How to Keep Records for Your LLC
Jonathan: Hi my name is Jonathan Barlow I’m a partner attorney at Clear Counsel Law Group. One of the main things that we do here is advise people about businesses and about operating their businesses. A lot of people in Nevada have an LLC for their business entity and they often ask me, “What are the record-keeping requirements for an LLC?” It’s a really important question for LLCs because that is actually one of the main differences or one of the best benefits of an LLC and a difference from a corporation. Under a corporation, you typically have to follow strict recordkeeping requirements which include holding an annual meeting of shareholders, holding an annual meeting of the board of directors and then keeping minutes and resolutions related to those meetings and you have to have those in your documents and books at the end of each year.
The LLC disposes with those requirements. You don’t have to do them. The LLC can do so if it wants to but it’s not required. So then, what are the recordkeeping requirements for an LLC? Best practices are to make sure that you’re keeping good books and accounts and records related to your financial dealings with the LLC. You need to be able to show that the LLC is treated differently from yourself and that you’re not co-mingling your personal assets with business assets, so you’re not paying personal expenses with business money so you need to make sure that you’re keeping good records related to your finances.
It’s also important for an LLC to keep good records of who are the managers and members or owners of the LLC. Managers are those persons who are authorized to act on behalf of the LLC in a management capacity. You want to have good documents that reflect that. You also need to keep good track of who the owners of the LLC are and what their ownership percentages are. You want to keep a good membership log, make sure you’re keeping up to date on the percentages. Heaven forbid you ever have a dispute about who owns what with the LLC and you never documented it. So while the recordkeeping requirements are a little bit less with an LLC, it still is very important that you treat the LLC like a business, keep good records about your finances, about the members, about the managers, about the activities of the LLC so that you avoid any liabilities or problems down the road with the LLC.
We have a question from Brian who is also interested in business law.
Brian: What happens if you don’t … God forbid, they don’t follow your advice and you don’t keep these records. What will happen to you?
Jonathan: That’s a good question, Brian, and my clients always follow my advice to the T, I’m sure, but in the event that they didn’t follow my advice and they didn’t do some of these things, they did’t keep good financial records, they didn’t keep good record of who owns what with the LLC, that’s litigation waiting to happen. They’re waiting for someone to sue them and have a problem. The worst case scenario is with the financial records, if you can’t prove that you treated this business separately from yourself or if the financial records show that you paid your personal mortgage out of the business account or that you bought your groceries with the business account or that you’re mixing the money back and forth, the worst case scenario is that does what’s called pierces the veil. It allows a creditor to get into the L.LC to satisfy judgment against you. In other words, it makes all the assets of the L.LC available to somebody to whom you owe money potentially.
Also with records related to ownership percentage, again, if a dispute ever arose about who owns what in the L.LC and who has what percentage, it could become very difficult to prove what your percentage is and what their percentage is and it asks for a lot of litigation in court and expense in that. I encourage all my clients to make sure they keep up on those things, make sure they keep good records for their L.LC and if you have any questions about how to do that, how to run your L.LC properly, how to operate it properly, feel free to give me a call here at Clear Counsel Law Group and we’re always glad to help you.