(203) 518-5172

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ANNEX A

Procedures for Subscribing

After the qualification by the SEC of the offering statement of which this offering circular is a part, if you decide to subscribe for any Class A ordinary shares in this Offering, you should go to the Masterworks Platform website at https://masterworks.io/, and follow the links and procedures described on the website. The website will direct you to receive (upon your acknowledgement that you have had the opportunity to review this offering circular), review, execute and deliver the subscription agreement electronically. The Masterworks Platform provides a secure portal to enable you to subscribe as follows:

1.	Once an offering has been qualified by the SEC, you can initiate the subscription  process by clicking a “Buy Shares” link adjacent to a reference to the particular offering.
2.	The next screen will require you to provide basic identifying information, including your name, email address, phone number, and to establish a password, after which you will be prompted to continue to the next screen.
3.	You will then be presented with a link to the final Offering Circular (and any post qualification supplements or amendments, if applicable) and basic information about the Offering, including an image of the relevant artwork, the number of Class A ordinary shares offered, the maximum aggregate offering amount and the minimum investment amount.
4.	You will be requested to confirm the number of Class A ordinary shares you wish to subscribe for and the corresponding dollar amount of your proposed subscription.
5.	After a prompt to continue, you will be requested to select a payment method, including: (i) linking a bank account to facilitate payment through the Automated Clearing House, or ACH, (ii) federal funds wire transfer or (iii) credit card, as follows: (a) ACH. If you choose to link your bank account, you will be requested to select your bank among a directory of banks and you will be prompted to provide your bank user name and password and to select the particular account. You may also confirm your bank account by confirming micro deposits in lieu of using your user name and password. (b) Wire Transfer. If you choose to pay by wire transfer, you will be provided with the issuer’s bank account number, routing number and bank address, along with a unique identifying code that will enable us to match the incoming wire transfer with your subscription. (c) Credit Card. If you choose to pay by credit card, you will be prompted to provide your credit card information and will be presented with a screen that reflects the amount of your subscription, the amount of fees that would be charged by the credit card issuer for the transaction and the total amount payable.
6.	After selecting the method of payment, Masterworks sends you an email requesting you to click a link that verifies your email address and confirms that you created your profile with Masterworks.
7.	Assuming your email address is valid, you will be directed to review and execute a copy of the subscription agreement, which contains an active hyper-link to the operating agreement for the issuer and is self-populated with your name, address, telephone number, subscription amount and method of payment.

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8.	Next, you will be requested to verify your identity and you will be presented with an active hyperlink to a Customer ID Program Notice which describes the identification information you need to provide. You will be prompted to provide us with your address, date of birth and your social security or tax identification number. You will also be asked: (i) whether you are an accredited investor (with appropriate definitions provided) and if not, you will be asked to confirm that your investment will be less than 10% of your net worth or annual gross income, (ii) whether you or anyone in your household are associated with a FINRA member, securities exchange, self-regulatory organization or the SEC and (iii) whether you or anyone in your household or immediate family is a 10% shareholder, officer, or member of the board of directors of a publicly traded company.
9.	After your identity is cleared against certain governmental terrorist watch lists and lists designed to prevent or deter money-laundering, you will be presented with a confirmation of your accepted subscription. Investors selecting ACH will receive an email that payment has been initiated and a follow-up email indicating that the payment has been received by the issuer.
10.	You will receive an email confirmation indicating the amount of your subscription, along with a fully executed copy of the subscription agreement, which will be time and date stamped, for your records.
11.	You will then be presented with a screen requesting certain tax exemption status information that will be used, along with other information previously provided, to populate a Form W-9 (Request for Taxpayer Identification Number and Certification) or W-8 (International), as applicable.
12.	Lastly, you will be directed to a “My Account” screen that summarizes the status of your subscription, order history, whether or not shares have been issued, profile information, tax documents and active hyperlinks to the subscription agreement and operating agreement.

Any potential investor will have ample time to review the offering circular and subscription agreement, along with their counsel, prior to making any final investment decision. We will not accept any money until the SEC declares the relevant offering circular qualified. All funds received from investors will be held in a non-interest bearing segregated bank account of the Company with First Republic Bank Corporation, or a similar institution. IndeBrokers will not be responsible for collecting or holding investor funds. The funds in the account will be released to us only after we close on the applicable closing date. We intend to accept subscriptions on a rolling basis and complete one or multiple closings. Until the initial closing (or another applicable closing), the proceeds for the offering will be kept in the segregated bank account. At each closing, the offering proceeds collected prior to the date of such closing will be distributed to us and the associated Class A ordinary shares will be issued to the investors who subscribed prior to such applicable closing date. If there is no initial closing or if funds remain in the account upon termination of the offering without any corresponding closing, the funds deposited in the segregated account will be promptly returned to subscribers, without deduction and generally without interest.

