When Mom and Pop want to give or sell an interest in their business to a long time loyal employee, both owner and employee should be aware of what follows. Not only do the consequences differ between a corporation’s employee and an LLC’s employee, but also there are upsides and downsides for both owner and employee. Some of the salient differences, from the perspective of each side of the transaction, are illustrated in the following examples.

Mary and Moe, sole shareholders of MM Corp, a C corporation, consult you about rewarding longtime employee Jack with a few shares of common stock in the corporation. “It’s just a 1% interest so nothing’s going to change right?” Wrong.