Key Takeaways

  • Yes, an LLC can go public, but it typically must first convert into a C corporation before pursuing an IPO.
  • Public companies must comply with SEC regulations, which require a corporate share structure rather than LLC membership interests.
  • Alternatives to going public—such as private equity, venture capital, or crowdfunding—may be more practical for many LLCs.
  • Going public can provide significant benefits, including access to large-scale funding and liquidity for owners, but it also comes with high costs, stricter governance, and loss of control.
  • Careful planning, legal restructuring, and compliance with tax and securities laws are essential before pursuing a public listing.

Businesses might wonder can an LLC go public? The answer is yes. There is plenty to consider before making this change, however.

What Is a C Corporation?

A C corporation pays federal income taxes and is subject to federal income tax. This is unlike an LLC that is taxed as a partnership or an S corporation. Shareholders in a C corporation aren't subject to taxes unless the business pays them in the form of distributions, salary, or dividends.

Founders normally start their startups that are high growth as C corporations. This is done assuming that venture capitalists will require them to eventually change into a corporation so they can receive funding.

What Is an S Corporation?

An S corporation has an advantage of not being subject to federal income tax. The shareholders of the business are in charge of paying federal income tax on any taxable income of the S corporation. If the LLC wants to receive pass-through tax treatment, an S corporation can be a good choice for the business.

What Is an LLC?

S corporations and LLCs are pass-through entities, which means their members are responsible for paying the taxes on any income the LLC allocates to them. This is defined in the operating agreement that was formed when the LLC was created. Unless an election occurs to make an LLC taxed as a corporation for a sole member, it will be considered a disregarded entity. This means the one member will report any income or loss from the LLC on their tax return.

LLCs that have more than one member will be treated as a partnership and need to file Form 1065. The exception to this is if the entity decides to be taxed as a corporation. All members of the LLC get treated like partners for federal income tax reasons. They'll each receive a Form K-1 to report their share of any income or losses for the LLC on their personal tax return.

LLCs are structured to have either one or multiple members in the entity. Members can be added or taken out for the duration of the LLC. Any profits can be distributed in various amounts to the members depending on what was agreed upon in the operating agreement. All members of LLCs are protected against debt that the company takes on.

Can an LLC Go Public?

While LLCs provide flexibility and liability protection, they are not structured to issue shares to the general public in the same way corporations are. To go public, an LLC generally needs to convert into a C corporation because the Securities and Exchange Commission (SEC) requires a corporate structure for companies that want to list shares on public exchanges.

This process often involves:

  • Restructuring membership interests into shares. LLC ownership units (membership interests) must be reorganized into stock.
  • Filing conversion documents. Many states allow statutory conversion from an LLC to a corporation, which simplifies the legal process.
  • Meeting securities law requirements. Public companies must register with the SEC and comply with ongoing reporting and disclosure obligations.

Some large companies have successfully made the transition, but it requires significant legal, financial, and structural changes.

Why Shouldn't I Choose to Form an LLC?

The following are reasons a company should not form an LLC: 

  • If they're planning on giving ongoing and regular grants to employees
  • Having a goal of selling the company to a larger business in exchange for stock or cash
  • Reinvesting the maximum amount of capital into the business as possible
  • Having more than one round of financing

Some investors don't like LLCs for various reasons. They think it will make their personal tax situation more complicated if they become a member in an LLC that's taxed as a partnership. Other investors can't invest in companies that are pass-through because their partners are tax-exempt and don't want to receive active business or trade income due to their tax-exempt status.

LLCs who get taxed as partnerships usually have provisions in their agreements stating when and how cash will be distributed to each owner to cover taxes that are owed on the company's income. This can possibly make it complicated for the entity to reinvest its money to further grow the business. If the company has an active business or trade in other states, some investors may be subject to income tax in those states as well.

Other investors simply prefer to make an investment, get a capital asset, and not have any other tax issues or complications until the stock gets sold and a capital gain or loss event occurs. It's more difficult, expensive, and complex for equity compensation to get taxed as a partnership than it is to have equity compensation in an S or C corporation.

It's also harder to raise extra capital through an LLC compared to raising the next round through a corporation. The agreements for LLCs are more complex to prepare than corporation agreements are.

Why LLCs Rarely Go Public

Although technically possible, it is uncommon for LLCs to pursue an IPO because:

  • Investor preferences. Most institutional investors prefer stock in a corporation rather than membership interests in an LLC.
  • Tax complications. Pass-through taxation of LLCs can create complex tax reporting for shareholders, especially tax-exempt entities.
  • Governance issues. LLCs have flexible but less standardized governance structures, while public markets expect the predictability of corporate boards and bylaws.
  • Costs of compliance. Converting and maintaining compliance with securities laws can be prohibitively expensive for small or mid-sized LLCs.

For these reasons, most businesses that anticipate going public incorporate as C corporations from the outset.

Alternatives to Going Public for LLCs

If your LLC is seeking funding or liquidity without a full IPO, there are other options:

  • Private equity or venture capital. Many LLCs attract growth capital from private investors before considering a corporate conversion.
  • Direct listings. In some cases, companies may list shares on an exchange without raising new capital, though this still typically requires C corporation status.
  • Crowdfunding and private offerings. New securities laws allow LLCs to raise funds from private investors or through equity crowdfunding platforms.
  • Mergers or acquisitions. An LLC may merge with or be acquired by a public corporation as a way of indirectly “going public.”

These alternatives may allow access to capital without the complexity and expense of a traditional IPO.

Benefits and Drawbacks of Going Public

Benefits:

  • Access to significant capital for growth and expansion.
  • Ability for early members to sell shares and gain liquidity.
  • Increased visibility and credibility with customers and partners.

Drawbacks:

  • Loss of control, as public shareholders and boards influence decisions.
  • Ongoing SEC compliance and costly audits.
  • Pressure to deliver quarterly earnings, which may conflict with long-term strategy.

Frequently Asked Questions

  1. Can an LLC directly go public without converting?
    No, an LLC typically must convert to a C corporation to meet SEC requirements for issuing public shares.
  2. Why do investors prefer corporations over LLCs?
    Corporations provide standardized shares and governance structures, while LLC membership interests can create tax and compliance complications.
  3. What is the biggest barrier to an LLC going public?
    The biggest challenges are restructuring ownership into shares and complying with SEC reporting obligations.
  4. What alternatives do LLCs have if they don’t go public?
    LLCs often pursue private equity, venture capital, crowdfunding, or mergers as funding alternatives.
  5. Does converting to a C corporation affect LLC members’ taxes?
    Yes. Conversion may trigger tax consequences, and future earnings will be subject to corporate tax rates, unlike pass-through LLC taxation.

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