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ADD EXHB

EXHIBIT 6.1

FORM OF ADMINISTRATIVE SERVICES AGREEMENT

Dated as of [DATE], 2021

This Administrative Services Agreement (this “Agreement”), dated as of the date first set forth above (the “Effective Date”) is entered into by and between Masterworks Administrative Services, LLC, a Delaware limited liability company (the “Administrator”) and Masterworks 040, LLC, a Delaware limited liability company (the “Issuer”) and Masterworks Cayman, SPC, a Cayman Islands segregated portfolio company (“Masterworks Cayman”), on behalf of the [  ] segregated portfolio (the “Portfolio”). Each party hereto may be referred to herein individually as a “Party” and all parties may be referred to collectively as the “Parties.”

R E C I T A L S :

Whereas, as of the Effective Date, Masterworks has agreed to acquire a painting (the “Painting”) to be owned by the Portfolio as described in an Offering Circular filed by the Issuer with the Securities and Exchange Commission (the “SEC”) relating to an offering of shares of the Issuer (the “Offering”) and the initial closing of the Offering has occurred; and

Whereas, Masterworks has agreed to advance all or any portion of the funds necessary to acquire the Painting on behalf of the Portfolio and the Issuer will repay Masterworks; and

Whereas, the Issuer and Masterworks Cayman desire that the Administrator provide the Issuer and Masterworks Cayman with routine operational, administrative, management, advisory, consulting and other services with respect to their respective operations (“Entity-Level Services”), and the Administrator desires to render such Entity-Level Services to the Issuer and Masterworks Cayman, on the terms and conditions set forth in this Agreement;

Whereas, the Issuer and Masterworks Cayman desires that the Administrator provide Masterworks Cayman with routine services relating to the Painting (“Painting-Level Services”), and the Administrator desires to render such Painting-Level Services, on the terms and conditions set forth in this Agreement;

Whereas, the Issuer and Masterworks Cayman desires that the Administrator provide transactional, extraordinary and non-routine services (“Non-Routine Services”) and the Administrator desires to render such Non-Routine Services, as needed, on the terms and conditions set forth in this Agreement;

Now, therefore, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

1. Services.

(a) Provision of Services by the Administrator. The Administrator shall directly, or indirectly through one or more Affiliates (as defined below) or third parties as described in Section 1(b), engage and maintain personnel for the purpose of providing the following services (collectively, the “Services”) to the Issuer and Masterworks Cayman:

(i) Painting-Level Services, including:

(A)	custodial and storage services for the Painting;
(B)	maintaining asset-level insurance requirements for the Painting;
(C)	managing transport for the Painting in the ordinary course of business, including the display and exhibition thereof;
(D)	research services;
(E)	appraisal and valuation services; and
(F)	other services deemed necessary or appropriate by the Administrator at its discretion to maintain the Painting;

(ii) Entity-Level Services for the Issuer and Masterworks Cayman, including:

(A)	oversight and management of banking activities;
(B)	management of preparation and filing of SEC and other corporate filings;
(C)	financial, accounting and bookkeeping services, including retention of an auditor for the Issuer;
(D)	record-keeping, shareholder registrar, investor relations and regulatory compliance;
(E)	providing listing services, subject to the applicable law;
(F)	tax reporting services;
(G)	bill payment;
(H)	selecting and negotiating insurance coverage for the Issuer and Masterworks Cayman, including operational errors and omissions coverage and directors’ and officers’ coverage;
(I)	maintain the Issuer’s stock ledger and coordinating activities of the Issuer’s transfer agent, escrow agent and related parties; and
(J)	software services;

(iii) Non-Routine Services, including:

(A)	legal and professional transactional services;
(B)	negotiation of terms of potential sale of the Painting or the Issuer and the execution thereof;
(C)	obtaining appraisals and statements of condition in connection with a sale transaction relating to the Painting

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(D)	other transaction-related services, cost, payments and expenditures relating to the Painting or the Issuer;
(E)	administrative services in connection with liquidation or winding up of the Issuer and Masterworks Cayman;
(F)	managing litigation, judicial proceedings or arbitration, including the defense and or settlement of any claims (regardless of whether or not the Issuer is named as a defendant or party in any such claim);
(G)	Conservation, restoration (as deemed necessary by the Administrator), reframing and other expenditures that increase the value of the Painting; and
(H)	other non-routine or extraordinary services.

(b) Provision of Services by Third Parties. The Administrator shall, to the extent it determines that it would be advisable in connection with or incidental to the activities contemplated hereby, arrange for and coordinate the services of other professionals, experts and consultants to provide any or all of the Services, in which case, the costs and expenses of such third parties for providing such services shall be borne by the Administrator other than as set forth in Section 3; it being understood that the Administrator shall not charge to the Issuer any fees in addition thereto with respect to such outsourced Painting-Level Services that are described in Section 1(a)(i) and Entity-Level Services described in Section 1(a)(ii), but the Administrator shall be entitled to reimbursement for third party costs incurred in connection with Non-Routine Services described in Section 1(a)(iii) as set forth in Section 3(b). Reimbursement for Non-Routine Services shall be reimbursed by the Issuer out of the proceeds from a sale of the Painting. In addition, Masterworks may determine to sell the Painting without engaging a third-party intermediary, in which event, the Administrator would charge the buyer of the Painting a reasonable fee not to exceed the lowest published buyer’s premium charged by Sotheby’s, Christie’s or Phillips in effect at such time.

