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Types of Certificates
Limited Liability Company (LLC) Certificates
New shareholders of a corporation receive stock certificates as a proof of their investment. Ownership or investment in limited liability companies happen through membership, however, so LLCs issue membership certificate documents rather than regular stock certificates.
Membership certificates are official documents that prove each LLC member’s ownership of the company. They indicate the name of the member receiving the certificate, the state of origin, and the number of units issued to the member. To make things official, these documents must bear the signature of an authorized LLC member as well as of a secondary officer or of a witness.
Although often issued at the time of LLC registration, changes in LLC ownership may become invalid and may require new certificates. Either way, original copies go to the member as a proof of their ownership.
On a related note, LLCs have other types of documents that define their company’s ownership interest, profits, and taxation. Certificates or articles of organization establish the company as a legal entity. Certificates of good standing are documents issued by the state proving that the company meets annual filing requirements.
Limited Partnership (LP) Certificates
Stock certificates are available to different types of corporations. So, limited liability corporations (LLCs) aside, these documents are available to limited partnerships (LPs).
Limited partnerships may issue a stock certificate as proof of ownership or investment. They call the document a partnership certificate, though, instead of the more general term.
Partnership certificates are proof that an individual or entity partly owns or invests in a corporation. As such, LP investors have to be careful with the document. The corporation must also have a copy of the document which is easily accessible by the secretary or by company authorities.
Not-For-Profit (NFP) Certificates
Not-for-profit corporations cover a variety of organizations including those that are religious, social, athletic, educational, and cultural. They also include private foundations and trade associations. They do not belong to any individual or group, though — not even to the founder.
Furthermore, any profit that NFPs make goes back to the company’s programs and operating costs. As such, they cannot issue stock certificates in the same way that for-profit corporations do. In other words, the documents that they issue are closer to membership certificates or certificates of recognition rather than certificates of ownership.
NFP certificates do not come with dividend rights or profit shares. They do not provide proof of ownership. Instead, these documents may determine an individual or group’s right to a certain level of management control. They may also serve as an official statement of recognition for donors.
Types of Stocks in Corporations
Stock certificates vary depending on what type of corporation they are for. Similarly, stocks vary depending on what the corporation offers. The two main types of stocks include common and preferred stocks.
Common stocks are usually what people refer to when they talk about stocks. When an individual or an entity has this, it means they have a share in the company or part ownership of it. Hence, they have the right to a portion of the corporation’s overall profit. The shareholder also has the right to vote when the corporation holds an election for board members — the people who oversee major decisions for the organization.
Preferred stocks also entail a degree of ownership in the corporation’s stocks. On one hand, the shareholder has a fixed dividend for as long as they have a legal right to their shares. They also often come ahead of common shareholders when it comes to liquidation. On the other hand, shareholders of preferred stocks do not automatically have voting rights during the election of board members.
The valuation of common and preferred stocks may branch out to par-value stocks and non-par-value stocks.
Par-value stocks usually have a fixed nominal value. They indicate the exact amount that investors have to pay for every share they invest in. Alternatively, non-par-value stocks do not have a fixed value. Instead, their valuation depends on how much the investors are willing to pay for their shares in the corporation.
Regardless of what type of stocks an investor opts for, however, they still need a stock certificate to prove their claim or ownership.
Certificate Details that Keep Corporate Shares Safe
A stock certificate is the physical proof of a person’s ownership or investment in a corporation, often larger than a regular piece of paper and with a rare design that prevents fraud. It must specify all relevant information about the shares.
The document indicates more than just the name of the investor and their number of shares in the corporation. It also requires the date of purchase or issuance, and is made official with a corporate seal and the signature of an authorized individual.
Moreover, the stock certificates must have a certificate number so that the corporation can keep track of the shares. This also avoids duplication in case the certificate falls into the wrong hands.
Prepare Stock Certificates Today
A stock certificate is an important document for investors with a legitimate claim to a corporation. It is a tangible representation of ownership, membership, or investment. As such, businesses should invest in certificates that keep their shareholders safe — certificates that avoid fraudulence and illegal trading of documents.
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