LLC Stock Options
- LLC's can offer their members various stock-like optionsbusiness colleagues preparing for business meeting image by Vladimir Melnik from Fotolia.com
Most small businesses choose to become a LLC (limited liability company) for various legal benefits like reduced taxes; however, by becoming an LLC, they also opt out of providing stock options. Where a corporation has shareholders in stock, an LLC has members who can be given various options in lieu of stock options. - In lieu of actual stocks, a LLC can give out phantom stocks that, should they have any dividends, will be credited to the holder's account at a future agreed-upon date. This can be done in cash or in accrued credit that can be received at a later date. As these are completely hypothetical shares, their value would be determined by the issuing company and may or may not be an attractive offer to members.
- At the beginning of each fiscal year, the company can set up a monetary benchmark that, should they exceed it, the members would receive a percentage of the amount over that has been reached. Or if the benchmark is passed, a certain amount would be given to employees based on their seniority within the company, number of years employed there, pay level, or other similar determinants.
- Although LLC's normally give out percentages of ownership in proportion to how much capital owners or members initially put up for creation of the business, it is possible to allot percentage based on different scales. You can offer members a percentage or even future percentage of ownership of the company based on how well the company does each fiscal year, an agreement that would have to be documented and agreed upon by both parties.