(c) Independent Contractor; Authority. Notwithstanding the Services provided by the Administrator pursuant to this Agreement, the Administrator shall be deemed to be an independent contractor with respect to the Services. The management, policies and operations of the Parties (including the ultimate approval of the making or disposition of the Painting by the Issuer or Masterworks Cayman, and the terms and conditions thereof) shall be the responsibility of the Parties other than the Administrator.

(d) Obligations of Administrator Not Exclusive. The obligations of the Administrator to the other Parties are not exclusive. The Administrator may, in its discretion, render the same or similar services as rendered to the Issuer and Masterworks Cayman to any Person or Persons whose business may be in direct or indirect competition with the Issuer, including other Affiliates of the Administrator.

(e) Definitions. For purposes hereof:

(i) “Affiliate” means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person and, for the purposes of this definition, the term “controls,” “is controlled by” or “under common control with” means, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

(ii) “Person” means an individual, a corporation, and a company, a voluntary association, a partnership, a joint venture, a limited liability company, a trust, an estate, an unincorporated organization, a Governmental Authority or other entity.

(iii) “Governmental Authority” means the government of any nation, state, territory, city, locality or other political subdivision thereof, any entity or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any court, quasi-governmental authority, self-regulatory organization, commission, tribunal, agency or any political or other subdivision, department, board, bureau, or branch or official of any of the foregoing.

(f) Additional Services. Nothing herein shall prevent the Administrator from providing additional services not otherwise set forth herein, and any such additional Services shall be deemed to be included in Section 1(a)(iii).

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2. Other Related Activities.

(a) The Administrator and Affiliates thereof shall have the right to engage in the following activities (subject to compliance with laws and intellectual property rights of third parties) in exchange for the payment of an annual royalty of $1.00 per annum:

(i) Rights to commercialize the Painting for the duration of the operations of the Issuer;

(ii) The right to perpetually offer the Painting for sale, display and exhibition rights;

(iii) The right to lend the Painting to museums, galleries, private entities, individuals and the like; and

(iv) The right to lease the Painting to companies, private entities and individuals,

(v) The right to offer perks to owners of Shares, subject to compliance with applicable laws, and the costs of which will be paid by the Administrator.

(b) The Administrator shall bear any incremental third-party costs associated with such activities related to the activities set forth in this Section 2 and in the event that any revenues are generated from such other activities, the Administrator may retain such revenues.

3. Compensation and Expenses; Covenant.

(a) In return for the Services, the Administrator shall earn administration fees and expense reimbursements in the form of Class A shares of the Issuer equal to 1.5% of the total Class A shares outstanding per annum, issued on a quarterly basis in arrears, commencing on the date of the final closing of the Offering provided that if the Offering is fully subscribed, but the final closing is delayed due to a delay in our receipt of investor subscription funds, such administrative services fee shall start accruing once at least 95% of the Class A shares offered have been issued. For the avoidance of doubt, no fees or expense reimbursements in the form of Class A shares shall be earned for any period prior to the final closing of the Offering (or the date on which at least 95% of the Class A shares offered have been issued).

(b)	The issuance of Class A shares shall be earned ratably on the basis of a 360- day year comprised of twelve (12) thirty (30) day months. If and when the Painting is sold, the Class A shares actually earned by the Administrator (based on the number of days elapsed between the Effective Date and the date to and excluding the date of consummation of the sale of the Painting) and the number of Class A shares actually received by the Administrator and any excess Class A shares received by the Administrator, if any, shall be refunded to the Issuer, as applicable, and any shortfall payable or issuable to the Administrator shall be issued to the Administrator on or immediately prior to the sale of the Painting.
(c)	In addition to the Class A shares, in connection with the provision of the Non-Routine Services, the Issuer shall reimburse the Administrator for all out-of-pocket costs, expenses and payments incurred or made by the Administrator in connection with such Non-Routine Services, provided, the reimbursement obligation shall be suspended (without interest or penalty) until the Painting is sold.
(d)	Masterworks may determine to sell the Painting without engaging a third-party intermediary, in which event, the Administrator would charge the buyer of the Painting a reasonable fee not to exceed the lowest published buyer’s premium charged by Sotheby’s, Christie’s or Phillips in effect at such time.
(e)	For so long as this Agreement remains in effect, Administrator covenants to maintain on hand cash reserves sufficient to pay at least one year of estimated expenses to satisfy its obligations under this Agreement and the commitment from the Administrator to fund the operations of the Issuer and the maintenance of the Painting until the sale of the Painting.

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4. Indemnification.

