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An LLC or Limited Liability Company is a special tax classification issued to non-Corporate entities that allows them to assign members, but not designate shareholders. Even an LLC that is taxed as a Corporation cannot have a stock program. So, if you are wondering "does an LLC have stock?", the answer would be "no". Simply put, an LLC does not have stock because the owners are members and not shareholders. There is no value in the entity as an LLC for public or private gain other than distribution of profits to members.
LLCs Can Issue Bonds
There is, however, an alternative to issuing shares in a company. State laws do not prohibit the issuance of bonds to non-members or employees. This is considered a debt instrument to assist LLCs in raising funds to support growth. Bonds are closer to a loan than a share of stock, but incorporate the investment as being able to gain returns from the success of the LLC. These are complex to create and often require the partnership of an investment bank.
How LLCs Are Structured
Let's take a moment to review how LLC members are perceived in terms of their stake in the company. Members, by many state laws, must have equal ownership and profit in a manner equivalent to their investment in the company. This investment can be either money or "sweat equity." Sweat equity is the agreement that a member will provide an investment by working the business in a hands-on manner.
LLCs Can Designate Rights And Benefits
S Corporations and C Corporations can issue preferred stock giving a shareholder the right to choose how they benefit from the dissolution or profits of a company. LLCs, on the other hand, must designate the rights and benefits of its owners in the execution agreement. For example, one member may have the right to veto an action voted upon by other members. Voting rights exist in both Corporations and LLCs.
Certain Benefits Can Be Preferential
One member in an LLC, considering they do not have stock, can still be designated as receiving a greater portion of profits in the case of liquidation of assets. This simulates the preferred stock of Corporations again. Moreover, the income of various members can be indicated as different per member in the operation agreement. This is beneficial for providing clarity over the perceived stake each member holds in the company.
Regardless of which incorporation type you choose, the ability to create certain rights, benefits and agreements exist. If you're interested in learning more about whether an LLC, C Corporation or S Corporation are right for your business, you can research the different types of companies on our site easily. Take time to review the pros and cons of each before solidifying your course of action.
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