Section 501. Member's Distributional Interest

(a) A member is not a co-owner of, and has no transferable interest in, property of a limited liability company.

(b) A distributional interest in a limited liability company is personal property and, subject to Sections 502 and 503, may be transferred in whole or in part.

(c) An operating agreement may provide that a distributional interest may be evidenced by a certificate of the interest issued by the limited liability company and, subject to Section 503, may also provide for the transfer of any interest represented by the certificate.

Comment

Members have no property interest in property owned by a limited liability company. A distributional interest is personal property and is defined under Section 101(6) as a member's interest in distributions only and does not include the member's broader rights to participate in management under Section 404 and to inspect company records under Section 408.

Under Section 405(a), distributions are allocated in equal shares unless otherwise provided in an operating agreement. Whenever it is desirable to allocate distributions in proportion to contributions rather than per capita, certification may be useful to reduce valuation issues. New and important Internal Revenue Service announcements clarify that certification of a limited liability company will not cause it to be taxed like a corporation.