Forming an LLC, when compared to other items you may need for your business is easy. If you have ever applied for a patent, you know that it takes a long time, requires a specialized patent attorney and will most likely cost no less than $10,000 and almost always much more than that.
Forming an LLC isn’t nearly as difficult. It carries with it a price tag of as little as a few hundred dollars and the application process is much easier. For this reason, many businesses form an LLC for no other reason than to get behind the corporate veil. The corporate veil shields the business owner’s personal assets from the debts of his or her business.
The courts have noticed this and are allowing attorneys to challenge the idea of the corporate veil. LLCs that don’t function as such are finding that their status is breaking down once a lawsuit is filed and for this reason, it is important to be in absolute compliance with operating requirements in your state. If you don’t, you may find your corporate veil lifted and your personal assets being garnished for the debts of your LLC.
Arguably, one of the most common ways that the corporate veil is lifted is by citing improper record keeping. States differ on their record keeping requirements but here are 10 items that you must keep:
- Legal contact information of all members and managers including name and full address.
- Tax returns from all levels of government. (Federal, State, and Local) You will need them for as many years as required by your individual state. Check with your Secretary of State’s office for this information.
- The LLC Operating agreement and any amendments.
- All LLC books and records for no less than 4 years or since your LLC’s inception.
- Records containing all investors and the written agreements you have with them.
- Records of all proceedings of Members for the past 3 years
- A copy of all financial statements for the amount of years required by your state. Your state will require a certain amount of years but a good company will have financial records since its inception.
- All contracts relating to your LLC.
- Any reports submitted to members or investors for a minimum of the past three years.
- A copy of the Articles of Organization and all amendments.
A well ran company will have all of these documents as part of their day to day operations but if you don’t, you must compile these records and make sure they are kept in a secure place. Consider making two copies and keeping them in different locations in order to guard against fire or theft. Another good idea is to scan the documents and purchase a subscription to an online backup service. These are the most important documents to your business and they help to establish your corporate veil. Protect them!