Can An LLC Issue Stock? 19+ Secrets No One Will Tell You

You are about to read the MOST complete guide to “LLC stock”.
So, if you want to know:

Then you MUST read this.
Let’s dive right in!

llc stock

Does An LLC Have Shares?

Does an LLC have shareholders? No, your Limited Liability Company (LLC) does not have shares.
Your LLC cannot issue stock.
Owners of your LLC never have and never will own stock in your LLC.
Instead, ownership of your LLC is expressed through membership units.
Your members / owners of your LLC share in the profits of your LLC.
The size of each member’s piece of the “profits pie” depends on how many units they own in your LLC.
The same applies to voting-rights on business matters.
An LLC-member’s voting rights depend on how many units they own in your LLC.
These LLC members can be both added and subtracted throughout the lifetime of your LLC (if there is an operating agreement set in place).
Although the “LLC regulations” vary from state to state, when it comes to the question “Can an LLC issue stock?”, all states share the same answer - no.
Only businesses that are structured as corporations can issue stock / shares.
Meaning, only businesses structured as C corporations or S corporations can issue stock / shares.
Although, LLCs cannot issue stock / shares, LLCs can legally issue bonds.

LLC Stucture vs. Corporation Structure

You structure your Limited Liability Company (LLC) very differently than the way you structure your corporation.

Differences LLC Corporation
Ownership Representation Memebers Shareholders
Issuing Stocks ❌ Never ✅ Capable
Fiancial Contribution ❌ Not Necessary ✅ Necessary
Who Is A Valid Owner ✅ Almost Anyone ❌ Restrictions
Dividends ❌ Never ✅ Capable
Taxes Pass-Through Double-Tax
Who Controls Your Business Within Abstract
Becoming A New Owner Complicated Simple
Legal Requirements Few Many

LLC vs. Corporation Difference #1: Ownership Representation

For an LLC structure, the owners are represented by members.
Each member listed in the articles of organization upon filing your LLC with the state department.

For a corporation structure, however, ownership is represented through issuing stocks or option grants.
Shareholders represent ownership for corporations.

LLC vs. Corporation Difference #2: Issuing Stocks

For an LLC structure, issuing stocks is not an option.
Instead, every member owns a specific amount of units in your LLC.
Membership for LLCs is measured on how many units each member owns.

For a corporation structure, however, this is not so.
Instead, corporations do indeed issue stock.

LLC vs. Corporation Difference #3: Financial Contribution

For an LLC structure, you can issue membership to anyone, regardless if they have financially contributed to your business.
Ownership / membership of an LLC does not depend on contributing financially.
You can still be a certified LLC member, even if you do not contribute financially to the LLC.
For example, if one of your members did not financially contribute as much as another member, you can still distribute equal membership to both of them.
All you need to do is specify in your LLC’s operating agreement that both members will receive equal portions in the profits.

For a corporation structure, however, ownership depends on how many shares were purchased.
In other words, ownership in a corporation depends on how much capital was invested in your business.

LLC vs. Corporation Difference #4: Who Is a Valid Owner?

For an LLC structure, almost anyone or anything can own one.
Most people and entities can own an LLC.
Any person or company who owns an entire LLC or part of an LLC, is legally a “member”. Link to page who can own an llc

For a corporation structure, however, the ownership regulations are different.
Not anything can own a corporation, only individuals.
There are restrictions as to who can own a corporation.
For this reason if another company wants to buy shares in your corporation, then they will not be able to.
Only individuals can own corporations.

LLC vs. Corporation Difference #5: Paying Dividends

For an LLC structure, paying dividends is not an option.
LLCs never pay dividends to its members.
Instead, LLC members receive draws and distributions. This achieves the same purpose as paying dividends.

For a corporation structure, however, paying dividends is an option.
Some corporations choose to sometimes pay dividends to their shareholders.

LLC vs.Corporation Difference #6: Paying Taxes

For an LLC structure, the IRS designated it to be a pass-through entity, by default.
This means that your LLCs profits are “passed through” the LLC legal entity all the way to the members or owners of your LLC.
Only after you pay your members, do you pay taxes on your profits, on your share.
All other members will pay taxes on their share as well.
In other words, your LLC itself will not pay taxes.
Instead, each one of your LLC’s members will individually pay taxes on your LLC’s profits.

For a corporation structure, however, it is different.
C Corporations (C corps) are considered to be double-taxed entities.
This means that your corporation will have to pay taxes (corporate tax), even before you distribute your profits to your shareholders.
Distributing dividends to your shareholders is not tax deductible.
Meaning, dividends will be taxed twice, as well.
However, if you elect to have your corporation adopt S Corporation (S corp) tax status, then your profits will not be double taxed.
S corps are not like C corps, which are double-taxed entities.
Instead, S corps are similar to LLCs, which are pass-through entities.

LLC vs. Corporation Difference #7: Who Controls Your Business

For an LLC structure, members most resemble partners who join together on a business venture.
The result of their collaboration is ownership rights on the LLC.
Almost all members (owners) control the LLC on a day-to-day basis.
Only members from within control the LLC.
In fact, one of the default LLC rules (in all states) is that LLC members have equal control in the LLC.
If you state in your operating agreement that all members in your LLC should not have equal control, only then do all of your LLC members not have equal control in your LLC.

