Equity Compensation in Limited Liability Companies

By Corey Rosen, Executive Director, NCEO

September 4, 2009

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/

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