(a) Indemnification of Protected Persons. To the fullest extent permitted by law, each of the Parties (other than the Administrator) shall jointly and severally indemnify, hold harmless, protect and defend the Administrator, its Affiliates, any officer, manager, board member, employee or any direct or indirect partner, member or shareholder of the Administrator, any Person who serves at the request of the Administrator on behalf of any of the Parties as an officer, director, partner, member, manager, board member, shareholder or employee of any other Person, and any Person who was, at the time of the act or omission in question, such a Person (each, a “Protected Person”) against any losses, claims, damages or liabilities, including legal fees, costs and expenses incurred in investigating or defending against any such losses, claims, damages or liabilities or in enforcing the Protected Person’s right to indemnification under this Agreement (collectively, “Liabilities”), to which any Protected Person may become subject (i) by reason of any act or omission or alleged act or omission (even if negligent) arising out of or in connection with the activities of such Party; or (ii) by reason of the fact that it is or was acting in connection with the activities of such Party in any capacity or that it is or was serving at the request of any Party as a partner, member, shareholder, director, officer, employee or agent of any Person, unless, in each case, such Liability results from such Protected Person’s own actual fraud, gross negligence, willful misconduct, bad faith, breach of fiduciary duty, reckless disregard of duty or any material breach of this Agreement or conduct that is subject of a criminal proceeding (where such Protected Person has reasonable cause to believe that such conduct was unlawful). The termination of any proceeding by settlement, judgment, order, conviction, or upon a plea of nolo contendere or its equivalent shall not, by itself, create a presumption that such Protected Person’s conduct constituted actual fraud, gross negligence, willful misconduct, bad faith, breach of fiduciary duty, reckless disregard of duty or any material breach of this Agreement or the commission of a crime, except a judgment, order or conviction that expressly provides that such Protected Person’s conduct constituted actual fraud, gross negligence, willful misconduct, bad faith, breach of fiduciary duty, reckless disregard of duty or any material breach of this Agreement or the commission of a crime.

(b) Reimbursement of Expenses. The Issuer and or Masterworks Cayman shall promptly reimburse (and/or advance to the extent reasonably required) each Protected Person for reasonable legal or other expenses (as incurred) of such Protected Person in connection with investigating, preparing to defend or defending any claim, lawsuit or other proceeding relating to any Liabilities for which the Protected Person may be indemnified pursuant to this Section 4; provided, that such Protected Person executes a written undertaking to repay the Issuer or Masterworks Cayman, as applicable, for such reimbursed or advanced expenses if it is finally judicially determined that such Protected Person is not entitled to the indemnification provided by this Section 4. In any action, suit or proceeding against Protected Persons, such Protected Persons shall jointly employ, at the expense of the Issuer or Masterworks Cayman, counsel of the Protected Persons’ choice, which counsel shall be reasonably satisfactory to the Issuer, in such action, suit or proceeding; provided that if retention of joint counsel by such Protected Persons would create a conflict of interest, each Protected Person whose participation in such joint representation would cause such a conflict shall have the right to employ, at the expense of the Issuer, separate counsel of the respective Protected Person’s choice, which counsel shall be reasonably satisfactory to the Issuer in such action, suit or proceeding; provided, however, that if any indemnitor shall acknowledge in writing its liability to the Protected Person for any action, suit or proceeding brought by a third party in connection with which any Protected Person is seeking indemnification, then such indemnitor shall be entitled to select the counsel to defend such action, suit or proceeding, subject to the approval of the Protected Person, which approval shall not be unreasonably withheld.

(c) Survival of Protection. The provisions of this Section 4 shall continue to afford protection to each Protected Person regardless of whether such Protected Person remains in the position or capacity pursuant to which such Protected Person became entitled to indemnification under this Section 4 and regardless of any subsequent amendment to this Agreement; provided, that no such amendment shall reduce or restrict the extent to which these indemnification provisions apply to actions taken or omissions made prior to the date of such amendment.

(d) Recovery. Each Protected Person shall use its reasonable efforts to pursue other third-party sources of indemnification in respect of any Liabilities for which it or any Protected Person may require indemnification in accordance with this Section 4. If any Protected Person recovers any amounts in respect of any Liabilities from insurance coverage or any third-party source, then such Protected Person shall, to the extent that such recovery is duplicative, reimburse the Issuer for any amounts previously paid to it by the Issuer in respect of such Liabilities.

(e) Survival. The rights of indemnification provided in this Section 4 will be in addition to any rights to which a Protected Person might otherwise be entitled by contract or as a matter of law, and shall extend to each of such Protected Person’s heirs, successors and assigns. The provisions of this Section 4 shall survive the termination of this Agreement.

(f) Exceptions to Indemnification. Notwithstanding anything to the contrary contained herein, the Issuer’s obligations under Section 4(a) (Indemnification of Protected Persons) and Section 4(b) (Reimbursement of Expenses) shall not apply to any actions, suits or proceedings in which one or more officers, directors, partners, members or employees of the Administrator are making claims against the Administrator or one or more other officers, directors, partners, members or employees of the Administrator.

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5. Assignment. Any assignment of this Agreement by a Party shall require the approval of the other Parties.

6. Term and Termination.

(a) This Agreement shall terminate upon the first to occur of (i) the dissolution of the Issuer; (ii) upon notice of termination from the Administrator that the Administrator desires to withdraw as the administrator of the Issuer, Masterworks Cayman and of the Painting, which the Administrator may give at any time in the event that the Administrator determines that it desires to cease providing services of the type as set forth herein to any Person, and provided that the Administrator does so cease providing such services thereunder and (iii) on the joint agreement of the Parties.

