Sharing equity in a Limited Liability Corporation

One of the questions that often comes up in an LLC is whether you can share equity with employees. For many years, the most common advice on sharing equity with employees in a limited liability company (LLC) has been "switch to S corporation status instead." The argument was that it was too complicated to share equity in an LLC. Yet many LLC leaders want to share equity with employees and have very good reasons for retaining their company's status as an LLC. When we at the NCEO asked experts in employee ownership law if it were possible to share equity in an LLC, the usual response was "yes, but it is complicated." No one seemed to want to go into too much detail about just what these complications were, however.

In fact, LLCs can create options-like instruments called "profits interests" and restricted stock-like instruments called "capital interests," or they can create plans that mimic stock appreciation rights or phantom stock.

The National Center for Employee Ownership has now published a new book on this topic called Equity Compensation in Limited Liability Companies. The authors are Corey Rosen, NCEO's executive director, along with coauthors Alan Nadel (an accountant) and Dan Janich and Brian Hector (attorneys). Details on the book are at http://www.nceo.org/main/pub.php/id/180/. One of the questions that often comes up in an LLC is whether you can share equity with employees. For many years, the most common advice on sharing equity with employees in a limited liability company (LLC) has been "switch to S corporation status instead." The argument was that it was too complicated to share equity in an LLC. Yet many LLC leaders want to share equity with employees and have very good reasons for retaining their company's status as an LLC. When we at the NCEO asked experts in employee ownership law if it were possible to share equity in an LLC, the usual response was "yes, but it is complicated." No one seemed to want to go into too much detail about just what these complications were, however.

In fact, LLCs can create options-like instruments called "profits interests" and restricted stock-like instruments called "capital interests," or they can create plans that mimic stock appreciation rights or phantom stock.

The National Center for Employee Ownership has now published a new book on this topic called Equity Compensation in Limited Liability Companies. The authors are Corey Rosen, NCEO's executive director, along with coauthors Alan Nadel (an accountant) and Dan Janich and Brian Hector (attorneys). Details on the book are at http://www.nceo.org/main/pub.php/id/180/.