Membership interest
The ownership stake in an LLC, combining economic rights and (typically) management rights.
Definition
Membership interest is the LLC equivalent of corporate stock. It represents the member's ownership stake, including economic rights (share of profits and distributions) and management rights (voting). Membership interests can be transferred subject to Operating Agreement restrictions, can be subject to vesting, and can be issued in different classes (voting/non-voting, preferred/common).
Context
Membership interest transfer often requires consent from other members under standard Operating Agreement terms.
Example
A multi-member Delaware LLC has three members with 50/30/20 membership interests. The 50% member has half the economic and voting rights of the LLC.
Common pitfalls
- Transfer restrictions vary widely by Operating Agreement.
- Some agreements separate economic interest from voting interest, which complicates valuation.