Under California Labor Code Section 407 investments and the sale of stock or an interest in a business in connection with the securing of a position are illegal. Excepted from Section 407 by Section 408(c) are business interests, investments and stock provided to an employee of the corporation or of any parent or subsidiary thereof, pursuant to a stock purchase plan or agreement or stock option plan or other statutorily permissible agreement; and in transactions connected with securing employment of corporate officers.
Until recently there were no similar exceptions for LLC’s. Effective January 1, 2016, new Corporations Code Section 17704.01(e) will except membership interests issued by any limited liability company or foreign limited liability company to the any employee of the limited liability company pursuant to a membership interest purchase plan or agreement, or a membership interest option plan or agreement and in transactions in connection with securing employment as an officer or a manager of a limited liability company.
If you are an owner of an LLC, next year you will be able to award employees and officers interests in your business just as C-corps and S-corps had in the past. However, if you intend to offer an interest in your LLC, we strongly suggest that you discuss with your legal counsel first.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
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