Issuing membership certificates is one of the issues that seemed to be of particular interest at the boot camp we held last March. Issuing membership certificates is the way ownership is represented in the LLC. It is similar to “stock” held in the corporation.
Of course, there isn’t any stock in an LLC. It is not a stock that but rather issuing membership certificates that represents ownership of the LLC. BUT, the membership interest should be treated just like stock would be treated in a corporation.
The membership interest actually needs to be “issued.” Small businesses just kind of “forget about” issuing stock certificates in their little corporations or membership certificates in their LLCs. This can be a fatal mistake if the company runs into legal trouble.
You need to go through the steps of issuing the ownership certificates, whether that’s stock or membership certificates. It’s an important part of the “formalities” that need to be followed when you have a company.
If you don’t follow the formalities, the courts won’t use the corporation or LLC to “protect” you when the company has a problem.
Issuing Membership Certificates
In issuing membership certificates, first get a blank stock or certificate form and a ledger. You can get the paperwork at the office supply store. It will be ten or twenty dollars. You need to get a membership ledger and membership certificates. The LLC Wizard contains a membership ledger and membership certificates, along with instructions for filling them out. This is similar to getting a stock ledger and stock certificates to issue in a corporation.
The next step in issuing membership certificates, is to get the ledger and issue certificate #1. If you are the owner, put your name at the side. If you want it in your trust, you will put the trust’s name. Then you will put the value of the certificate in the number of membership interests. You could have the membership interests worded as a percentage of the LLC or as a specific number of membership interests. Repeat this process for each owner.
Issuing membership certificates So Your Trust Owns Your LLC
The membership certificates are usually filled out in the name of the individuals that own an interest in the LLC. That’s OK, but the certificate is an asset, just like a stock certificate is an asset and you should protect it. When issuing membership certificates you should put the “ownership” of your LLC, which is probably your most valuable asset (your company), in the name of your living revocable trust. That way your company won’t be caught in a probate proceeding when you die.
If you have already completed issuing membership certificates in your name, and you want to put them in the name or your trust, you will have to get the certificates, cancel them on the ledger and then reissue a new certificate in the name of the trust and make a new entry in the ledger.
It’s not hard. You just need someone to give you the little clues. If you want a primer on “issuing stock in the name of your trust,” take a look at the LLC Wizard. It is the easiest way to deal with LLC questions.
By Lee R. Phillips