LLC Stock Certificates: Everything You Need to Know
LLC stock certificates refer to what an investor receives in exchange for investing in a company. The LLC's articles of organization will define whether the business issues stock or membership certificates to show who owns how much of the company.3 min read
LLC stock certificates refer to what an investor receives in exchange for investing in a company. The LLC's articles of organization will define whether the business issues stock or membership certificates to show who owns how much of the company. If the articles of organization do not specifically define whether LLC stock certificates are given to owners and investors, the state laws around business formation will determine what is required.
Corporation shareholders will receive stock certificates when they invest in a company. Since an owner of an LLC is considered a member, not a shareholder, some LLCs will issue a membership certificate to show how much of the company is owned by each member. For LLCs that plan to give out membership certificates to members, the operating agreement should include a description of the role these certificates will play and how they will be issued.
LLC Certificate Types
There are three main LLC certificate types are available:
- LLC establishment
- Ownership certificates for members
- Good standing certificates (issued annually)
An LLC is a more flexible business entity, so the certificate of organization exists to establish it legally in the state. Members, or owners, will receive certificates to document their ownership, similar to the stock certificates granted to shareholders in a corporation. Good standing certificates indicate the business meets the state filing requirements for the year. With a good standing certificate, it's easier to structure the taxation, profits, and ownership interests of the LLC.
Requirements for Forming an LLC
LLC owners must register these business entities through the secretary of state's office the state in which the business operates. An LLC's certificate of organization must include the date the business was established, the legal business address, and the legal business name. The certificate of organization must also include at least one member's name and address. In certain states, the information for all LLC members must be included. Not all states require an LLC to file a certificate of organization. Instead, the articles of organization will be required, which basically serves an identical purpose to the certificate.
An LLC's certificate of organization or articles of organization must be maintained with other business entity formation documents in a central location. These documents include:
- Information about the members
- Units owned by each member
- Annual good standing certificates
A certificate in an LLC outlines a member's stake in the business. It is similar to the shares that outline the ownership of each investor or shareholder in a corporation. The certificate of membership exists as a formality to outline who maintains any level of ownership interest in a business formed as an LLC. Certificates of organization are issued by the LLC. These certificates will include details on the state in which the business originated, the number of units owned by the person being issued the certificate, and the member's name.
Membership Certificates and LLCs
Many of the business units are redistributed to members of the LLC through the issuing of a membership certificate. The certificate will outline what percent of the company is owned by each member. When the LLC is registered, the certificates are typically issued to members at that time. However, if the ownership changes, the LLC owners can take back the previous certificates and issue new ones. All records of these changes should be kept within the LLC's register. The LLC's secretary will typically sign all member certificates, along with a secondary officer or witness.
An operating agreement might include other people who have legal authorization to sign on the company's behalf. Certificates typically don't require notarization. After you register an LLC in the state, you will start receiving a certificate of good standing as part of the completion of the annual report. In order to receive this certificate, the LLC must pay any required franchise taxes and annual fees. The report will include information about the members and the legal business address.
After the LLC completes its annual report and pays all required fees, the certificate of good standing will be issued by the state. Holding this certificate grants clearance and authorization to the business to operate legally within the state. Investors, banks, lenders, and vendors will often require a certificate of good standing before doing business with an LLC. It serves to show that a business is meeting the minimum requirements in terms of state laws and regulations.
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