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There's employee owned companies, but I'm not looking to start anything quite so big. Is there a form of company like an LLC that's straight forward to file that will allow it to be employee owned?

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  • What US State are we talking about?
    – jwh20
    Commented Apr 18, 2022 at 18:36
  • May just be a typo but title says LLC while post mentions LCC. I know what a limited liability company is but not sure what LCC is referring to.
    – Neil Meyer
    Commented Apr 18, 2022 at 19:39
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    @NeilMeyer I've corrected LCC as a typo since LCC wouldn't make sense (it doesn't have a common meaning in this context), while LLCs are common and described in the title question.
    – ohwilleke
    Commented Apr 18, 2022 at 21:19

2 Answers 2

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Most limited liability companies (LLCs) are small, closely held firms that are owned entirely or in substantial part by active employee-manager-owners with modest capital contributions.

LLCs with large numbers of owners typically have a large share of non-employee investor ownership and are most common in oil and gas firms and in real estate firms that either develop, or buy and hold, real estate.

Most large accounting and law firms and many other professional service firms are organized as LLCs or LLP (limited liability partnerships), which are owned by the senior employees whose contributions as employees dwarfs their contributions as investors. (Non-lawyers and non-physicians aren't allowed to have ownership interests in law firms and medical practices, respectively). These are the largest firms in the world with significant employee ownership. Start up tech firms organized as LLCs also often give equity stakes to employees even below the senior-managerial employee level.

Rank and file employees are sometimes given an ownership interests in firms, but this is more commonly done through an employee stock ownership plan (ESOP) or certain other tax encouraged mechanisms for employee ownership in corporations (e.g., incentive stock options), or in the context of a firm organized as a cooperative (which is taxed essentially like a C-corporation but with an entity level deduction for cooperative dividends paid to members), than it is as an LLCs.

One important reason for this is that pass-through taxation (which applies to LLCs not electing to be taxed as corporations) is not workable as a means of imparting ownership to large numbers of rank and file workers, because the compliance paperwork of sending out dozens or hundreds of K-1s to these workers is daunting, and because the prospect of a disconnect between allocated income and loss, and actual distributions (e.g. taxation on "phantom income" of the entity that is not distributed) is problematic.

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    Thank you for the detailed information. It's confusing because in the past, when filing for an LLC, there's a space for "owner" but not "owners," it makes it seem like it's impossible to be owned by multiple employees. You're saying there's no restriction on the number of employees who may be the owner of an LCC?
    – StackQuest
    Commented Apr 19, 2022 at 0:19
  • The number of owners of an LLC is theoretically unlimited. The form is just slightly grammatically sloppy. If it has 50 or more members, however, it is taxed as a publicly owned partnership with moderately different tax laws. Probably about 50-60% of LLCs have more than one owner. If it has more than 500 members it has to register with the SEC.
    – ohwilleke
    Commented Apr 19, 2022 at 17:17
  • If you have the time, I got another question for you: Is there a type of company where the owner can sell their percent ownership? How is percent ownership established when filing an LLC?
    – StackQuest
    Commented Apr 19, 2022 at 22:56
  • A precent ownership can be sold in any type of entity, so long as that does not expressly prohibit it in its governing documents (subject to compliance with securities laws when the transaction does not fall within an exemption, something that is not specific to entity type). Percentage ownership in an LLC is typically established when the Operating Agreement is adopted by the initial members, although jurisdictions vary somewhat in the exact mechanics of how a case where percent ownership is disputed after filing an LLC but before an Operating Agreement is adopted is handled.
    – ohwilleke
    Commented Apr 20, 2022 at 19:21
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To quote the IRS page at:

IRS LLC

Owners of an LLC are called members. Most states do not restrict ownership, so members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit “single-member” LLCs, those having only one owner.

Your particular state may have some additional restrictions. In general, however, members of an LLC work for the LLC although that is not a requirement.

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