For a corporation structure, however, it is different.
Corporations do not operate like partners who join together on a business venture.
Corporations do not have all of its shareholders (owners) controlling the corporation.
Instead, corporations can have decision-makers from the outside.
For example, board members, directors, and officers can control the corporation.
Board members make decisions at board meetings and annual shareholder meetings, through a process of voting.
Although the decision-making process is not constructed to be made through the “owners”, like LLCs, it still can involve the owners.
If a shareholder owns a major amount of equity in the corporation, then they will sometimes be able to make managerial decisions.
In a corporation, which does not have a shareholder who owns a significant amount of stock in the corporation, then the shareholders will not vote for managerial decisions.
Instead, the shareholders' role will be to simply collect profit from the corporation.

LLC vs. Corporation Difference #8: Becoming An Owner

For an LLC structure, in order to become a member / owner, you have to go through a fairly extensive process.
The process is complicated.
In the event you want to add a member to your LLC, you will encounter a very tedious process.
You will have to add them into the documents of your LLC.
The reason for this is that an LLC’s “life” directly depends on the LLC members.
If there was no operating agreement set in place, then your LLC will dissolve the moment one of your members exits your LLC.
For this reason, you create an operating agreement to determine how your LLC will proceed when a member wants to leave your LLC.
In other words, your LLC exists because of your members. When one wants to leave, then your LLC would dissolve (if not for your operating agreement).

For a corporation structure, however, it is much simpler.
A corporation exists indefinitely, abstract from its owners.
Meaning, that even when any of your shareholders wants to leave or divest from your corporation, your corporation will operate regardless.
There are not any precautions necessary to take for your corporation.

LLC vs. Corporation Difference #9: Legal Requirements

For an LLC structure, there aren't many formalities, only few.
LLCs are not required to hold any annual meetings, have a board of directors, or keep minutes.
Some states require LLCs to file annual reports.

For a corporation structure, however, there are many legal formalities necessary.
For example, your corporation needs to document any details of discussions that took place during the annual shareholder meeting.
Additionally, your corporation is required to file annual reports.
This is meant to keep the business’ information current with the Secretary of State.

LLC And Limited Liability

With an LLC, you can obtain the benefits of both a C corporation and an S corporation.
Limited liability means that the owners’ personal assets are not in danger if the business:

  • Fails
  • Is sued by creditors
  • Is sued for wrongdoing

The only assets that are at risk are the assets that the LLC owns.
All members of your LLC are legally protected against all lawsuits and debts that may arise during normal business operations.
Meaning, all of your assets and the assets of your LLC members, both tangible and financial are protected.

When An LLC Elects For Corporation Treatment

You can elect to have your LLC treated as a corporation, if you choose.
All you need to do is file Entity Classification Election (IRS Form 8832) and choose corporate status.
Just keep in mind that you can elect to have your LLC treated as a corporation for tax-purposes, only.
Even if your LLC adopts corporate status, it is still an LLC and it cannot issue stock.

Your LLC is similar to a partnership in the sense that all the members are operating a joint business venture, unlike a corporation.
For this reason, your LLC, as opposed to a corporate structure, is not built to issue shares.

Whether or not your business entity can issue shares depends on the business structure.
An LLC is most similar to partners collaborating in a business venture.
For this reason, issuing shares is not an option.
Corporations, however, which are based on a shareholder structure, do indeed have the ability to issue shares.
The purpose of selling shares is to raise capital.
As LLCs do not have the capabilities to issue shares, your LLC will have to look for other means to raise capital.

Frequently Asked Questions

How many shares should an LLC have?

Owners in an LLC structure are referred to as members. ,br>In a standard LLC, there is no limit as to how many members (“LLC shares”) a business can have.
The only exception is when an LLC elects “S corporation” status for taxes.
In such a situation, there is a 100 member limit.

Does an LLC have shares or units?

Does LLC have shareholders? No, your Limited Liability Company (LLC) does not have shares.
Your LLC cannot issue stock.
Owners of your LLC never have and never will own stock in your LLC.
Instead, ownership of your LLC is expressed through membership units.
Members of a limited liability company share in the profits of your LLC.

Can an LLC issue stock?

The structure of a limited liability company (LLC) does not allow it to issue shares of stock.
Instead, LLCs are structured to have single or multiple owners, referred to as LLC members.

What are shareholders in an LLC called?

LLCs do not have shareholders, a board of directors, or officers. Only corporations do.
Instead, LLC owners are referred to as LLC members.
LLC members are assigned units in the LLC, as indicated in the LLC’s operating agreement.

Can an LLC be publicly traded?

As long as the business is structured as an LLC, it can not be traded publicly.
An LLC can structure itself as a publicly traded partnership and issue shares of stock in the partnership.

Can you invest in an LLC?

Yes, an LLC can own investments.
Once an LLC is established, then it can be used for more than one business purpose.
The LLC owner can open a brokerage account in the LLC’s name to buy and sell assets. An LLC can buy and sell:

  • Stocks
  • Bonds
  • Real Estate
  • Other Businesses

However, LLCs cannot be used to hold investments in 401(K), IRA, ROTH, or other retirement plans.

Can an LLC own stock?

A limited liability company (LLC) cannot issue shares of stock.
The LLC structure refers to owners as members, not shareholders.
The term “shareholder” does not exist for LLCs.

Should I invest under an LLC?

Yes, there are benefits of forming an Investment LLC.
In fact, investing under an LLC will give you tax benefits.
When you invest as an individual, you pay taxes on all sources of income, including the earnings from stock dividends and capital gains.
When you invest under an LLC, however, your LLC will not pay federal taxes.
Meaning, your stock dividends and capital gains will not be taxed if you invest under an LLC.

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