Do LLCs Have Stock?

A corporation's ability to issue stock gives it a big advantage when it comes to raising capital. For both institutional investors and individual investors, investing in the shares of a corporation is usually a far better option than investing money in an LLC.

For institutional investors, in particular, investments in LLCs are trickier from a tax perspective, as LLCs are flow-through entities when it comes to taxes. This means income generated by the LLC flows through the LLC to be taxed in the hands of LLC members, which can have potentially negative consequences for the institutional investor's tax situation.

However, the same may not hold true for the individual, or angel, investor. While stocks provide an efficient method of investing in a business, individual investors are more likely to take a more flexible, personal approach to evaluating investment opportunities. For such investors, the inability to invest through the purchase of shares may be a negative, but other factors may be sufficient to make investment in an LLC attractive.

In many cases, if your goal is to raise capital through institutional investors, the corporate structure will likely make more sense. However, if you intend to primarily pursue individual or angel investors, an LLC could still be a viable business structure.

LLC ownership interests and stock

Shares also offer an efficient way to provide multiple individuals with ownership interests since shares are essentially ownership units in a company. But if you've been thinking about forming a corporation because you plan on having multiple owners, an LLC may be a viable option even though LLCs can't issue shares.

While many LLCs have just one member, you also can form multi member LLCs, which offer the same benefits and features as single-member LLCs. For example, members of a multi-member LLC have the same limited liability protection offered by a single-member LLC, and they have voting rights. In a multi-member LLC, each member may get an LLC membership certificate as proof of their ownership stake in the organization. And in a multi-member LLC, LLC profits are split based on ownership percentage.

The primary difference between single-member and multi-member LLCs is how they are taxed by the Internal Revenue Service (IRS). While both are considered flow-through entities, the IRS treats the single-member LLC as a disregarded entity, while multi-member LLCs are taxed as partnerships. This means the activities of a single-member LLC will likely be reflected on the owner's personal tax returns, and the owner will have to pay self-employment taxes on their business profits.

Although theoretically, there's no real limit to the number of LLC members you can have in a multi-member limited liability company, each member's interest in the LLC should be set out in the LLC's operating agreement. From a practical perspective, then, if a large number of people will hold ownership interests in your startup, a corporation may be a better choice despite having less flexibility and more costs and filing requirements.

An LLC may be managed by a manager or by its members. In a member-managed LLC, the members may be involved in the LLC's day-to-day operations.

LLC operating agreements