That question is the title of a recent article written by L. Andrew Immerman. See 11 No. 4 Bus. Entities 20. Immerman argues that there is a real danger with attributing reality to LLC “units” and using that term to define LLC ownership interests. The danger is possible unanticipated tax consequences and unfulfilled expectations of the parties as to what a business deal entailed. Use of the word “unit” leads practitioners and business people to consider LLC units to be like stock, which they may not be. An interest in an LLC is an undifferentiated mass, and references to “unit” may disguise this. LLC interests are split into transferable economic interests and non-transferable governance rights. They are not split in a way that corresponds to units. As a result, Immerman believes defining LLC ownership interests as “units” can be risky if members do not understand exactly what is being defined.
Donald Scotten