In the first three quarters of the twentieth century the two significant forms of doing business in the United States were a corporation and a partnership, each having their own positive and negative features.
The positives for a corporation were that it was considered a separate entity from its shareholders and the shareholders were protected from personal liability for the risks of the corporation. The negatives were that the losses of the corporation were not passed through to the shareholders and the profits were passed through after paying a corporate tax and thus taxed twice.
The positives for a partnership were that the losses of the partnership were passed through to the partners and that profits were passed through directly to the partners without an additional tax. The negatives for the partnership were that the notion of the partnership as a separate legal entity, distinct from its partners, was somewhat uncertain and that all the partners in a general partnership, and at least one of the partners in a limited partnership, were personally liable for the risks of the partnership.
History of LLC Statutes
In 1977, Wyoming was the first state to enact legislation authorizing the form of organization known as a LLC. In 1982, Florida became the second state authorizing LLCs. At the time these statutes were enacted there was still some question about whether the IRS would treat losses and profits of an LLC as a pass through, as opposed to treating them like a corporation.
In 1988 that question was resolved in favor of treating losses and profits as a pass through when Revenue ruling 88-76 was issued. After that ruling LLC's became the form of organization of choice for small business and the remaining states rushed to enact their own LLC statutes.
Unlike many areas of law, there is no significant adoption of a "Uniform" or "Model" LLC code. Less than 10 States have adopted the Uniform Limited Liability Company Act. As a result the State LLC statutes are a mix of this and a mix of that with patchwork fixes applied as needed. Nonetheless there are a few themes running through their provisions.
The thought to keep in mind as to the record keeping requirements of an LLC is their purpose. There are basically two, an external purpose and an internal purpose.
In permitting an individual or group of individuals to shield their assets from the business risks of the LLC business, the state requires that it fill out forms, file reports, pay taxes and conduct the business to be shielded in the name of the LLC. The failure to do so may be fatal to the continuation of the protection. Records of those forms, reports and tax returns are required to be kept.
The internal purpose is to permit all of the members of the LLC to have access to the information concerning the terms and conditions of their relationship to the LLC and the relationship of others to the LLC. The failure to do so relates to the duties of the manager or managing member to the other members. Records containing this type of information are also required to be kept.
If you keep both of those interests in mind, the records required to be kept make more sense.
Best Practices for Record Keeping for a LLC
The common record keeping requirements of the various states suggest that the following records should be kept by any LLC.
Formation and Organization Documents
1. A copy of the Articles of Organization and all amendments to it; 2. A copy of the Certificate of Organization or other official paperwork mailed to you by the state after filing the Articles of Organization; 3. A copy of all written Operating Agreements ever used.
Correspondence with the State
1. Any document filed with the State concerning the LLC;
2. Any document received from the State concerning the LLC.
1. A copy of all federal, state, and local income tax returns for each year;
2. A copy of any financial statements from the last three years.
Documents Related to the Internal Operation of the LLC
1. A copy of the minutes, if any, of each meeting of members and of any written consents obtained from members;
2. Any document which discusses the amount of capital contributions of each member in terms of cash or agreed value of other property or services contributed;
3. Any document which discusses the details of events, times, or other agreements made for further contributions to be made from members, if any;
4. Any document which discusses the share of profits and losses due each member;
5. Any document which discusses any right of a member to receive distributions of funds;
6. Any document which discusses any right of a manager to make distributions of funds to a member;
7. Any document which discusses each member's respective voting rights;
8. Any document which discusses the details of events that would cause the LLC to be dissolved and its affairs wound up, if any.
Records of Members and Managers
1. A current list of the full names and last known address of all past and present members.
2. A current list of the full names and last known addresses of all past and present managers.
Location of Records
The above documents and records should be available at the principal business office maintained by the LLC.
Form of Records
The documents and records may be maintained either in hard copy or electronically, as long as the electronic version can be printed within a reasonable period of time.
The above records are just the documents and records that are required to be kept as to the form of business. Many other records, for example records required to prepare tax returns, records required to be kept on employees, etc., may also be required to be kept by an LLC, just as they are required for businesses operating in other forms.