The Delaware LLC is one of the most appealing, if not the most appealing, type of business entity for entrepreneurs worldwide. It is known for its unrivaled flexibility and ease of maintenance.
The state of Delaware is recognized around the world as the most corporate-friendly state in America; it is also known as The Incorporation Capital, due to its strong corporate law structure and the reputable Court of Chancery.
One of the key components of the Delaware LLC that makes it so popular is that the ownership, membership, management and operations of the LLC are all handled internally, via the LLC Operating Agreement.
This means you don’t have to report the financial details or membership information of your Delaware LLC, to the Delaware Secretary of State, such as:
Your Delaware LLC Operating Agreement is an internal document and does not need to be filed publicly—not with your Registered Agent nor with the Delaware Secretary of State.
Thus you are given the latitude to organize the membership, ownership and profits in your LLC however you see fit.
Traditionally, it has been common practice to utilize a percentage system in order to reflect the amount of ownership each member of a Delaware LLC controls.
Of course, if you own a single-member LLC and there will never be additional members, you—as the sole member—retain 100% ownership.
If there are two owners sharing 50/50 ownership, each member can hold 50%, and they will be equal partners.
However, if you have eight, 11 or 13 members, it can get more complicated. When you’re dealing with an odd number that doesn’t divide equally into 100, splitting and keeping track of membership rights can become tricky.
In addition, if you use a percentage, you only have a total of 100% to work with, and as you add or remove members, it can become increasingly difficult to shift the ownership around.
A way around this—and another option when dividing ownership in a Delaware LLC—is to issue units rather than percentages.
Utilizing units to quantify ownership may also offer further flexibility; this way, if you have seven members with equal interest, you can create 700 total ownership units, with each member holding 100 units.
This makes it easier to compute and keep track of the LLCs management.
You can even call your ownership units “shares” if you really want to, but don’t confuse these with actual stock; LLCs do not have stock, only corporations have stock.
The units held by members of your LLC can also be differentiated into different classes of ownership with different rights and privileges for the different classes if you specify and explain these classes in your Operating Agreement.
There is no other business entity that offers this level of structural flexibility, along with all the other advantages a Delaware LLC can offer business owners.
You can read more about how to create a Delaware LLC.