Membership interests or certificates represent ownership in an LLC. It is similar to “stock” held in the corporation. Of course, there isn’t any stock in an LLC, but rather membership interests. I mention stock because the membership interests need to be treated just like stock would be treated in a corporation.
The membership interests actually need to be “issued.” Many time small businesses just kind of “forget about” issuing membership interests in their LLCs. They get busy running the business and forget to keep their business foundation in order. It is 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 LLC to “protect” you when the company has a problem.
How to Issue Membership Interests
To issue membership interests or certificates, you need to get a membership ledger and membership certificates. It is just like getting a stock ledger and stock certificate to issue in a corporation. You then issue the number of membership interests for each owner and keep a record in the ledger.
Email me at LegaLees with the subject line “need LLC membership interests 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.
You will want to issue membership interests in the name of the individual who owns an interest in the LLC because the certificate is an asset, just like a stock certificate is an asset. In fact, if it is your little company, your membership interest represents your ownership of the company. It is important for you to protect that asset.
Membership Interests to a Trust
If you want the best asset protection when issuing membership interests, you should put them in the name of your living revocable trust. That way your company won’t be caught in a probate proceeding when you die. Your company will be owned by the trust.
If your membership interests have already been issued in your name, don’t panic. Simply get the certificates back, cancel them on the company ledger and then reissue new certificates in the name of your trust and make a new entry in the ledger.
Paying attention to your company structure is not hard. It will pay big dividends in protecting assets and saving on taxes. If you need someone to give you the little clues on management tricks that will save money or if you want a primer on “issuing stock in the name of your trust,” ask for that in an email also. In my various LLC Packages, I cover all the nuts and bolts of LLC startups including tax considerations and operating agreements. Take a look if you’d like more help to either get your business started, or insure your existing company is structured properly.