Limited Liability Companies (LLCs) are legal formations that combine the freedom of a partnership with the personal asset protection of a corporation. Members of LLCs who have membership interests in the business are the owners of the LLCs. These ownership stakes—often referred to as units—represent the member’s financial interest in the business. However, not every unit must be issued when the LLC is created; an LLC may include unissued units.
Membership interests that have not been distributed or sold to any LLC members are referred to as unissued units. These shares may be set aside for upcoming issuance to new members or to current members who want to enhance their ownership stake in the business. An LLC may have an unlimited number of unissued units, and the operating agreement may set forth the number of units authorized for issuance.
It is significant to remember that up until they are assigned to a member, unissued units have no financial or voting rights. They are simply stand-ins that can be used to fundraise or add more LLC members. The terms and circumstances for issuing these units, including the purchase price, voting rights, and any transferability limitations, should be outlined in the operating agreement.
Corporations may also own LLCs in addition to LLCs. This type of arrangement, in which the corporation owns the LLC as a distinct legal entity, is referred to as a parent-subsidiary connection. The LLC is taxed separately and the corporation does not own the LLC’s assets or liabilities. The ownership structure, as well as the rights and obligations of the parent business and the LLC, should be outlined in the LLC’s operating agreement.
An LLC may also issue restricted membership units as a different sort of unit. These restricted transferable units are frequently utilized to recognize current members for their services to the organization or to motivate key staff. In order to keep members for a set amount of time, restricted units can also be used as a retention technique. The terms and conditions for restricted units, including the vesting timetable and any transferability limitations, should be outlined in the operating agreement.
In conclusion, an LLC may have unsold units that are held back for potential future issuance to either current or prospective members. Until they are issued to a member, these units are not entitled to any financial rewards or voting privileges. Restricted membership units are another sort of unit that an LLC may issue, and a corporation may also own an LLC. The terms and circumstances for issuing and transferring these units should be outlined in the operating agreement. The maximum number of shares an LLC may possess is unlimited, and the operating agreement should indicate the maximum number of units that may be issued.