Do LLCs Have Stock or Shareholders?

Editor's Note: Take a look at our featured best practice, Digital Transformation: Value Creation & Analysis (21-slide PowerPoint presentation). Most organizations recognize the significant potential in creating value through Digital Transformation. However, they may struggle with the question of exactly how much value they can create and where within the organization the value will come from. This presentation deals with the various [read more]

Also, if you are interested in becoming an expert on Value Creation, take a look at Flevy's Value Creation Frameworks offering here. This is a curated collection of best practice frameworks based on the thought leadership of leading consulting firms, academics, and recognized subject matter experts. By learning and applying these concepts, you can you stay ahead of the curve. Full details here.

* * * *

A limited liability company is a business entity that combines the limited liability and the tax benefits of partnerships. The owners are called members in an LLC who own ownership interests instead of stockholders owning shares like in corporations. In the long run, they may also form parent and subsidiary LLCs, depending on the internal agreement. 

According to Venture Smarter, a well-known business information site, operating agreements outline how an LLC will be run, governed, and owned by its members to limit their financial risks and protect their business interests. This type of agreement can be amended as needed without going through a lengthy and costly process like in a corporation.

That said, as you might know, creating an LLC today can be done with little or no effort. In fact, you can do the entire process online if you turn to the right company. Thus, we recommend visiting some of the best websites to start an LLC. This is where you can compare each business formation service and choose the most fitting option that perfectly matches your business needs and opportunities. 

LLCs don’t have shareholders, but they have owners who own ownership interests, giving them limited liability protection.

Rights and Responsibilities of LLC members

The rights and responsibilities of LLC members are determined by the operating agreement and not state law. This flexibility is one of the reasons why LLCs are so popular. They can be tailored to meet the business’s specific needs and its owners.

While LLC members don’t have shareholders, they do have membership interests that represent their company ownership. These interests give limited liability protection to the members.

A single-member LLC is owned by one person and has limited personal liability protection for its owner but is not limited to tax liabilities. Single-member limited liability companies don’t have to pay taxes since all profits or losses are passed through directly to their owners’ personal tax returns.

If there are multiple owners in an LLC or multi-member LLC, it’s classified as a partnership and must file a partnership tax return. Members can also elect taxation as an S-Corporation, allowing limited liability company owners to be taxed like regular shareholders.

How to Issue Shares for LLC?

Issuing membership units in an LLC is much different than issuing shares of stock in a corporation. The operating agreement must be amended to issue membership units, and this can only be done with the unanimous consent of all members.

The amendment process isn’t as complex or costly as amending the articles of incorporation for a corporation, but it is more time-consuming.

LLC Membership Certificates

Ownership stake in an LLC is represented by membership certificates issued to the members when they join the company. These certificates identify the member’s ownership interest and state their rights and obligations as a member.

The certificate should also include the name of the company, its business address, the signature of the company’s president or secretary, and the date it was issued.

Liability of Members

As mentioned earlier, members of an LLC have limited liability protection for their personal assets. This means that they are only liable for the amount of money they have invested in the company and not any debts or liabilities it may incur.

This type of protection is not available to shareholders in a corporation who can be held liable for the company’s debts and liabilities.

A membership interest can be freely transferred or sold without affecting the limited liability protection.

FAQs

Can an LLC have investors?

An LLC can have investors, but there may be certain restrictions depending on the state in which the LLC is formed.

What are shares in an LLC called?

Shares in an LLC are called membership interests. They are similar to corporation shares but have some important distinctions.

Who owns the LLC?

The members of the LLC own the LLC. A member may be an individual, a partnership, or a corporation. If the LLC has only one member, that member is the owner of the LLC. If the LLC has two or more members, they own it jointly.

Conclusion

The decision to have LLCs with stock or shareholders boils down to the personal preferences of the business owners and what type of limited liability protection they desire. LLCs provide a flexible and cost-effective way to do business without the restrictions of corporations.

Want to Achieve Excellence in Value Creation?

Gain the knowledge and develop the expertise to become an expert in Value Creation. Our frameworks are based on the thought leadership of leading consulting firms, academics, and recognized subject matter experts. Click here for full details.

Since the early 1990s, organizations have relied on Value-Based Management (VBM) and other Value Creation frameworks to analyze and drive business performance and shareholder value. After all, maximizing shareholder value is the #1 priority for any publicly-owned company—and a top priority for most others.

But, how do we create Value?

Over the years, Value Creation Thinking has evolved from VBM to more inclusive models.

Learn about our Value Creation Best Practice Frameworks here.