Membership Certificate vs. Stock
By Lee R. Phillips
One of the issues that seemed to be of particular interest at our boot camp the first of March was ownership of the LLC. Ownership is represented by the “stock” held in the LLC.
Of course, there isn’t any stock in an LLC. It is a “membership interest,” not a stock that represents ownership of the LLC. BUT, the membership interest needs to 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.
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 order to issue a membership certificate, you need to get a membership ledger and membership certificates. It is absolutely analogous to getting a stock ledger and stock certificates to issue in a corporation.
Email me at firstname.lastname@example.org with the subject line “need LLC membership cert and ledger,” and I will get you a nice ledger page (it only takes one page) and a membership certificate you can reproduce on the computer.
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. In fact, if it is your little company, the membership certificate represents your ownership of the company.
Making Your Trust Own Your LLC
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.
To get the company “to be owned by the trust,” you will need to issue stock (membership interests) in the name of the trust. Simply issue the certificate in the name of the trust.
If membership interests have already been issued, then you will have to get the certificates back, 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,” ask for that in an email also. Use email@example.com with a subject line “issuing stock in the name of a trust.” I am happy to help. If you have questions, let me know and I will try to get them answered.