Can an LLC have multiple classes of members?
Yes, an LLC can have different classes of members. This happens when the LLC has more than one owner, and each owner wants a different percentage of ownership. For example, one person might own 60% of the LLC and the other person might own 40% of the LLC.
Different Classes and Equity Structure in an LLC
One class may have preferred rights to distributions that are superior to those of another class. This is the most common arrangement and involves only one class of membership. It is possible to have multiple classes of equity in an LLC. In a real estate LLC, for example, you may have an actively managing member and other passive participants. The managing member may have more voting rights than the passive members.
Ownership and Membership Units in an LLC
LLC membership units refer to membership interests issued to a person or entity that made a capital contribution to an LLC. These units represent the party’s ownership stake. An LLC can have one or more members, but most states require at least one member. As a member of an LLC, you can have capital interests or profit interests. Capital interests give you ownership and profits.
LLC Classes and Their Purpose
Separate classes in an LLC are like different violin sections in an orchestra. The classes may be called Class 1 and Class 2, but neither is better. Together, all the classes comprise a unified financing structure, increasing investment stability. Equity classes use different classes, most commonly “preferred” and “common.” By definition, every LLC member participates in the business. Common membership units typically have rights subordinate to debt and preferred units. LLC classes serve different purposes but together form a unified structure.