(b) In addition to the termination provisions as set forth in Section 6(a), the Issuer may terminate this Agreement at any time upon any of the following:

(i) the commission by the Administrator or any of its executive officers of fraud, gross negligence or willful misconduct;

(ii) the conviction of the Administrator of a felony;

(iii) a material breach by the Administrator of the terms of this Agreement which breach is not cured within 30 days after receipt by the Administrator of a notice of such breach from any member of the Issuer (provided that if such breach is not capable of cure within 30 days, and Administrator is diligently taking steps to cure the breach, then no such event shall be deemed to have occurred unless and until the Administrator fails to cure such breach within 60 days after receiving notice thereof);

(iv) a material violation by the Administrator or any of its executive officers of any applicable law that has a material adverse effect on the business of the Issuer; or

(v) the bankruptcy or insolvency of the Administrator.

(c) The Parties shall, on the date of such termination or if it does not have the available funds on such date, as soon as practicable after it does have the available funds, pay any accrued but costs subject to reimbursement by such Parties through to such date.

7. Notices.

(a) All notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall be given by personal delivery, mailed by internationally recognized courier service or airmail, or sent by email with return receipt requested to the following addresses of the Parties or to such other address as such Party may have specified for notice:

(i)	If to the Administrator:
		Masterworks Administrative Services, LLC
		Attn: General Counsel
		497 Broome Street
		New York, NY 10013
(ii)	If to the Issuer or Masterworks Cayman:
		Masterworks 040, LLC
		Attn: General Counsel
		497 Broome Street
		New York, NY 10013

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(b) Any notice shall be deemed received, unless earlier received, (i) if sent by courier service, on the second Business Day after delivery to the courier service, (ii) if sent by certified or registered airmail, return receipt requested, when actually received, (iii) if sent by standard airmail, five Business Days after posting in the mail, and (iv) if sent by email transmission or delivered by hand, on the date of receipt as evidenced by a return receipt in the case of email transmission.

8. Arbitration.

(a) Either Party may, at its sole election, require that the sole and exclusive forum and remedy for resolution of a Claim be final and binding arbitration pursuant to this Section 8 (this “Arbitration Provision”). The arbitration shall be conducted in New York, NY. As used in this Arbitration Provision, “Claim” shall include any past, present, or future claim, dispute, or controversy involving the Parties or any Protected Person relating to or arising out of this Agreement, including (except to the extent provided otherwise in the last sentence of Section 8(e) the validity or enforceability of this Arbitration Provision, any part thereof, or the entire Agreement. Claims are subject to arbitration regardless of whether they arise from contract; tort (intentional or otherwise); a constitution, statute, common law, or principles of equity; or otherwise. Claims include (without limitation) matters arising as initial claims, counter-claims, cross-claims, third-party claims, or otherwise. The scope of this Arbitration Provision is to be given the broadest possible interpretation that is enforceable.

(b) The party initiating arbitration shall do so with the American Arbitration Association (the “AAA”) or JAMS. The arbitration shall be conducted according to, and the location of the arbitration shall be determined in accordance with, the rules and policies of the Administrator selected, except to the extent the rules conflict with this Arbitration Provision or any countervailing law. In the case of a conflict between the rules and policies of the Administrator and this Arbitration Provision, this Arbitration Provision shall control, subject to countervailing law, unless all parties to the arbitration consent to have the rules and policies of the Administrator apply.

(c) If a Party elects arbitration, such party shall pay all the Administrator’s filing costs and administrative fees (other than hearing fees). Each Party shall bear the expense of its own attorney’s fees, except as otherwise provided by law.

(d) Within 30 days of a final award by the arbitrator, a party may appeal the award for reconsideration by a three-arbitrator panel selected according to the rules of the arbitrator Administrator. In the event of such an appeal, an opposing party may cross-appeal within 30 days after notice of the appeal. The panel will reconsider de novo all aspects of the initial award that are appealed. Costs and conduct of any appeal shall be governed by this Arbitration Provision and the Administrator’s rules, in the same way as the initial arbitration proceeding. Any award by the individual arbitrator that is not subject to appeal, and any panel award on appeal, shall be final and binding, except for any appeal right under the Federal Arbitration Act (the “FAA”), and may be entered as a judgment in any court of competent jurisdiction.

(e) Each party agrees not to invoke its right to arbitrate an individual Claim that a party may bring in Small Claims Court or an equivalent court, if any, so long as the Claim is pending only in that court. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, NO ARBITRATION SHALL PROCEED ON A CLASS, REPRESENTATIVE, OR COLLECTIVE BASIS (INCLUDING AS PRIVATE ATTORNEY GENERAL ON BEHALF OF OTHERS), EVEN IF THE CLAIM OR CLAIMS THAT ARE THE SUBJECT OF THE ARBITRATION HAD PREVIOUSLY BEEN ASSERTED (OR COULD HAVE BEEN ASSERTED) IN A COURT AS CLASS REPRESENTATIVE, OR COLLECTIVE ACTIONS IN A COURT.

