The beauty of having a small business is that anyone can do it, as long as they’ve got the determination and financial means. And thanks to this entrepreneurial spirit, 32.6% of the nation’s known export value comes from these small businesses.
There’s great value in striking out on your own, even if it means a new set of challenges. For instance, if you create a limited liability company (LLC), you may be asked for proof of ownership.
In this article, we’ll discuss why you would need to get proof of LLC ownership and how you can do so.
Why Would You Need Proof of LLC Ownership?
In general, you’ll be asked for this type of proof to provide clarity, get legal protection, and show accountability within your business structure. Below are some situations where it’s essential that you have clear proof of LLC ownership.
Legal Compliance
Many jurisdictions require LLCs to maintain accurate records of ownership for legal compliance. For example, you’ll have to file annual reports or respond to inquiries from the government. In these cases, you’ll have to prove you’re the actual owner of the LLC.
Liability Protection
As the name suggests, LLCs offer limited liability protection to their members. Clear documentation of ownership helps maintain this protection by showing the separation between individual members and the business entity.
Dispute Resolution
Unfortunately, disagreements and disputes can arise among LLC members, so having verbal trust simply isn’t enough. Having clear proof of LLC ownership helps resolve conflicts, as it serves as a reference point for determining each member’s rights, responsibilities, and share of profits and losses.
Financing and Loans
When you’re seeking financing or loans, lenders may require proof of ownership. This helps them assess the financial stability and creditworthiness of the LLC. It also adds to their understanding of the distribution of ownership and potential risks that come with it.
Tax Compliance
Accurate proof of ownership is crucial for tax compliance. It ensures that all members report their share of business income, losses, and deductions. This information will be needed on their individual tax returns.
Business Transactions
When entering into contracts, partnerships, or other business transactions, the other parties may request proof of LLC ownership. Not only can they verify the authority of the people representing the company, but they can understand the ownership structure too.
Member Changes
If you add or remove LLC members, then documentation of ownership is necessary to update legal records. This ensures an accurate representation of the current ownership structure as well.
Estate Planning
Should an LLC member die or become incapacitated, clear proof of ownership is crucial for estate planning purposes. It’ll facilitate the smooth transition of ownership interests to their heirs or designated beneficiaries.
Audits and Reviews
It’s common to have audits and reviews done both internally and externally. In both cases, proof of ownership is key for demonstrating the legitimacy of the LLC’s structure and operations.
Dissolution and Liquidation
Unfortunately, there may come a time when you have to dissolve or liquidate the LLC. In this situation, proof of ownership is vital for distributing assets among members according to their respective ownership interests.
How to Establish Ownership of a Company
Having LLC proof of ownership might sound like a pain, but in reality, it’s not much work. You just have to know where to go.
What document shows ownership of an LLC? Here are some examples.
Operating Agreement
Many states require you to have an operating agreement when forming an LLC, so you may already have this document on hand. In it, it’ll outline the ownership structure, member roles and responsibilities, and respective ownership percentages. All members should have their own signed and dated copy as proof of their ownership.
To make sure everything’s done right, use Business Anywhere’s business registration service. We’ll file your articles of organization and provide many other services that’ll make your road to entrepreneurship smooth.
Articles of Organization
You should have the articles of organization already, as it’s a legal requirement for forming an LLC. This document may not explicitly state ownership percentages, but it does provide a record of the initial members or organizers.
Membership Ledger
It’s a good idea to have a membership ledger for your LLC. This is a written record of information of members regarding their:
- Full names
- Contact information
- Ownership percentages
Tax Returns and K-1 Forms
According to the IRS, an LLC can be considered a corporation, partnership, or a disregarded entity, meaning it’d be part of the LLC owner’s tax return. Regardless, all members will have to report their share of business profits and losses on their individual tax returns through the Schedule K-1 form. Fortunately, these are considered proof for LLC ownership documents.
Transfer Documents
Have ownership shares been transferred between members? Then documents such as a membership interest purchase agreement or an amendment to the operating agreement can serve as proof of ownership changes.
Consent Forms
Some LLC changes may require the consent of all existing members, meaning they’ve signed consent forms. It’s a wise move to keep these documents, as they show proof of agreement. Also, they can provide evidence of a member’s participation in important decisions.
Notarized Affidavits
If you can’t access the above papers and need proof of LLC ownership fast, then you can use a notarized affidavit in some cases. These legal documents are sworn statements attesting to the ownership interests of the members. We have an online notary service that’s easy, fast, and affordable to use.
Bank Statements
Bank statements may not be a direct way to prove you own an LLC, but if you combine them with the other methods on this list, they can strengthen your case.
Business bank statements can show transactions related to ownership interests, such as distributions or contributions. And if you have regular and consistent financial activity, this is evidence of active ownership.
Be Ready With the Necessary Documents for Proof of LLC Ownership
As you can see, there are many instances where you may need proof of LLC ownership. The good news is that you aren’t limited to a single choice, but rather, several that your business probably already has.
Do keep in mind that specific requirements for proof of ownership may vary depending on the jurisdiction and the operating agreement of your LLC. It’s important that you consult with legal professionals to make sure that you’re compliant with local regulations.
If you haven’t started an LLC yet and would like to, then sign up with Business Anywhere now.
