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Can an LLC Have Members with a Non-Ownership Economic Interest?

lawtrades llc limited partnership differences

The limited liability company business structure is becoming increasingly popular. Companies catering to virtually any industry and companies of virtually any size may benefit from being legally formed as limited liability companies. But the LLC structure is not ideal for every business owner or group of business owners. For example, if a company is interested in issuing stock, it must be formed as a corporation as only corporations are allowed to issue equity in this way under the law. But LLCs do work well generally, regardless of the kind of non-corporate structure and ownership interests new LLC members are interested in creating.


Why the LLC Structure Is Uniquely Beneficial

Most multi-owner operations work well when structured as LLCs. While it may seem that it makes more sense to structure a new enterprise as a partnership, given that partnerships tend to have the most flexible management structures available, LLCs result in two major benefits that partnerships do not.

First, LLCs may be taxed as either sole proprietorships/partnerships or as corporations. This taxation model flexibility is especially appealing to those business owners who are uninterested in remaining beholden to stockholders but wish to keep their personal and company taxes separate.

Second, LLCs provide a personal liability shield for their members. Owners of sole proprietorships and partnerships remain vulnerable in the event that a company incurs losses, cannot meet its debts or becomes subject to legal judgments. When this occurs, the personal assets of these owners may be seized by creditors and the courts. However, the personal assets of LLC members are generally protected from business-related collections.


Members with Various Ownership Interests

Another benefit of forming an LLC is that its flexible management and ownership style tends to suit a number of different kinds of businesses. Some LLC owners (referred to as members) want to have a significant managerial stake in the company, while others would prefer to take a solely economic interest in the evolution of the business.

When forming an LLC, it is important to discuss the membership rights and interests of each member with an attorney before formalizing the LLC structure. Some may have voting rights, managerial rights, economic interests and some may have a combination of these general investments in the company’s welfare and profits. Different membership “classes” allow individual members to assume different levels of responsibility and to benefit in various ways from a company’s financial triumphs.

Guidance for LLCs Is Available

In general, all LLC members have some ownership interests in a given company, whether these interests are managerial, economic or both. However, there may be exceptions to this rule and there may be opportunities for investors to profit from interest in an LLC without assuming ownership rights. All such arrangements may be discussed with an attorney in order to clarify their viability. If you are interested in forming an LLC, please consider reaching out to the team at LawTrades. We are passionate about helping new, and established, businesses succeed.