When clients form Delaware companies, in addition to deciding on the company name, deciding on which entity type to form in Delaware can also be challenging. The LLC continues to be the most popular entity type formed in Delaware as it provides asset protection and flexibility. Corporations are generally formed by clients if they’re looking to raise capital with the plan of offering shares of stock to investors.
When clients inquire about forming an LLC, some common questions that we receive are whether shares of stock can be issued within an LLC and if LLCs can have shareholders. The simple answer is that there’s no stock within an LLC. LLCs have Members or owners that can be other individuals or companies. Ownership is typically reflected within percentages or units that can be listed within the internal LLC Operating Agreement. Units also carry specific rights within an LLC, which is akin to stock or shares within a corporation, but the LLC does not have stock.
Clients can customize their management structure as they see fit internally within an LLC, as the Operating Agreement is not required to be filed with the Delaware Division of Corporations. The Operating Agreement spells out the guidelines for the LLC and the membership details, as the sky is the limit for how clients wish to customize their internal management structure.
Another popular aspect of the LLC is that if the ownership percentages need to be adjusted or if a Member needs to be removed entirely or added to the company, an update to the internal Operating Agreement will suffice. A filing with the Delaware Division of Corporations is typically not required to reflect ownership changes.
For example, if a client wishes to form a media production company as a Delaware LLC with just himself/herself as the single Member or owner, he or she can certainly proceed. But perhaps, in the future, they want to add a business partner as a Member or owner of their LLC. An ownership percentage can be assigned/transferred to the new Member and listed internally within the LLC Operating Agreement. Sometimes, clients think that shares of stock have to be issued or transferred to the new Member but, as is the premise of this article, there’s no stock within an LLC.
Corporations have shareholders and stock. The shareholders are the owners of the company and shares can be issued internally within the Corporation to other individuals or companies to reflect ownership. Corporations can keep internal record of the issued shares within a Stock Transfer Ledger, which is also not required to be filed in Delaware. It’s also not uncommon for shareholders, directors and officers to be the same person within a Corporation.
Click here for a helpful link that goes over the major differences between an LLC and a Corporation. If clients have already formed their Delaware company and wish to convert the entity type to a Corporation or LLC in Delaware, a Certificate of Conversion and a new Certificate of Formation/Incorporation can be filed for approval to complete this task.
If you’re looking to form a new Delaware company, or if you have any questions regarding the differences between an LLC and a Corporation, we can be reached at 1-302-645-7400 or 1-800-345-2677 ext. 6900 or via email at firstname.lastname@example.org. We can also be reached via skype at delawareinc.
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There is 1 comment left for Does an LLC Have Stock or Shareholders?Anthony Wilkinson said: Wednesday, October 25, 2023
An LLC taxed as a corporation has stock.HBS Staff replied: Wednesday, October 25, 2023
Thank you for reading our blog and for your question. No, an LLC does not have any stock, no matter what the tax status is with the IRS.