Could these "Membership Shares" certificates have any tangible value?
June 11, 2010 12:39 PM   Subscribe

Could these "Membership Shares" certificates have any tangible value?

The company I used to work for at one point gave out "Membership Shares" certificates for some sort of holding company that supposedly owned some small share of the actual company that we worked for.

These were given out as bonuses or such. The idea was that theoretically these represented some sort of stake in the company. So you now had personal incentive to see the company succeed. Also, they are clearly much cheaper than say actual, cash bonuses.

Do these pieces of paper represent any sort of tangible value whatsoever? Or can they just be thrown away since I no longer work for the company/companies at all?

Each certificate has a unique "Certificate No." and the certificate is titled with the name of the company (a Vermont Limited Liability Company, if it matters.)

The wording is as follows:

This certifies that FIRST MIDDLE LAST is the owner of certain Membership Shares in the value of $X,000.00 of the above Limited Liability Company which are transferable on the books of the Limited Liability Company by the holder hereof or by his/her duly authorized agent or attorney, upon surrender of this Certificate to the Limited Liability Company accompanied by all necessary and proper transfer instruments; and subject to the terms, conditions, and valuation standards of the Limited Liability Company's Operating Agreement.

In Witness Whereof, said Limited Liability Company has caused this Certificate to be signed by its duly authorized agent.


Below that it is signed and dated by the "Duly authorized agent" (it was the CEO of the company.)

Then below that still, it says in small letters:

This security has not been registered under the Securities Act of 1933 nor under applicable state securities laws and may not be sold, transferred or otherwise disposed of unless it has been regsitered under such laws or an exemption from registration is available.
posted by doomtop to Law & Government (3 answers total)
The Securities Act of 1933 is going to constrain your actions here; basically, the only market (unless, as noted, either a registration or exemption from registration has been sought) available to you is the company.

Do you have a copy of the Operating Agreement? If we're constrained as detailed above, this document will precisely identify what mechanisms for disposal of your shares are available.

Typically (for Delaware LLCs, other domiciles will vary, perhaps significantly, and I freely admit I have no personal / professional familiarity of Vermont LLCs) we see transfer of Membership Shares prohibited except to a family member, or upon your death. If litigation should preempt these rights then almost always the issuer will have the right to repurchase these shares, and almost always on terms that will favour the company.

If you'd like to become further informed on the subject, Limited Liability Companies For Dummies is probably a good place to start. And, if my experience with these books is any guide, it must might answer all your questions.

Or at least give you some basic familiarity with the topic should you seek out professional advise.

Hope this helps!
posted by Mutant at 1:21 PM on June 11, 2010

Response by poster: I feel like I am missing something. What makes these pieces of paper ("certificates") any different than another piece of paper that says "This piece of paper is worth $X"? Is the "value" written on them relative to something? Are these "legal documents" or representative of some sort of obligation? Is the overall company worth $XX and the value of the certificate $X equals some percentage of ownership of the company in some way? How can I find out if the company even exists anymore if I no longer have contact?
posted by doomtop at 3:14 PM on June 11, 2010

Membership Shares are a form of ownership that apply to specifically to LLCs. They are legal documents which entitle the holder (you) to a claim on profits of the enterprise, although this claim isn't formally defined by the document as they might be with other classes of securities (e.g., a bond where the coupon is clearly stated). In other words, should the company be sold on you can claim a percentage of the funds netted, but these documents don't entitle you to claim an ongoing percentage of revenue as it doesn't appear (from what you've stated) your shares carry a dividend.

Your Membership Shares are similar to shares traded on stock exchanges however its that pesky Securities Act of 1933 - or more properly lack of registration - that prevents these shares from trading on the exchanges. These aren't what are known as "listed securities"; they can't be listed nor traded on a stock exchange.

Clearly should they be traded on an organised exchange they would, of course, attract a wider class of investor than the owner / employee situation you find yourself in. As mentioned before, your options to realise value from these shares are highly constrained, compared to listed equities.

So you're absolutely correct in your assessment - "the overall company worth $XX and the value of the certificate $X equals some percentage of ownership of the company " - however how to realise that value is the problem.

Once again do you have a copy of the Operating Agreement? What other documentation, if any, did you receive along with the shares? This will be specially critical as it is entirely possible multiple classes of Membership Shares exist (just as with listed securities); I've seen situations where shares freely distributed as employee incentives lack voting or other rights, for example.

"How can I find out if the company even exists anymore if I no longer have contact?"

Gosh I'm not sure how to go about this other than googling yourself or, should you believe the sums involved warrant such costs, retaining an investigator to pursue this for you.

There is always the chance the company was acquired or somehow your shares have retained / increased their value but it seems like a little investigation will be necessary.

Its been a long time since I've dealt with a domestic US LLC (I'm American but have lived in Europe for the past fourteen years) so it is entirely possible there are some finer points I'm missing.

Regardless, if you believe there is a chance the company did well it might be worth spending some money to investigate.

Alternatively, post the name here; some of the MeFi crowd are exceptionally skilled in search and might be able to help you find out what happened to or the current status of this enterprise.
posted by Mutant at 3:08 AM on June 12, 2010

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