Florida LLC Ownership Percentage v. Membership Units

Florida LLC Ownership Percentage v. Membership Units

You might already know that ownership in a corporation is based on stock. Limited liability companies, however, can choose between two options. They can divide the ownership either by percentage or by the number of membership units owned by a given Member. Both methods give the Members a right to vote and share in the profits of the LLC. A more general overview of ownership interests can be found here.

What are Membership Units?

The biggest difference here is that membership units come with more flexibility than shares of stock in a corporation. Keep in mind that membership units don’t all necessarily have the same dollar value because of the fluctuating nature of capital accounts. A Member’s capital account – and their associated membership units – increase in value when contributions are made. That value goes back down with each distribution or loss taken by the Member, as well as if that Member takes on any of the company’s liabilities.

Something else worth mentioning about membership units – the voting powers that they carry doesn’t need to be equal, either. Let’s say that LLC has two “classes” of units: preferred and standard. It would be perfectly legal for that LLC’s preferred units to grant five votes to the standard’s one, for example, among other privileges.

How Does Percentage of Ownership Work?

Even if your LLC forgoes membership units, the Members can still distribute ownership of the company as they please. They are under no obligation to account for a Member’s contributions of money or property. This means that while the limited liability company can distribute Membership in proportion to the individual’s contribution, it is by no means the only available option.

To give you a better picture of how this works, imagine a two Member LLC composed of Member A and Member B. Member A contributed all of the capital that was necessary to get the company up and running. Member B, on the other hand, contributed no cash but has taken the responsibility of managing daily operations. A corporate model would dictate that only Member A had any right to ownership. However, by incorporating as an LLC, Member A and Member B could split the company 50/50, 30/70, or any other way that they so choose.

Buying, Selling, or Transferring Membership Interest

It’s worth noting that ownership interest can be sold, purchased, or transferred in order to add or remove Members. A Member can also increase or decrease their ownership in the same way. For more information, you can read our guide here.

When launching a business, it’s crucial that you have a solid foundation that will encourage growth. As a firm of entrepreneurs ourselves, we know how to start businesses off the right way. Hiring an attorney reduces the chance that your company will run into trouble down the line and helps ensure that you’re armed with the information and documents that you need for success. For assistance with starting your business or growing the one that you already have, visit our Service Page or contact us by calling (727) 279-5037.