Does a Limited Liability Company Have Shares?

By Ari Mushell, J.D.

Does a Limited Liability Company Have Shares?

By Ari Mushell, J.D.

You are a business owner and want to raise capital. If you've organized your business as a corporation, you can easily raise capital by issuing shares of the corporation to investors. This is especially true if your business is a C corporation, because your business would be able to issue shares of the company on the open market. In exchange for shares, shareholders pay cash, which goes to the business and allows you to start, continue, or finish the projects on your agenda. If, however, you've organized your business as a limited liability company, or LLC, you cannot raise capital through issuing shares, as the structure of an LLC does not allow its members to split its ownership into shares. As a result, you would need to find a different avenue for raising capital, and your options might include adding capital contributions or borrowing money.

Businesspeople talking in conference room

LLC Structure

The ownership structure of an LLC is different than that of other corporate models. Members of an LLC do not become members by buying shares in the LLC; rather, the LLC members are more like partners in a business venture, providing them with ownership rights. In fact, the default rule in all states is that LLC members have equal control of the company and share in the profits and losses of the LLC, unless the members agree to have disproportionate ownership or disproportionate profit and loss sharing.

What's more, an LLC is designed for its members, not outsiders, to operate the business. Because members usually operate the business, only they have a say in the business.

Corporate Structure

Corporations, on the other hand, do not operate like partnerships and have different ownership structures. Corporations do not operate as business ventures between partners. Instead, a corporation has a sophisticated structure in which outside shareholders are owners, and board members, directors, and officers run the corporation. Major decisions are made at board meetings and annual shareholder meetings. Board members and shareholders vote, either in person or in writing, on issues that relate to the running of the corporation. In theory—and sometimes in actuality—shareholders have the ability to make management decisions. It is entirely possible that an outside shareholder who purchased a significant amount of shares could take over a company and make managerial and board decisions.

When an LLC Elects for Corporation Treatment

An LLC can elect to be treated as a corporation and can do so by filing Entity Classification Election (IRS Form 8832) and choosing corporate status. Note, however, that while an LLC can elect to be treated like a corporation, such an election is only for tax purposes. An LLC that elects corporate status remains as an entity not eligible to issue shares.

An LLC structure, in contrast to a corporate structure, does not allow for the issuing of shares. Because it is similar to partners operating a joint venture and not a corporation, issuing shares is not within its capabilities.

Different business structures dictate whether an entity can issue shares of the company. An LLC is similar to partners launching a joint venture. Therefore, it has no capacity to issue shares. Corporations, based on a shareholder structure, do have the ability to issue shares as a means for raising capital.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.