here are more opportunities than ever to invest your money into a business or start your own business. In particular, the rise of online brokers such as Ameritrade and Robinhood have made it more accessible for investors of all levels to invest money into companies. Whether you are a new or experienced investor, and whether you are investing in another business or starting your own, it is important to understand what type of interest you hold and the rights and responsibilities that may come along with it.
You often hear people refer to themselves as an “owner” or “shareholder” of a company, or perhaps a “member” of a company. Sometimes these terms get used interchangeably by investors perhaps without appreciating the differences. This article focuses on key differences between stock ownership versus membership in a company. Generally, a “stockholder” or “shareholder” is an owner of stock or shares in a private or public corporation, while a “member” is an owner of an interest in a limited liability company (an “LLC”).
What is a Shareholder?
- Shareholders share in the profits of a company through dividends but do not take part in managing daily operations. However, depending on the type of stock held, shareholders may hold voting rights.
- Shareholders have the right to transfer or sell their shares at will.
What is a Member?
- Members of an LLC generally sign an operating agreement which sets forth governing procedures for the LLC as well as rights and responsibilities of members and managers. Members generally do not take part in management unless they are also appointed as managers.
- LLCs have more flexibility in determining how to distribute profits which may correlate with capital contributions but not necessarily.
- Members can transfer their ownership interests but in doing so must comply with any restrictions in the operating agreement or applicable state law where the LLC is registered.
This article is only intended to be a basic overview as there are other rights and responsibilities associated with ownership which also may vary according to the company’s governing agreements. Most states (including Georgia) have a set of statutes governing both corporations and LLCs. Please contact us if you have any further questions or need assistance with a legal matter.