Can an LLC Issue Stocks if It Elects as a Corporation?

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Business owners who hope to raise capital or receive investment funds often consider a wide array of options. Some entrepreneurs hope to raise cash by issuing stock, but usually find that only corporations can issue shares of stock. Even though the IRS allows LLC organizations to file their taxes as a corporation, this election applies only for taxation and doesn't allow LLCs to issue stock.

About Stocks

Ownership of a corporation is spread across small units known as stock. Each share of stock represents a fraction of the corporation, giving shareholders complete ownership of the organization. In many cases, corporations retain at least half of their outstanding stock shares, preventing outside entities from taking over the organization. When corporations sell stock, investors receive an ownership interest in the organization in exchange for a financial investment that the corporation can use to expand, develop new products, hire employees, acquire competitors, purchase equipment or otherwise run the business.

LLC Ownership

Under the limited liability company structure, a single individual or a small group of people own the organization. These owners of an LLC are known as members. This private ownership arrangement, which is a hallmark of the LLC business structure, generally precludes limited liability companies from issuing stock.

Electing as a Corporation

The IRS typically considers an LLC as a disregarded entity for taxation purposes. Even though the organization exists as a legally independent entity, the company’s revenues flow through and LLC members report the profits or losses on their personal taxes. When limited liability companies register with the IRS, though, members may elect to file taxes as a corporation. Under a corporate election, the LLC functions as a separate and distinct entity for both legal and taxation purposes. Revenues and expenses from the LLC don't flow through to the members’ personal returns: Members submit a separate tax filing for the LLC itself. The corporate election is solely for tax purposes and doesn't grant the LLC other privileges, such as the ability to issue stock, that a corporation enjoys.


Even though an LLC typically may not issue stock, its members may sell portions of the company as a way of generating working capital. According to Entrepreneur magazine, members of an LLC may issue several classes of stock. Unlike shares of corporations, which may be freely traded on major public stock exchanges, shares of an LLC are subject to a number of restrictions. Owners may not trade shares of an LLC on public stock exchanges, and trading must take place infrequently. This ownership structure, known as a closely held organization, allows LLC members to raise capital by selling portions of the organization to friends, family and close acquaintances.


About the Author

Keith Evans has been writing professionally since 1994 and now works from his office outside of Orlando. He has written for various print and online publications and wrote the book, "Appearances: The Art of Class." Evans holds a Bachelor of Arts in organizational communication from Rollins College and is pursuing a Master of Business Administration in strategic leadership from Andrew Jackson University.

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