(f) Unless otherwise provided in this Agreement or consented to in writing by all parties to the arbitration, no party to the arbitration may join, consolidate, or otherwise bring claims for or on behalf of two or more individuals or unrelated corporate entities in the same arbitration unless those persons are parties to a single transaction. Unless consented to in writing by all parties to the arbitration, an award in arbitration shall determine the rights and obligations of the named parties only, and only with respect to the claims in arbitration, and shall not (i) determine the rights, obligations, or interests of anyone other than a named party, or resolve any Claim of anyone other than a named party, or (ii) make an award for the benefit of, or against, anyone other than a named party. No party or arbitrator shall have the power or authority to waive, modify, or fail to enforce this Section 8(f), and any attempt to do so, whether by rule, policy, arbitration decision or otherwise, shall be invalid and unenforceable. Any challenge to the validity of this Section 8(f) shall be determined exclusively by a court and not by the party or any arbitrator.

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(g) This Arbitration Provision is made pursuant to a transaction involving interstate commerce and shall be governed by and enforceable under the FAA. The arbitrator will apply substantive law consistent with the FAA and applicable statutes of limitations. The arbitrator may award damages or other types of relief permitted by applicable substantive law, subject to the limitations set forth in this Arbitration Provision. The arbitrator will not be bound by judicial rules of procedure and evidence that would apply in a court. The arbitrator shall take steps to reasonably protect confidential information.

(h) This Arbitration Provision shall survive (i) suspension, termination, revocation, closure, or amendments to this Agreement and the relationship of the Parties; and (ii) the bankruptcy or insolvency of any Party or other party. If any portion of this Arbitration Provision other than sub-section (e) is deemed invalid or unenforceable, the remaining portions of this Arbitration Provision shall nevertheless remain valid and in force. If arbitration is brought on a class, representative, or collective basis, and the limitations on such proceedings in Section 8(e) are finally adjudicated pursuant to the last sentence of Section 8(e) to be unenforceable, then no arbitration shall be had. In no event shall any invalidation be deemed to authorize an arbitrator to determine Claims or make awards beyond those authorized in this Arbitration Provision.

9. Miscellaneous.

(a) Amendment. This Agreement may not be modified or amended in any manner other than by an instrument in writing signed by the Parties or their respective successors or permitted assigns.

(b) Covenant to Provide Financial Information and Maintain Sufficient Capital. The Administrator shall obtain and maintain the necessary capital to fulfill its obligations under this Agreement and shall remain solvent. The Administrator will report to the Issuer on a semi-annual basis its current and total assets, current and total liabilities, and total equity and the Company intends to include such amounts in its SEC reports.

(c) Waivers. No provision of this Agreement shall be deemed to have been waived unless such waiver is in writing and signed by or on behalf of the Party granting the waiver.

(d) Entire Agreement. Other than as specifically set forth herein, this Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof and supersedes any prior agreement or understanding between them with respect to such subject matter.

(e) Severability. In case any provision in this Agreement shall be deemed to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby.

(f) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of Delaware, without regard to the conflicts of laws principles thereof. To the extent of any disagreement or matter relating to this Agreement, including, without limitation, the enforceability of the arbitration provisions of this Agreement or the enforcement of any arbitration award, such disagreement or matter shall be exclusively submitted to the federal or state courts located in the City of New York.

(g) Limitation on Damages. IN NO EVENT SHALL ANY PARTY BE LIABLE TO ANY OTHER PARTY FOR ANY LOST PROFITS OR SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES, EVEN IF INFORMED OF THE POSSIBILITY OF SUCH DAMAGES. THE FOREGOING SHALL BE INTERPRETED AND HAVE EFFECT TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, RULE OR REGULATION.

(h) WAIVER OF JURY TRIAL. THE PARTIES ACKNOWLEDGE THAT THEY HAVE A RIGHT TO LITIGATE CLAIMS THROUGH A COURT BEFORE A JUDGE, BUT WILL NOT HAVE THAT RIGHT IF ANY PARTY ELECTS ARBITRATION PURSUANT TO THIS ARBITRATION PROVISION. THE PARTIES HEREBY KNOWINGLY AND VOLUNTARILY WAIVE THEIR RIGHTS TO LITIGATE SUCH CLAIMS IN A COURT UPON ELECTION OF ARBITRATION BY ANY PARTY. THE PARTIES HERETO WAIVE A TRIAL BY JURY IN ANY LITIGATION RELATING TO THIS AGREEMENT OR ANY OTHER AGREEMENTS RELATED THERETO.

(i) Successors and Assigns. Except as herein otherwise specifically provided, this Agreement shall be binding upon and inure to the benefit of the Parties and their successors and permitted assigns.

(j) Third Party Beneficiaries. Each Protected Person is an intended third-party beneficiary of this Agreement and shall have the right to enforce its rights under this Agreement as if it were a direct Party. Other than as set forth herein, this Agreement is between the Parties and there are no other third-party beneficiaries hereto, and no other party shall have the right to enforce this Agreement.

