Do LLCs Have Stock?

Do LLCs Have Stock?

by Brette Sember, Esq., August 2017

When you're opening a business, one of the biggest decisions to make is how you will legally structure that business. Two important options to consider are corporations and limited liability companies, or LLCs. There are benefits and drawbacks to both structures, and you will need to determine which is the right choice for your company.

Stock

An important difference between LLCs and corporations is how they are owned. You may be wondering does an LLC have stock or can an LLC issue shares.

A corporation is the only type of business entity that can issue shares of stock. Stock is used by corporations to give purchasers an ownership in the company. as well as voting rights. and a right to receive dividends from the corporation.

A corporation's stock can be issued in different classes. Common stock is the most common (hence the name) and comes with voting rights. Preferred stock is another type, which may not have any voting rights but which has the advantage of being paid off first if the corporation is liquidated.

Ownership in an LLC

An LLC is structured so that the owners each have a membership interest in the company, not stock.

The LLC shares or unites membership interest and gives the owners each the right to receive a portion of the LLC's earnings and to have a voice in the management of the business. Membership interests are weighted in a pro rata way. So, for example, if there are three equal members, they each receive one-third of the earnings and have an equal voice in management.

Bonds

Another common question is can an LLC issue bonds. A bond is a debt instrument, whereas stock is ownership in a corporation. Stock can only be issued by a corporation.

Both corporations and LLCs can issue bonds to raise money for the business. When a bond is issued by a company, a person or company buys that bond from the issuing company and it serves as a loan. The issuing company later pays back the bond with interest. See also: LLC vs. S Corp

Taxes

An important difference between corporations and LLCs is how they are taxed. LLC members pay individual taxes on the portion of the profits they receive from the LLC, and the LLC itself does not pay any tax on the profits.

Corporate taxation depends on the type of corporation you select for your company. An S corporation does not pay corporate tax and the shareholders pay income tax on their earnings from distributions (this is called “pass through" taxation). With a C corporation, the corporation pays corporate tax on the profits and the shareholders are taxed on the dividends they receive.

Business Formation

Finally, LLCs and corporations are formed using different methods.

An LLC is formed by filing articles of organization with the state and then creating an operating agreement that lays out the ownership interest of the members.

A corporation is formed by filing articles of incorporation with the state. Then the board of directors is appointed, the bylaws of the corporation are written, and stock is issued.