Incentive arrangements for an LLC
Produced in partnership with Stephen Diosi of Mishcon de Reya LLP
Incentive arrangements for an LLC

The following Share Incentives guidance note Produced in partnership with Stephen Diosi of Mishcon de Reya LLP provides comprehensive and up to date legal information covering:

  • Incentive arrangements for an LLC
  • What is an LLC and how is it different to other forms of business organisation?
  • Why are LLCs used as a form of business organisation?
  • What equity incentive awards are available to LLCs?
  • What tax considerations should be borne in mind when exploring possible equity incentive arrangements?

What is an LLC and how is it different to other forms of business organisation?

A limited liability company (LLC) is a legal form of business organisation in US.

A US LLC is essentially a hybrid entity, combining certain features of both a corporation and of a partnership. A US LLC is akin to a private limited company in the UK in that it affords its owners limited liability protection, while having the added benefit (subject to elections made by a specific entity) of being potentially fiscally transparent (like a partnership) for tax purposes. For those LLCs who are deemed or elect to be tax transparent, all profits and losses pass directly to their owners, who are members rather than shareholders, and tax is therefore imposed on the LLC members as opposed to on the entity itself.

However, despite the potentially advantageous tax status of LLCs, the question of how members of LLCs are treated for tax purposes in different jurisdictions is not always straightforward. As an example, the taxation of UK LLC members and income derived by the LLC in the UK is explored below.

Why are LLCs used as a form of business organisation?

LLCs are favoured as a form of business organisation due to their flexibility. LLCs have the benefit, for example, of having unlimited members and