Who Owns an LLC? Everything You Need to Know
When it comes to who owns an LLC, it can be owned by one or more individuals, corporations, partnership firms, and other LLCs.3 min read
2. LLC Identification
3. Types of LLC Ownership
4. LLC Articles of Organization
5. A Common Misconception About LLCs
6. Addition of Members
7. Total Number of Members
8. Who Owns an LLC?
9. Owners With Economic Interest
10. Non-Economic Owners
When it comes to who owns an LLC, it can be owned by one or more individuals, corporations, partnership firms, and other LLCs. The owners of an LLC are called its members. Each member holds a certain percentage of ownership in the LLC. Sometimes, non-economic members and assignees can also have ownership interests in the LLC.
What Is an LLC?
An LLC, or limited liability company, is a business structure with its own identity. It's a separate legal entity from its owners. An LLC offers a flexible mode of ownership, operations, and taxation. It's like a corporation in that it's a state-registered entity with its own name approved by the secretary of state and the liability of its members is limited only to the extent of their investment in the company.
- The owners of an LLC are called its members.
- An LLC member is similar to a shareholder of a corporation.
- All members have a certain percentage of ownership in the LLC.
Types of LLC Ownership
An LLC can have a wide number of ownership structures. Usually, it's owned by one or a number of individuals. However, corporations, partnership firms, and other LLCs can also have a certain percentage of ownership in an LLC. In fact, any legal entity formed in any of the 50 states can own an LLC.
LLC Articles of Organization
You must prepare and file Articles of Organization with the secretary of state for forming an LLC. This document defines and restricts the ownership of the LLC.
A Common Misconception About LLCs
People are often under the impression that an LLC can issue stock in the market; however, the fact remains that it cannot sell its ownership interests to the general public.
Addition of Members
If the Articles of Organization of an LLC do not put any restriction on the addition of members, then its existing members can add a new member by the casting of votes.
Total Number of Members
There is no upper limit on the number of members an LLC can have. However, it's required to have at least one member at all time.
Who Owns an LLC?
Understanding different types of LLC ownership can be helpful in determining a suitable structure for your business, and in drafting the operating agreement and other documents of your company.
Following are the major types of LLC owners:
- Owners who have an economic interest in the company
- Non-economic owners
Owners With Economic Interest
LLC law in most of the states does not use the term “ownership interest”; it rather talks about “membership interest,” which is defined as a member's percentage in the profits and losses of the company and his or her rights to receive a share in the company's assets at the time of distribution.
While forming an LLC, members contribute in the form of cash, property, and services, in exchange of which, they may receive an interest in the profits and losses of the company. However, they do not yet have an interest in the capital or value of the company. Nevertheless, a membership interest is said to exist in both the cases, whether a member receives an interest in the profits or contributes in the capital of the company. All LLC members enjoy the rights and obligations set out in the operating agreement.
The provision for having non-economic members adds to the benefits of an LLC. Some states allow LLCs to have non-economic members, meaning that such members do not hold any interest in the profits, losses, or assets of the company. They are not required to make any capital contribution to the company. However, they may hold voting and all other non-economic membership rights.
- An assignee may acquire ownership in an LLC through sale or transfer of an interest.
- He or she may hold the right to receive a share in the profits and losses of the company without being admitted as a member.
- An assignee may not have voting, management, and other non-economic rights in the LLC.
- The rights and interests of an assignee are governed by the operating agreement of the LLC.
Giving only the economic interest to an assignee without giving any rights in the management and operations of the company is of specific significance in a closely held LLC, where members may not want the family members of an original member to interfere in the business of the company.
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