Similar to corporation stock shares, certificates are issued to each LLC member to specify each member's claim in the organization. The Membership Certificate is an essential record for registers and corporate ledgers that also increases an organization's reputation. Membership Certificates help the organization structure its ownership, taxation, and profits. Each certificate is signed by the LLC's secretary, whose signature is often accompanied by the signature of a witness or secondary officer.
“LLC” stands for limited liability company, which is a flexible business structure requiring a certificate of organization. Owners are referred to as members. The LLC itself is responsible for issuing Membership Certificates, considering the origination state, the number of issued units, and the members receiving the document. When there are any changes in an LLC ownership, new certificates may be issued and old certificates relinquished.
It's important to limit the number of membership units and allocate those memberships based on each individual's interests in the business. Include a section in your LLC's Operating Agreement that describes the certificates and the roles they play in the LLC. The Operating Agreement should also list the names of authorized members who can sign on behalf of the business.
Members should receive an original certificate as proof of ownership, but the LLC should retain copies of every member certificate as part of its records. While you don't need to file your Membership Certificates with the Secretary of State, you should report any key officer changes in your annual report filings. Make sure that all certificates are kept up-to-date to prevent disputes with the LLC's ownership.
Some of the benefits of an LLC include:
Although you are not legally required to issue Membership Certificates, it is advisable that you do so if your LLC has members who are inactive, wish to transfer their ownership interests to other parties, or cannot easily access your company's business records.
An LLC Membership Certificate should include statements such as "NAME OF MEMBER is entitled to XX percent ownership interest in NAME OF COMPANY, a limited liability in NAME OF STATE." In addition, you need to state in the certificate that the rights of the members are described in your LLC's Articles of Organization and operating agreement.
Since Membership Certificates are not legally required and enforceable, the rules for signing these documents can vary from one LLC to another. While some LLCs just leave the task of signing a Membership Certificate in the hands of an authorized manager, others have a more formal signing process that requires the signatures of the recipient of the certificate, an authorized agent, and a witness.
If an LLC decides to issue Membership Certificates, it has to create a legend that provides an accurate description of the transfer rights. If there is not enough space on the certificate, you can add the legend to the reverse side.
When a membership interest is transferred to another person or entity, the legend serves to notify the party that certain restrictions apply. Typically, a legend contains a statement saying that the interests are not registered under federal or state securities law. In addition, it may include information regarding applicable contractual restrictions, such as restrictions imposed on transfers and sales by your LLC's operating agreement.
There are three types of LLC certificates you will need when establishing your LLC business:
The Certificate of Organization states the name of the business, the date it was established, its address, and the address of at least one member. Certain states don't require an LLC to have a Certificate of Organization. Instead, they may require you to file Articles of Organization, which is effectively the same thing. Keep your Certificate of Organization in your LLC's creation documents along with member information, annual filings, and certificates of good standing.
An LLC will receive a Certificate of Good Standing once the annual report has been completed and all fees are paid to the state. The Certificate of Good Standing is an important document for lenders, banks, vendors, and investors because it proves the business complies with state regulations. An LLC without a Certificate of Good Standing may have a difficult time finding partners or anyone willing to do business with the company.
Member Certificates tend to include the following information:
Certain states require businesses to keep a ledger for every certificate issued. This ledger should be included in your LLC's record books. Consider making photocopies to have on hand. You can buy blank certificate paper to print your certificates or download a free certificate template to make it easier. Look for a temple that features a bill of sale portion for including the date, sale amount, new owner, and appropriate signatures in the event a member wishes to sell his or her ownership share.
Membership interests can be assigned when allowed by both your LLC operating agreement and the state laws. If your membership interests can be assigned to another person or business, print a blank assignment form on the other side of the Membership Certificate. Like an automobile title transfer form, the owner can use this to assign his or her ownership interest to another business or entity in accordance with the LLC operating agreement.
A member should protect the Membership Certificate as he or she would a securities certificate or stock. If the certificate is lost, the member must sign a statement verifying it has not been sold or transferred before the LLC reissues a new certificate. The member should also sign an indemnity agreement releasing the LLC from liability issues related to issuing a new certificate.
The Certificate of Good Standing serves as proof that the LLC has fulfilled state requirements, such as:
It shows that the LLC is currently cleared to conduct state business. You may be asked to present your certificate of good standing to investors, lenders, vendors, and banks. Not having this certificate may dissuade them from working with you.
When establishing an LLC, make sure to choose a name that distinguishes your business from others in the state. It must end with the words "Limited Liability Company" or "LLC." An attorney can help you determine whether your desired name fits state requirements. Your LLC should also have a registered business address in your state.
Your LLC can bring in new members, but you have to make sure that the expansion is financially beneficial to the existing members even though the financial pie is divided into more pieces. In order to add new members to your LLC, you need to have a unanimous affirmative vote from all existing members. This is necessary because the addition of new members will dilute the ownership stakes of the current members. Any member has the right to stop the addition of new members and prevent ownership from being divided further. This means that additional members can only win approval if they are clearly beneficial to all existing members.
As opposed to diluting ownership stakes, adding a new member to your LLC through the issuance of new membership units can have a positive impact on your LLC and existing members. For instance, if your LLC provides accounting services, it is a good idea to bring on a new owner with expertise and a client list. All existing members will benefit from a larger company with more customers.
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