Understanding LLC Ownership: Who Can Own an LLC?

Nevada limited liability companies (LLCs) have some of the most flexible ownership arrangements among all business entities in the market. They can have as many members as they want and offer ownership to individuals and other legal entities; it’s one of the primary advantages of a Nevada LLC. But who exactly can own an LLC?

Although these entities offer a wide range of ownership arrangements, there are limits to who can legally be an LLC owner.

Below, we’ll discuss everything you need to know about LLC ownership, including the two primary types of LLC you can form based on the number of owners your business has.

Who Can Own Nevada LLCs? Understanding The Basics of LLC Ownership

Before we discuss the basics of LLC ownership, we must determine what an LLC member is.

Simply put, an LLC member is a person or company that owns an LLC. The term applies to any individual or business entity that owns all or a portion of an LLC, meaning you are identified as an LLC member even if you only own 50% of the company.

According to the law, all legal and natural persons can own an LLC. Legal persons refer to business entities like corporations and legal entities such as trusts. Meanwhile, natural persons refer to individuals like US citizens, immigrants, and foreigners.

One of the most common questions people ask about owning LLCs is whether non-US citizens or residents can become members; the answer is yes. There are no citizenship or residency requirements for creating LLCs in the US.

The law also states that LLCs can have as many members as they want, one or multiple, depending on their needs and goals. However, this rule does not apply to LLCs taxed as S corporations.

LLCs taxed as S corps can only have 100 LLC members. They’re also prohibited from offering ownership to partnerships, corporations, non-resident aliens, and other ineligible corporations.

LLC Ownership Structures: Single-member vs. Multi-member

LLCs are categorized based on their number of members. If they only have one member, they’re considered single-member LLCs (SMLLCs), but if the company has more than one member, they’re identified as multi-member LLCs (MMLLCs).

Once your Nevada LLC’s ownership structure is established, each member’s interest in the company must be expressed in either membership units or percentages.

Is It Possible to Transition From An SMLLC to An MMLLC?

Yes, you can convert your SMLLC to an MMLLC. Small business owners typically do this once their venture starts attracting more investors.

To convert a single-member LLC to a multi-member LLC, you must amend your articles of organization and include the names of your new LLC members.

You’ll also need to draft an operating agreement to determine membership interests.

The Importance of Drafting Operating Agreements

Although only a handful of states require LLCs to submit operating agreements, having one is highly recommended. These internal documents outline the rules and regulations that govern an LLC.

Operating agreements are drafted based on the different needs and wants of the company that will use them. However, they typically include provisions, such as ownership stakes, profit and loss distribution, voting rights, and responsibilities, which help set expectations among LLC members.

Here’s a closer look at each of them:

Ownership Percentages

Typically, ownership percentages in MMLLCs are divided according to each member’s capital contribution, which can include cash, property, or services.

For example, if LLC member A contributes up to 40% of capital in the company, they can own 40% of the LLC. Members may also vote on splitting the ownership percentages equally among one another.

You may also use this section of the operating agreement to determine the types of ownership percentages you’ll offer to passive investors.

Profit & Loss Allocation

Like ownership stakes, LLC members can allocate profits and losses based on their percentage interest. However, they can also assign different proportions to different members.

This approach, known as special allocation, is often used to reward LLC members who make significant investments in the company. For example, if a member contributes a large amount of capital, they may be allocated a larger share of the profits. Since this arrangement can be complex, it must be clearly outlined in your LLC’s operating agreement.

Member Voting Rights

Most LLCs assign voting rights based on each member’s ownership percentages, meaning the larger their interest is in the company, the more influence they hold over its operations.

However, some companies have equal voting structures, meaning members are entitled to one vote, regardless of their ownership percentages.

Member Responsibilities

The LLC’s management structure determines each member’s responsibilities. If the LLC is member-managed, the members are responsible for its daily operations.

However, if the company is manager-managed, the members will hire managers to handle the LLC’s day-to-day decision-making.

Other important provisions that you must include in your Nevada LLC’s operating agreement are:

Transfer of Ownership

This section of your operating agreement outlines how LLC members can transfer their ownership percentages to another person. It should specify the procedures for selling or transferring membership interests, including whether or not members will need approval from other members.

Some companies include a “right of refusal” clause in their operating agreements, which allows other LLC members to purchase the ownership stake before it becomes available to an outside party.

Dissolution Procedures

Every LLC operating agreement should have dissolution procedures. This way, LLC members will know what to do if the company needs to close its operations.

Dissolution procedures typically include a specific list of trigger events or situations warranting dissolution. Examples include unanimous agreement among members, financial insolvency, or a predetermined time frame.

This provision should also detail how the LLC’s assets will be distributed among LLC members and how its remaining liabilities will be handled.

Setting A Strong Foundation For LLC Ownership

LLCs have the most flexible ownership arrangement among all the business entities you can form. However, this flexibility comes with the responsibility of establishing clear expectations.

Each member’s ownership stake will determine their financial rights in the company and the level of influence they have over its operations. That said, you must create a comprehensive operating agreement and clarify everyone’s role and responsibility in the LLC.

If you need assistance creating your Nevada LLC’s operating agreement, look no further than NCH.

NCH specializes in Nevada LLC formation. Our team of experienced business formation specialists will help you draft a comprehensive operating agreement, from outlining each member’s ownership percentages to setting up dissolution procedures.

To learn more about our LLC formation services, visit our website here or call us at 1-800-508-1729 to start your formation process.

DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.