If you’re a small business owner with an LLC, you’ll probably need to prove your ownership in your company at some point. This requirement comes up during crucial business functions, like opening an LLC bank account.
Since proving ownership in an LLC is such an important part of running a small business, here is our complete guide to verifying LLC ownership.
When Do Small Business Owners Need to Verify LLC Ownership?
As a business owner, several scenarios may require you to verify the ownership of your LLC:
Opening a Business Bank Account:
Launching your business venture usually involves numerous transactions. A dedicated bank account can streamline your company’s finances. When setting up an LLC bank account, banks need concrete evidence that ties you to the company.
This verification not only validates your business exists, but also helps the bank maintain its financial security standards. Every entrepreneur should be prepared with proof of ownership when opening a bank account for an LLC to avoid potential issues.
Acquiring or Financing Property:
As your business grows, you might consider investing in property, such as office space, a warehouse, or a retail location. Lenders or mortgage providers will ask for verification of your ownership in LLC.
Lenders want to ensure you have the authority to make financial commitments on the company’s behalf. Their confidence in providing funds hinges on both your credibility and the company’s viability.
Selling Your Business:
If you decide to sell your business or transfer part of its ownership, potential buyers or investors may request ownership proof. They need to confirm they’re negotiating with an Authorized Person in the company, and that any agreements will be legally binding. Clear verification of your stake in the LLC can smooth out the sale process and prevent unnecessary delays.
Legal disputes unfortunately emerge often in business. If another owner, member, or an outsider challenges your stake in the LLC, you will want to produce concrete evidence of your ownership.
Having the necessary documents readily available can speed up legal proceedings and potentially prevent disputes all together.
How to Prove LLC Ownership: 4 Steps
To ensure a smooth process when you need to verify ownership of your LLC, follow these steps:
Step 1.) Obtain the Delaware LLC Operating Agreement:
The LLC Operating Agreement is considered the LLC’s blueprint and outlines the ownership and management structure of the company.
Many business owners who chose to form an LLC on their own neglect to prepare a written LLC Operating Agreement. This can make it challenging to prove ownership in the company. Incorporation services, like IncNow, typically offer complete LLC Operating Agreements in their LLC formation packages.
Step 2.) Store Your Documents Safely:
It’s essential to keep the Operating Agreement in a safe and accessible location. Remember, many registered agents do not retain copies, so it’s up to you to ensure its safety and accessibility.
Step 3.) Seek Additional Documents if Necessary:
In some situations, the LLC Operating Agreement alone might not be enough to prove ownership. In this case, consider obtaining a Statement of Organizer might help. The Statement of Organizer is an additional document that lists who the initial members or managers in the LLC, further reinforcing your ownership claim.
Step 4.) Keep Records Updated:
Keep your LLC documents updated, especially if there are changes in ownership percentages or member roles. Regularly reviewing and updating company records ensures that you’re always prepared for ownership verification requests.
With these steps in hand, you can confidently approach any situation that requires proof of your LLC ownership.
How Can A Statement of Organizer Help Prove LLC Ownership?
If your bank seeks further verification of ownership, the Statement of Organizer might help. This document lists the initial members or managers of the LLC, giving added assurance. IncNow prepares this document for you, either when you form your company or within 20 days after formation.
Can Anyone Find Out Who Owns an LLC?
LLC laws are different in each state. The information about an LLCs owners that is made available to the public will depend on which state the LLC is formed in.
For those wondering about the transparency of Delaware LLCs: The Delaware Secretary of State does not make LLC member details publicly available. This information remains confidential and is found in the LLC Operating Agreement.
Common Mistakes When Proving LLC Ownership
Running an LLC means managing numerous tasks. Amidst operations, sales, and client interactions, some small business owners might overlook LLC ownership verification essentials. Here are some mistakes to avoid:
Not Keeping Updated Records:
Update your records immediately when any change occurs in your LLC. This can range from membership changes, ownership percentage shifts, or management role modifications. Up-to-date records prevent complications, especially during key business transactions.
Misplacing the Operating Agreement:
The LLC Operating Agreement verifies the ownership and operational guidelines of your LLC. Ensure you always have access to a signed copy of the Operating Agreement. Losing the Operating Agreement can create challenges for an LLC, especially if external parties need ownership verification.
Neglecting to Inform Banks about Ownership Changes:
Inform your bank as soon as your LLC’s ownership structure changes. Some business owners mistakenly think banks automatically detect internal changes. Such oversights can lead to banking issues or even frozen accounts.
Bypassing Regular Reviews:
Conduct a detailed review of your LLC documents and details at least once a year. Regular checks help identify any discrepancies or outdated information and prepare you for sudden proof of ownership requests.
Assuming All States Have the Same Requirements:
LLC regulations differ from state to state. While one state might not mandate an Operating Agreement, another might consider it crucial. Always stay informed about your state’s specific requirements.
Awareness of these common mistakes and proactive prevention can save time, dodge potential legal issues, and ensure your LLC operates smoothly.