LLC Membership Interest Certificate: Everything You Need to Know
An LLC membership interest certificate refers to a certificate that is issued to a member of a limited liability company (LLC) to document his or her membership interest or ownership of the business.3 min read
2. Should an LLC Issue Membership Interest Certificates?
3. How to Create Membership Interest Certificates
4. Accompanying Documents for Membership Certificates
An LLC membership interest certificate refers to a certificate that is issued to a member of a limited liability company (LLC) to document his or her membership interest or ownership of the business. It can be issued based on percentage of ownership or number of membership units. An LLC is not required by law to issue membership certificates, but it can benefit from doing so in certain situations, such as when it needs to raise funds by bringing on investors.
What Is an LLC Membership Certificate?
In a corporation, shareholders are issued stock certificates in exchange for their investments. In an LLC, however, ownership comes in the form of membership interest instead of stock. As such, some LLCs issue membership interest certificates to their members to document their ownership interests in the company.
If you choose to issue membership interest certificates, you need to clearly state the purpose and process of issuing the certificates in your operating agreement. You can either issue membership certificates based on each member's ownership percentage or create a certain number of membership units and assign those units to the members based on their membership interests.
Should an LLC Issue Membership Interest Certificates?
According to the law, an LLC is not required to issue membership interest certificates. If you decide to do so, you have to state the value of a membership interest in your operating agreement. Each member of your LLC makes a capital contribution in exchange for a certain number of membership units or percentage of ownership interest in the company.
Your LLC is allowed to issue any number of membership units. Records of each member's membership interest are maintained in a membership transfer ledger. Since membership interests are derived from a contract between the members and the LLC, it is not necessary for members to hold certificates to show proof of ownership of the company. Information about membership interest certificates must be included in your LLC's operating agreement. Such information includes:
- Value of each membership certificate
- Process of issuing the certificates
- Percentage of membership interest each certificate represents
Although an LLC is not legally required to issue membership interest certificates, it is wise to do so in some situations. This is especially true if you intend to raise capital by selling membership units to investors in the future.
An LLC with a small number of owners that is not planning to bring on investors may not find it necessary to issue membership interest certificates. A large LLC that is seeking investors, on the other hand, should issue membership certificates because there are restrictions on the kind of membership interest that an investor can acquire. To make these restrictions legally enforceable, you need to issue membership interest certificates with clear descriptions of the provisions. Examples of such restrictions include:
- Transfer restrictions
- Reverse vesting provisions
- Buy-sell provisions
How to Create Membership Interest Certificates
Some LLCs buy blank certificates from office supply stores and use desktop publishing software or another application to create and print out their membership certificates. Another way to create membership certificates is to download a free membership interest certificate template from the website of a registered agent.
Accompanying Documents for Membership Certificates
In some states, LLCs are required to maintain a ledger of all certificates issued in their record books. It is advisable that you keep such a ledger even if it is not a requirement in your state. Also, you should keep photocopies of all the certificates you issued.
Statement for a Lost Certificate
If a member of your LLC loses his or her certificate, he or she must sign a statement to declare that the certificate was not sold or assigned to someone else. The member should also sign an indemnity agreement to ensure that your LLC will not be liable for obligations or losses resulting from the issuance of the new certificate. A new certificate will be issued upon approval by the management team.
If your operating agreement or state regulations allow members of your LLC to transfer their membership interests to other people or entities, you have to print an assignment form on the back of the membership certificate. The form should have signature lines for the certificate holder and a notary public.
If you need help creating or issuing an LLC membership interest certificate, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.