Units are to LLCs as Shares are to Corporations
I am writing this post about limited liability company (LLC) units because of a question that I answered on Quora. Please see Why would an operating agreement for an LLC have a Schedule A and also a quantity of Class A interests?
LLC Membership Interests: Percentages
We can specify LLC membership interests in either of two ways.
The first way to specify LLC memberships is percentage interests. This what most people are familiar with.
For example, if two individuals are equal owners of an LLC, then each has a 50% membership interest.
Percentage membership interests work for simple LLCs that do not have too many members.
LLC Membership Interests: Units
The second way to specify LLC memberships is units.
You can think of these as roughly equivalent to corporate shares.
Effectively, units are required for an LLC that has (a) many members or (b) multiple classes of members (similar to multiple classes of corporate shares).
Under either of these circumstances, percentages become almost impossible to work with, especially as members are added or removed.
Definitions of Units
This is a sample Operating Agreement definition for an LLC that has a single class of members:
The Membership Interests of the Company will be divided into Units, each of which represents the same proportionate interest in the total Transferable Interests and the total Voting Interests of the Company.
This is a sample definition for an LLC that has multiple classes of members:
The Membership Interests of the Company will be divided into Units which, as explained more fully below, are divided into Classes. Each Class is designated by a letter (“Class A,” “Class B,” etc.) and has the characteristics set forth in Exhibit C or elsewhere herein.
If you enjoyed this post, please check out all posts about LLC membership interests.
Dana H. Shultz, Attorney at Law +1 510-547-0545 dana [at] danashultz [dot] com
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