Setting up a business as a limited liability company, or LLC, provides some of the benefits of a corporation -- particularly protecting the owners from being held personally liable for the business's debts. But unlike a corporation, it doesn't have "shares" that can be bought and sold in financial markets. The LLC's ownership structure more closely resembles a partnership.
Operating Agreement
Most states require LLCs to have an "operating agreement," a document that serves as a sort of constitution for the company. The operating agreement identifies the owners of the company -- called "members" -- and spells out how decisions are to be made, how profits are to be divided, how the company will raise capital, how new members can join the LLC and how existing members can leave it. States that don't require operating agreements still generally recommend that LLCs have them; these states have default rules that will apply to any LLC that doesn't have an agreement.
Setting Stakes
Your ownership stake in a typical corporation is determined simply by how many shares you own. If there are 1 million shares outstanding, and you own 10,000 of them, then you own 1 percent of the company. If you want to increase your stake, you simply buy more shares. An LLC, by contrast, has no shares; each member's stake is specifically spelled out in the operating agreement. The stake is the percentage of the company's profits that you are entitled to receive or the percentage of its losses that you are required to bear. If you want to increase your percentage, you have to get the other members to give or sell you a larger stake. This will usually require rewriting the operating agreement.
Options
The simplest ownership structure for LLCs is one in which all members have an equal stake. This is usually the default option in the absence of an operating agreement. But the agreement can divide the stakes any way the members want. For example, if four people form an LLC, they could decide to simply give each member a 25-percent stake. Or if one member put up substantially more money, he may get a 40-percent stake while the other three members get 20 percent apiece. Or if one member is actively managing the company while the others are "silent" partners, he may get 28 percent while the others get 24 percent apiece.
Buyouts
When you own shares of a corporation and want to get rid of them, you just sell them in the stock market to whoever wants to buy. With an LLC, it's not so simple. The operating agreement will usually have a "buyout" provision that explains how a member can get rid of her stake. Such provisions commonly restrict who the member can transfer her stake to, and they often require her to sell it back to the other members. Agreements should have similar provisions explaining what happens if a member dies, retires, goes bankrupt, gets divorced or has something else happen that can affect the ownership of his assets.
