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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.
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.
*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.
There are 3 comments left for Delaware LLC Ownership: Unitseduardo chapellin said: Wednesday, February 6, 2019
I have an LLC made and register in Delaware were I have 80 units and two other persons have 10 each. I am in the process to obtain those 20 units from these people. One of them offered to give me his 10 units in a verbal agreement but he will not sign the papers or written agreement. The other 10 units were transferred originally from my units in exchange for an amount of money he offered to pay, but never did and I kept my word of the offer to him. I am looking for ways of obtaining the 100 units, as they refuse to give back. ThanksHBS Staff replied: Thursday, February 7, 2019
Eduardo - Typically, ownership in a Delaware LLC is spelled out in the Operating Agreement, which can be amended by the LLC members and is maintained internally (not filed with the state) within the company. However, if you are experiencing disputes over an ownership agreement, you may want to speak with an attorney.Nina. Alexander said: Tuesday, October 24, 2017
How many members can an LLC have in Delaware?HBS Staff replied: Friday, October 27, 2017
An LLC is allowed an unlimited amount of members and none of this information is required to be disclosed to the state of Delaware nor to a Registered Agent.Steve Edwards said: Thursday, September 7, 2017
I want to purchase a Units Certificate so that we can designate ownership for the members by virtue of Units as opposed to percentages of ownership.HBS Staff replied: Friday, September 8, 2017
We sell them in batches of 20. The cost is $65 for U.S. clients or $110 for non-US clients (includes shipping). Feel free to call us at 1-800-345-2677, Live Chat with us from our homepage or email us at firstname.lastname@example.org.