Types of Companies > Limited Liability Company > Captial Contributions & Ownership

Captial Contributions and Ownership of an LLC

Ownership in an LLC can be expressed in two ways: (1) by percentage; and (2) by membership units, which are similar to shares of stock in a corporation. In either case, ownership confers the right to vote and the right to share in the profits of the LLC.

An LLC can distribute its ownership interests as it pleases, without regard to how much money or property a member contributes to the company. For example, if one member contributes $10,000 to the company and is a silent partner, and another contributes no money but runs the company on a daily basis, they could still decide to split the membership interests 50%-50%.

A limited liability company can also be organized with different classes of ownership interests, which provides flexibility for special allocations of profits and voting power. You are permitted to create a special class of "super-voting" units that provide 5 votes per unit or pay a certain level of profit before the "regular" units.

Like sale of corporate securities (stock), the sale of membership interests is also subject to securities laws. Generally though, if you are not advertising the sale and are dealing only with a small number (less than 35) of knowledgeable and sophisticated investors, then you will be exempt from the regulations. If, however, you are seeking to raise a significant amount of money from a large number of investors, it will be necessary to consult an attorney.

Assignment and transfer of ownership interests:

Transfer of membership interests generally requires the consent of other members. It is possible to create articles of organization that does not require consent of other members. This is an important issue to consider for any LLC with more than one member. On one hand, you may wish to sell or transfer your membership units to anyone you wish. On the other, if you consider the other members of the LLC your business partners, you may want approval over whether they can transfer their interest and who they can transfer it to. If your plans may at any time include raising funds publicly, you are advised that venture capitalists sometimes shun LLC's because it may require changing the LLC to a C-corporation at considerable expense.

Tax forms and licenses:

LLCs may be required to obtain a federal tax identification number. However, there are some situations where an LLC can simply use the social security number of the owner. City and county business licenses may also be required. Please check with an accountant about the need for a tax ID number and your city and county to see which types of licenses are needed.

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