Stocks are used to raise funds to start a business or build its capital through the sale of shares. However, not all business entities are legally capable of issuing shares of stock. An entity organized as a corporation may have stocks. However, LLPs and LLCs do not have stocks, and instead profits are distributed to the members of the organization.
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LLC and LLP Companies
An LLC, or limited liability company, is neither a corporation nor a partnership, but a combination of both. Individuals in an LLC are not personally liable for the debts of the company, and there are fewer tax obligations. Additionally, the company is run and owned by the members of the organization, as opposed to shareholders who are the legal owners of a corporation. An LLP, or limited liability partnership, is quite similar to an LLC, except for the fact that an LLP must have at least two members while an LLC only requires one. Not every state allows for LLC or LLP entities.
In contrast to LLPs and LLCs, a corporation is owned by shareholders and run by a board of directors, whom the shareholders appoint. Further, corporations are the only entity that may issue stock. As in LLPs and LLCs, individuals in a corporation are not personally liable for the debts of the company.
Corporate Stock and Shareholders
Stock represents a shareholder's ownership interest in a corporation. A single unit of stock is known as a share and is different from the property and assets of the company, which may fluctuate in quantity and value. Both private and public companies issue shares to shareholders. Shareholders have the right to vote on matters that affect the corporation and receive payments from the corporation in the form of dividends. The board of directors of the corporation determines when and how much the shareholders will receive in dividends. Generally, shares may be freely traded to individuals who are not the owners of the organization, giving the buyer all voting and financial rights.
Distribution of Earnings in an LLC or LLP
In an LLC or LLP, earnings are distributed only to the owners of the organization. In contrast to the dividends that a shareholder of a corporation would receive, owners of an LLC or LLP may receive periodic payments. The amount to be distributed may be determined by the operating agreement, which most LLCs and LLPs create upon formation of the company. Unlike shares or stock in a corporation, ownership rights in an LLC or an LLP may not be freely transferred.