Can an LLC Offer Both Preferred and Common Shares?

A limited liability company (LLC) is a little bit like a corporation because it creates a legal separation between the company and the company owners. But that is where the similarity ends. One big difference is that LLCs, unlike corporations, do not issue stock.

Owners of common stock have the right to vote for a corporation’s board of directors. Preferred stockholders do not have voting rights, but are usually guaranteed dividend payments. While owners of both types of stock can share in the company’s profits through dividends, common stock shareholders have no way of knowing in advance what that dividend will be, while preferred stock shareholders are paid dividends at a fixed rate. Additionally, any dividends paid on common stock will typically be lower than the dividends received by preferred stock shareholders.

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Preferred and common stock measures ownership in a corporation. It can be given to corporation owners as proof of ownership and, as a way to raise capital, the corporation can sell stock to investors. If the corporation is publicly traded on a stock exchange, the stock can be bought and sold by outside investors. The shares of stock held determine the portion of ownership in a corporation. For instance, if a corporation issues 10,000 shares of common stock and no preferred stock, and you own 1,000 shares, then you own 10 percent of the company.

Owners of an LLC are referred to as members, not shareholders. A member’s ownership share is defined in the LLC’s operating agreement or another document that details each member’s ownership portion. Even though an LLC may issue a certificate to each member -- detailing that member’s ownership -- it is not a true stock certificate.