In 2020, a study showed that out of the 4 million partnership tax returns filed, limited liability companies (LLCs) made up 70.6% of them. Clearly, this business structure type offers significant advantages, seeing as how popular it is. One of the important aspects of an LLC is issuing an LLC membership certificate to its members.
If you’re thinking about starting your own company, then an LLC can be an attractive choice. However, there’s a good amount of paperwork to deal with, whether you want to be a solo owner or bring in partners.
Educating yourself and doing research is key to having a smooth experience. So keep reading to see what an LLC membership certificate is and other key information you should know.
What Is a Membership Certificate for an LLC?
An LLC membership certificate is a non-official document that provides proof of ownership or membership in an LLC. It’s very similar to stock certificates in corporations, which are given out to the shareholders.
Naturally, an LLC functions differently in comparison to corporations and even partnerships. For example, LLC ownership is represented by membership interests rather than shares, such as in a corporation.
The information on an LLC membership certificate is as follows:
- LLC name
- Member’s name (can be an individual or entity)
- Membership interest (a percentage or proportion)
- Date of issuance
- Authorized signature
The document can help clarify not only the LLC’s ownership, but also profit and taxation amongst its members.
Do I Need an LLC Membership Certificate?
The law doesn’t actually require you to issue LLC membership certificates, which means both you and your partners don’t necessarily need these documents. Your company’s operating agreement should already name the owners and their responsibilities.
The operating agreement will always take precedence should there be any legal disputes, which is why many LLC owners don’t bother with LLC membership certificates. However, there are several benefits that come with taking this extra step if your business has more than one member.
Ownership Documentation
It’s never bad to have extra documentation. These certificates provide a tangible and formal way to document ownership in your LLC. They can even serve as evidence of a member’s ownership interest and can be used for legal and financial purposes.
Clarity and Formality
When you issue membership certificates, it adds a level of formality to the ownership structure. This can help avoid misunderstandings about stakes and responsibilities, as they’ll be clearly stated on the certificates.
Compliance With Your Operating Document
This may sound obvious, but if your operating agreement specifically says you need to issue LLC membership certificates, then you must carry that action out or risk non-compliance. Filling out and distributing these documents will ensure you’re operating in accordance with your government document.
Professionalism
You’ll want to appear as professional as possible when dealing with external parties, such as banks, investors, and other businesses. Having membership certificates can enhance your LLC’s overall impression.
Legal Recognition
These documents can be useful in legal proceedings or transactions where proof of ownership is required. They provide a clear record of the members and their respective ownership percentages.
On that note, some lenders or investors may require proof of ownership. You can use these certificates to provide transparency and facilitate financing and funding.
Transfer of Interest
It’s likely that LLC members may decide to sell or transfer their ownership interest in the future. In those cases, the membership certificate can be a key document in facilitating a transfer. Because it outlines the details of the ownership, the process with be smoother and more transparent.
Estate Planning
Unfortunately, not only do LLC members leave, but they might also meet an untimely death. Membership certificates can play a role in estate planning, as they can be used to establish the ownership transfer process. As a result, it’ll smooth the transition of the deceased’s interest to their loved ones.
How to Fill Out an LLC Membership Certificate
If you want to reap the benefits that come from LLC membership certificates, make sure that your LLC’s operating agreement mentions these documents. Plus, you should issue originals to the members and file copies as part of your company’s records. It’s wise to consult with a legal professional too, as you’ll get peace of mind about complying with relevant laws and regulations.
With that said, here’s how you should fill out an LLC membership certificate.
Have the Correct Information
In an earlier section, we briefly went over the basic information you’ll need on an LLC certificate. In addition, you’ll have to list the following:
- The state of formation
- The total amount of units
- Any transfer restrictions
All of this information must be typed out, As for the signatures, you can usually use the secretary’s or manager’s as the authorized signature. Some forms also provide a space for a witness signature.
To add more credibility to your documents, you can have them notarized too. We at Business Anywhere provide an online notary service for your convenience.
Tips for Creating an LLC Certificate of Membership
If you aren’t sure where to start, then check online. You can find an LLC membership certificate example easily and use that as inspiration. Also, you can find free templates that you can download, fill out, and print.
If you haven’t formed your LLC yet, then consider Business Anywhere’s business registration services. While we don’t take care of the certificates themselves, we do file your articles of organization and provide an operating agreement template. This leaves you with less overall work.
Issue LLC Membership Certificates for Extra Security
Now you know what an LLC membership certificate is and how to fill one out. While you aren’t legally required to have this document for members, it’s still a good idea to have them, as the certificates come with numerous benefits.
Starting a new company can be difficult though, so lessen your stress by working with a third party for business registration services. With less initial work, you’ll have more energy to handle these documents properly.
Do you want to form an LLC? Then sign up with Business Anywhere today. We can register your business in mere minutes.
FAQs About LLC Membership Certificates
1. What is an LLC membership certificate?
An LLC membership certificate is an internal document that shows a person or entity’s ownership interest in an LLC. It looks similar to a stock certificate in a corporation but is not legally required.
2. Is issuing a membership certificate required by law?
No. Most states do not require LLCs to issue membership certificates. The official ownership record is the LLC’s Operating Agreement or Articles of Organization.
3. What information should be included on a membership certificate?
A certificate usually includes the LLC’s name, the member’s name, ownership percentage or units, the date of issuance, and an authorized signature. Some also include transfer restrictions.
4. What are the benefits of issuing LLC membership certificates?
Certificates can provide clarity and legitimacy by giving members tangible proof of ownership. They are helpful for internal records, onboarding new members, or presenting ownership to outside parties like lenders.
5. What are the drawbacks of membership certificates?
Membership certificates are not legal proof of ownership on their own. If they conflict with the Operating Agreement, the agreement always takes priority. Certificates can also give the false impression that ownership can be transferred like corporate stock.
6. Do membership certificates give voting or management rights?
No. Voting and management rights are defined in the LLC’s Operating Agreement, not in the membership certificate.
7. When might membership certificates be especially useful?
They can be valuable when an LLC needs clear documentation for lenders, investors, or business partners. They may also help formalize ownership in multi-member LLCs.
