A membership certificate for your LLC details an individual’s ownership in the LLC. The membership certificate lists the ownership in the certificate as a number of units. For instance, an LLC certificate might provide that Elvis Presley has 100 units in King Creole, LLC.
An LLC membership certificate is not required by law for your LLC. In fact, many choose not to use membership certificates in their LLC because it is more paperwork and can lead to confusion. For instance, members with membership certificates might think they can unilaterally transfer their membership interest by signing the certificate over to someone. Depending on the Operating Agreement, members typically cannot transfer their interest to someone else without the approval of other members. With membership certificates, you also run the risk of contradicting the ownership percentage of the Operating Agreement. Because membership certificates are unnecessary, most opt to not use them.
Note: If there is a conflict between a membership certificate and the Operating Agreement, the Operating Agreement controls.
One benefit to membership certificates is that they may make it easier to divide membership interest if the interest is expressed by units rather than percentages. In contrast to membership certificates’ units, Operating Agreements divide membership by percentages, which can be difficult if there are many members that are being added and removed. Thus, the only time you might want to consider issuing membership certificates is if your LLC has a large number of members and the members are often changing.
Overall, membership certificates are not required for your LLC and they may cause more harm than good. Membership certificates might be useful in limited circumstances, but LLCs can usually live without them.
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