The LLC Terminology: Members, Interests, and Certificates - dummies

The LLC Terminology: Members, Interests, and Certificates

By Jennifer Reuting

As you probably know by now, the legal term for the owners of a limited liability company (LLC) is members. The best way to understand the concept is to think of the ownership of the LLC as a big pie made up of membership units or membership interest. (Different states tend to use slightly different terms, but they all mean the same thing.)

For instance, if the company has a total of 100 membership units and you personally own 35 membership units, you own 35 percent of the company. In other words, you have a 35 percent membership interest in the LLC. An easy way to calculate your membership interest is to divide your membership units by total number of membership units the company has issued.

When you issue membership interests, the entire pie must be consumed, so to speak.

Your LLC’s membership is issued in its operating agreement. It’s a strange thought: You can invest thousands into an enterprise, and all you get is a few pieces of paper signed by all members!

But that agreement gives you the most important thing in business — control. Without evidence of your ownership, you have no say in how the LLC is run, how the money is spent, or how the company is structured. The business could be terminated tomorrow, and you’d get nothing.

Your LLC may elect to offer membership certificates to its members. A membership certificate is a piece of paper that helps prove a person’s or company’s membership in an LLC and includes the name of the member, the date that the membership was issued, the amount of membership interests, and the signature of one or two members and/or managers.

As the world goes digital, physical membership certificates are being slowly phased out. However, some industries or jurisdictions (such as certain places in Eastern Europe) still may require you to serve one up as proof of your ownership.

Before putting anything in writing, do a quick review of your state’s laws regarding LLC ownership to figure out what terminology the state uses. You can peruse various state laws applicable to LLC membership at this website (password is onesmartdummy).