Can Stock Options be granted from a Corporate Member of an LLC?
As our company grows (we are an LLC) we want to provide all future employees (and consultants) equity ownership in the company including those employees who don't have professional tax preparers to file K-1s for them. Can the following strategy be used? Setup a C or S corporation and to grant that newly-formed corporation (the Corporate Member of the LLC) a profits interest in the LLC in the amount of all future profits interests being contemplated at one time (i.e., grant the total size of the management option pool of the corporation at one time)?
1 Answer from Attorneys
Profit interests are different from equity compensation such as stock options. Profit interests are not subject to option pools. Stock options are somewhat difficult to setup in LLCs while profit interests can be setup more easily and less expensively.
Also, keep in mind that it is entirely possible that the company may have outgrown the usefulness of the LLC structure and is now ready to consider conversion to a corporation. A corporation would in fact allow the company to issue stock options more easily and maintain an option pool for employees.
Please contact me directly for help on this.
Roman R. Fichman, Esq.
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