(k) Headings. Captions contained in this Agreement are inserted only as a matter of convenience and in no way define, limit or extend the scope or intent of this Agreement or any provision hereof.

(l) Interpretation. Wherever from the context it appears appropriate, each term stated in either the singular or the plural shall include the singular and the plural, and pronouns stated in the masculine, the feminine or neuter gender shall include the masculine, the feminine and the neuter.

(m) Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.

[remainder of page left intentionally blank]

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IN WITNESS WHEREOF, the Parties hereto have entered into this Agreement as of the Effective Date.

Masterworks Administrative Services, LLC

By:

Name:

Title:

Masterworks 040, LLC

By:

Name:

Title:

Masterworks Cayman, SPC, on behalf of the [  ] segregated portfolio

By:

Name:

Title:

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ADD EXHB

Exhibit 6.2

FORM OF MASTERWORKS INTERCOMPANY AGREEMENT

This intercompany agreement (“Agreement”) is made effective as of [  ], 2021 (the “Effective Date”) by and between MASTERWORKS.IO, LLC (“IO”), MASTERWORKS GALLERY, LLC (“Masterworks Gallery” and, together with IO, “Masterworks”) and MASTERWORKS 040, LLC, a Delaware limited liability company (the “Company”), and is intended to set forth certain representations, covenants and agreements between Masterworks and the Company with respect to the offering (the “Offering”) for sale by the Company of its Class A ordinary membership interests (referred to herein as the “Shares”) as described in the Company’s Offering Circular dated as of the date of its qualification by the SEC, as amended by any post-qualification amendment (the “Offering Circular”). Capitalized terms used herein and not otherwise defined herein have the meaning ascribed to such terms in the Offering Circular. Masterworks and the Company may be referred to collectively herein as the “Parties”.

RECITALS:

WHEREAS, Masterworks Gallery has negotiated a transaction whereby Masterworks Gallery, acting as agent for the Company, will purchase the Painting as described in the Offering Circular for the purchase price of $           ;

WHEREAS, the purchase of the Painting by the Company will occur on or prior to the initial closing of the Offering and not later than              ;

WHEREAS, Masterworks will advance all or any portion of the funds necessary to acquire the Painting to the Company pursuant to this Agreement;

WHEREAS, the Company intends to pay Masterworks a true-up amount as set forth in the Offering Circular and intends to use the proceeds of the Offering to pay any advance made by Masterworks (without interest), if applicable and to pay the true-up, in cash or a combination of cash and Class A shares.

WHEREAS, the Parties desire to memorialize their agreement with respect to the forgoing and certain other matters set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

1. Advance. Masterworks will advance all or any portion of the funds necessary to acquire the Painting to the Company. The advance may only be used by the Company to purchase the Painting. The advance will be recorded on the books and records of the Company and Masterworks as an intercompany loan and will not accrue interest. The advance will be repaid in installments upon each closing of the Offering in cash and or a combination of cash and Class A shares of the Company (valued at $20 per share for such purposes). Each payment that occurs in connection with a closing of the Offering shall be prorated between the true-up and the advance based on the relative size of each obligation. Under no circumstances will any portion of the advance remain as an outstanding obligation of the Company following the final closing of the Offering and the application of the use of proceeds therefrom.

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2. True-Up. As consideration for Masterworks Gallery sourcing the Painting and committing to finance the acquisition of the Painting, Masterworks Gallery will be entitled to receive a true-up amount upon the closing of the Offering equal to approximately 11% of the purchase price of the Painting. The true-up payment will be paid in installments upon each closing of the Offering in cash and or a combination of cash and Class A shares of the Company (valued at $20 per share for such purposes). Each payment that occurs in connection with a closing of the Offering shall be prorated between the true-up and the advance based on the relative size of each obligation. Under no circumstances will any portion of the true-up remain as an outstanding obligation of the Company following the final closing of the Offering and the application of the use of proceeds therefrom.

3. License. IO, which owns certain intellectual property rights to the name “Masterworks” hereby grants the Company effective upon the commencement of the Offering, a non-exclusive, royalty free license to use the name “Masterworks”. Other than with respect to this license, the Company will have no legal right to use the “Masterworks” name. In the event that the Administrator ceases to administer the Company’s operations, the Company will be required to change its name to eliminate the use of “Masterworks”.

