Many LLC owners wonder if they really need to document company minutes. The answer is an unresounding YES. While the company minutes do not need to be filed with any state or federal entity, they should be kept with the Minute Book of the Company. Let me explain a little of what I mean, and why company minutes are crucial to an LLC and the members/managers of an LLC.
With the increase in popularity of LLCs, there has been some confusion as to what paperwork and filings are absolutely required. With a Corporation, the law requires an Annual Meeting of the Stockholders, and an Annual Meeting of the Directors. With an LLC, the law has no such requirements for an Annual Meeting. And many states do not require an Annual Report to be filed. (see the list of requirements by state here)
However, there are several reasons why it is in your best interests to keep up with your Company Minutes and Annual Meetings for your Limited Liability Company.
1) To protect your Limited Liability Status – when you show you are keeping your business a distinct and separate entity from yourself, you maintain that veil of protection. Every business should maintain regular meetings and keep minutes to have a record of their activities. In addition to having your Articles of Organization, you must have your Operating Agreement and 12 other important documents to show you are running your business like a business, and not just an alter ego of yourself.
2) To be prepared in case of an IRS Audit – company minutes give proof of business purpose behind each decision and business purchase, which in turn could save you a lot of headache and cost (small business audits usually produce between $7,000.00 – $14,000.00 for the IRS). It is much easier to have these documents ready, rather than scramble to get them together at the last minute. A highly organized and documented company also prevents a long drawn out audit.
3) To be prepared in case of a lawsuit – the first thing an opposing attorney will ask for during a lawsuit is the company minutes. Of course they want to prove that your LLC is not a real business, therefore opening up the gates to go after your personal assets as well. While company minutes may not prevent a lawsuit against your business, they could prevent a lawsuit against you personally.
4) To be ready to Sell your business – the company minutes will show to your buyer all important and relevant information about the company: such as, any leases that the buyer will be assuming, any employment contracts, or other agreements such as distribution agreements, etc. When you have your minutes in order, your business is in a better position to sell in a more timely fashion.
5) To have solid documentation of business decisions – company minutes allow you to note the reasons behind making critical decisions, which can head off controversy and dissension in your company in the future.
So, keep up your Annual Meetings and document your important business decisions to protect your limited liability status and have solid documentation in the event of a lawsuit or IRS audit. Having your company records will also allow you to be prepared for selling your business if that’s what you decide to do. And, it’s even good reading when you want to review your business actions over the years.
For more information on Company Minutes, visit www.justaminutellc.com