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What Are the Requirements for a Membership Certificate?

Wednesday, July 26th, 2017

Membership certificates, which are issued by limited liability corporations (LLCs) to indicate membership interest in the LLC, possess many similarities to stock certificates, which are issued by corporations. The requirements that apply to stock certificates, however, do not all apply to LLCs, and the requirements for membership certificates differ from that of stock certificates. The most significant difference between stock certificates and membership certificates is that stock certificates must be issued unless a company clearly states otherwise at the time of incorporation; LLCs, however, must explicitly state that they plan to issue membership certificates in their operating agreement. You can also use some free generator to generate your certificates.

Membership Certificate

The value of a unit of membership interest is defined in an LLC’s operating agreement. Membership certificates must be defined by the operating agreement to hold any legal value. Thus, ownership interest is defined to be a contractual agreement between the owner and the LLC. The owner does not need to be in possession of membership certificates in order to express ownership interest. Because of this, LLCs are not required to issue membership certificates to their owners.

What Information Should Be Included on Membership Certificates

When LLCs issue membership certificates, they should include the following information: the name of the LLC, the state in which the LLC was formed, the number of units of ownership interest that are being issued to the recipient of the certificate, the number of members of the LLC, the name of the recipient, the date of the LLC’s formation, the date that the certificate is being issued and the signature of a witness. In addition, membership certificates often include the benefits that the member holding the certificate is entitled to. This information is crucial to include, because the owner of the interest cannot argue that they were unaware of certain limitations on membership interest. Thus, limitations of voting rights, transfer of the interest, amongst other information should be included on membership certificates.

Making Changes to Membership Certificates

When an LLC wishes to make changes to its membership certificates, it must also make changes to its operating agreement such that these changes are noted. Changes that are made to membership certificates without a corresponding change being made to the LLC’s operating agreement have not been fully ratified.

Membership Transfer Ledger

Whether or not an LLC chooses to issue membership certificates, it must keep a membership transfer ledger that provides evidence of the LLC’s membership interests. This ledger typically includes the number of units of membership interest or percentage of membership interest that an owner receives, along with the capital contribution of the owner or member in exchange for this membership interest. Limitations on membership interests are often recorded here as well.

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