4. Miscellaneous.

a.	Captions and Headings. The Article and Section headings throughout this Agreement are for convenience of reference only and shall in no way be deemed to define, limit or add to any provision of this Agreement.
b.	Assignability. This Agreement is not assignable by either of the Parties and may not be modified, waived or terminated except by an instrument in writing signed by the party against whom enforcement of such modification, waiver or termination is sought.
c.	Binding Effect. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of the parties and their heirs, executors, administrators, successors, legal representatives and assigns, and the agreements, representations, warranties and acknowledgments contained herein shall be deemed to be made by and be binding upon such heirs, executors, administrators, successors, legal representatives and assigns.
d.	Entire Agreement; Amendment. This Agreement states the entire agreement and understanding of the Parties relating to the matters contained herein, superseding all prior contracts or agreements, whether oral or written. No amendment of the Agreement shall be made without the express written consent of the Parties.
e.	Severability. The invalidity or unenforceability of any particular provision of this Agreement shall not affect any other provision hereof, which shall be construed in all respects as if such invalid or unenforceable provision were omitted.
f.	Governing Law; Venue. This Agreement shall be governed by and construed in accordance with the laws of Delaware, without regard to the conflicts of laws principles thereof. To the extent of any disagreement or matter relating to this Agreement, such disagreement or matter shall be exclusively submitted to the federal or state courts located in the City of New York.
g.	Notices. All notices and communications to be given or otherwise made to the Company or Masterworks shall be sent to such Party at: 497 Broome Street, New York, New York, 10013, Attention: General Counsel. Any such notice or communication shall be deemed to have been delivered and received on the first business day following that on which the electronic mail has been sent (assuming that there is no error in delivery). As used in this Section, “business day” shall mean any day other than a day on which banking institutions in the State of Delaware are legally closed for business.
k.	Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which together shall be deemed to be one and the same agreement.

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MASTERWORKS

INTERCOMPANY AGREEMENT SIGNATURE PAGE

IN WITNESS WHEREOF, the Parties have executed and delivered this Agreement as of the Effective Date.

MASTERWORKS 040, LLC
By:
Name:	Josh Goldstein
Title:	General Counsel
MASTERWORKS GALLERY, LLC
By:
Name:	Josh Goldstein
Title:	General Counsel
MASTERWORKS.IO, LLC
By:
Name:	Josh Goldstein
Title:	General Counsel

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EX1A-12 OPN CNSL

Exhibit 12.1

ANTHONY L.G., PLLC

laura aNTHONy, esq	www.ANTHONYPLLC.com
GEOFFREY ASHBURNE, ESQ*	WWW.SECURITIESLAWBLOG.COM
JOHN CACOMANOLIS, ESQ**	WWW.LAWCAST.COM
CHAD FRIEND, ESQ, LLM
SVETLANA ROVENSKAYA, ESQ***
OF COUNSEL:	DIRECT E-MAIL: LANTHONY@ANTHONYPLLC.COM
MICHAEL R. GEROE, ESQ, CIPP/US****
CRAIG D. LINDER, ESQ*****
PETER P. LINDLEY, ESQ, CPA, MBA
STUART REED, ESQ
MARC S. WOOLF, ESQ

*licensed in CA

**licensed in FL and NY

***licensed in NY and NJ

****licensed in CA, DC, MO and NY

*****licensed in CA, FL and NY

January 25, 2021

Masterworks 040, LLC

497 Broome Street

New York, New York 10013

Re: Masterworks 040, LLC Offering Statement on Form 1-A

Ladies and Gentlemen:

We have acted as securities counsel to Masterworks 040, LLC (the “Company”) in connection with the preparation and filing with the Securities and Exchange Commission of a Regulation A offering statement on Form 1-A, as filed on January 25, 2021 (the “Offering Statement”) relating to the offer by the Company of up to 83,250 of the Company’s membership interests in the form of Class A ordinary shares, for a purchase price of $20.00 per share (the “Shares”).

This opinion letter is being delivered in accordance with the requirements of Item 17(12) of Form 1-A under the Securities Act of 1933, as amended.

In connection with rendering this opinion, we have examined the originals, or certified, conformed or reproduction copies, of all such records, agreements, instruments and documents as we have deemed relevant or necessary as the basis for the opinion hereinafter expressed. In all such examinations, we have assumed the genuineness of all signatures on original or certified copies and the conformity to original or certified copies of all copies submitted to us as conformed or reproduction copies.

We have reviewed: (a) the certificate of formation of the Company; (b) the amended and restated operating agreement of the Company; (c) the offering circular; (d) form of Subscription Agreement; and (e) such other corporate documents, records, papers and certificates as we have deemed necessary for the purposes of the opinions expressed herein.

Based upon and subject to the foregoing and to the other qualifications and limitations set forth herein, we are of the opinion that the Shares, when issued and delivered in the manner and/or the terms described in the Offering Statement as filed (after it is declared qualified), will be validly issued, fully paid and non-assessable.

We express no opinion with regard to the applicability or effect of the law of any jurisdiction other than, as in effect on the date of this letter, (a) the internal laws of the State of Delaware and (b) the federal laws of the United States. We express no opinion as to laws of any other jurisdiction. We assume no obligation to revise or supplement this opinion should the laws be changed after the effective date of the Offering Statement by legislative action, judicial decision or otherwise.

We hereby consent to the filing of this opinion as an exhibit to the Offering Statement and to the reference to our firm under the caption “Legal Matters” in the Offering Statement. In giving this consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Act.

Sincerely yours,

/s/ Laura E. Anthony

Laura E. Anthony,

For the Firm

625 N. FLAGLER DRIVE, #600 ● WEST PALM BEACH, FLORIDA ● 33401 ● PHONE: 561-514-0936
● FAX 561-514-0832

EX1A-13 TST WTRS

Exhibit 13.1