An LLC Membership Certificate shows how much of an LLC someone owns. We have a complete guide on how to get yours here.
LLC Membership Certificates
While a corporation will designate ownership through stock shares, an LLC designates ownership through membership interests. In fact, an LLC membership certificate will document each member’s ownership interests by percentages or units. Although you don’t have to issue membership certificates, it can be beneficial for your company if you plan to sell membership interests in order to incentivize future investments.
What Does an LLC Membership Certificate Include?
An LLC membership certificate shows the amount of ownership that each member claims in the LLC. Membership is usually assigned by ownership percentages or a particular number of ownership units that will be distributed among the members of the company. Here are some of the most important things that need to be included in this document:
- The name of the company
- The number of units/percentage of ownership issued
- The name of the member that receives the certificate
- The state where the company operates
The original copy of membership certificates should be distributed to each corresponding member as proof of his/her claim to the company. The LLC needs to keep a copy of each certificate issued as part of its records.
LLC companies should make sure that they have an updated copy of their Certificate of Good Standing, which acknowledges that the company was formed legally and maintained accordingly. Both, Certificates of Good Standing and membership certificates, help the LLC company to structure and manage membership interests, taxation, and profits in a better way.
When Do You Need to Issue Membership Certificates?
LLCs aren’t legally required to issue membership certificates, and for some companies, membership certificates are not necessary or beneficial at all. For example, if your LLC has a small number of owners and you are not planning to take in outside investors, you don’t have to issue membership certificates.
But there are times when the issuance of membership certificates could be beneficial to your LLC. For example, if your LLC plans to raise outside capital and use membership interests to lure potential investors, LLC membership certificates could be beneficial to your organization. It may mostly affect LLCs with a large number of owners that seek outside funding. To be on the safe side, you should include clear provisions of LLC membership interests in LLC membership certificates. It makes the necessary restrictions on the type of membership that investors can easily enforce.
How do You Start an LLC?
LLCs are the easiest formal structures out there to start your business. LLCs have unique protection structures when it comes to your business gains and personal liabilities. We can help you start an LLC in just six steps:
- Determine the state where you plan to start the company
- Choose a name for your LLC and register the name you have chosen
- Choose a registered agent
- File the formation documents
- Create an operating agreement
- Get an EIN or Employer Identification Number
You need to include any LLC company membership certification information in the operating agreement. It should contain the process of issuing the certificate, the percentage of each membership certificate, as well as the value of each membership interest.