Another important aspect of proper LLC management is keeping accurate and up-to-date records. Keeping records haphazardly (or not keeping any at all) has been a factor considered by courts that “pierce the veil” of LLCs, allowing company creditors to reach the personal assets of the members of the LLC. And in fact, state law requires that company records be maintained at the LLC’s principal office. Records that a company should maintain include the following:
Tax Returns – State law requires these to be kept for three years, but it is prudent to keep copies (either paper or digital) indefinitely.
Financial Records – Correctly managing a company’s finances [hyperlink to previous post] is critical but so is keeping clear records to prove that you have done so.
Operating Agreement and Organizational Documents – A copy of the company’s organizational documents, including the Articles of Organization and signed Operating Agreement, along with any amendments, should be kept in the company’s files, as well as a current list of all the company’s members.
Consents – Each year, the members of an LLC should execute consents that ratify the actions the company has taken during that year. If certain actions are required to be taken by unanimous consent of the members, those consents should also be maintained in the company’s records indefinitely.
Agreements – Leases, deeds, contracts, and other documents or agreements relating to company operations and property should also be maintained at the company’s principal office.
How your company stores its records depends on what works best for its members and employees. Some companies keep these records in a formal “minute book” or binder. Others have traditional filing cabinets where the records are stored. Increasingly, companies are moving toward “paperless” systems, where the vast majority of documents and records are stored on servers and backup hard drives. As long as your records are stored in a systematic way and kept up-to-date, any format that works for the company is sufficient. Be sure to make good recordkeeping a continuing priority. Records are not just required by state law – they can protect members from personal liability in the event they are sued personally for company obligations.
This is the final installment in our series on Best Practices for LLCs. We hope this series has been helpful in pointing out a few facets of successful LLC practices. For more advice about your company, make an appointment today!