Keeping company records tends to be the last thing a business owner thinks of when busy running a company. It is easy to overlook what is needed to properly document business activities, but the failure to do so is a big mistake.
Proper records are important to avoid allegations of self-dealing, conflicts of interest, or violation of fiduciary duties for potential future sale of your company, state, and local tax purposes. Most importantly, record keeping will help avoid piercing of the corporate veil, where the members of an LLC are individually liable for the debts of the company.
While piercing the corporate veil is rare and not an easy task, factors used to determine whether the corporate veil should be pierced include the failure to maintain minutes and the disregard of legal formalities.
Records Keeping for a California LLC
As an example of the type of record keeping companies must maintain, below is a summary of the records that must be kept by a California limited liability company.
Organization and Formation Documentation
- Copy of Articles of Organization, Amendments thereto, and documentation of the ability to make those changes.
- Copy of all Operating Agreements the company has ever used.
Taxes
- Copy of all federal, state, and local income tax returns for the six most recent fiscal years.
- Financial statements for the most recent six fiscal years.
Internal Governance Records
- Copy of minutes of each meeting of members and any written consent of the members for at least the current and last four fiscal years.
- Documents providing capital contributions of members, additional capital contributions, agreements for future capital contributions, shares of profits and losses, rights to receive distributions, manager rights to make distributions, member voting rights, and events of dissolution.
Member and Manager Records
- Current list of the names and last known addresses of all past and present members and their respective share of profits and losses.
- Current list of the names and addresses of past and present managers.
General Records
- The LLC should maintain any records that contain information about the LLC business which relates to the “internal affairs of the LLC for at least the current and past four fiscal years.”
Most states will generally require similar records to be kept by companies, but the specific rules may vary from state to state.
