LLC Record Book: Everything You Need to Know
An LLC record book is less complicated than other corporate formalities, making LLCs a popular choice for businesses. 3 min read
An LLC record book is less complicated than other corporate formalities, making LLCs a popular choice for businesses.
There may be less paperwork for an LLC, but there are still rules all LLCs need to follow to maintain limited liability status (documents required vary in each state depending on their laws).
Keeping good records does help you monitor your progress so at a minimum, every LLC should keep and maintain the following records. Each business will have a different record keeping system that works for them. As long as it works and follows the law, you can do as you please.
In terms of how long you keep records for, the IRS are the ones who issue rules around how long you need to keep documents for, specifically related to tax issues. The longest period of time is seven years. Therefore, it's generally best practice to keep all records for seven years unless there's a valid business reason for not doing so.
By keeping these records, your "corporate veil" is protected, which lawsuits and creditors might otherwise try to exploit by showing you failed to follow corporate protocol. They could even try and go after your personal assets as part of the settlement.
When forming an LLC, the documentation should be filed with the Secretary of State's office.
All LLCs should keep a copy of their formation documents. In most states these are called articles of organization. They'll contain at least the following:
- LLC's name
- Company's purpose
- Company address
- The name and address of a registered agent chosen by the LLC.
The only other articles the state usually requires you to keep are the mandatory annual and biennial reports. If you make any amendments to the documents, a copy of both should be kept.
The Secretary of State will send you a certificate or similar document to recognize the formation of your LLC; you should keep this with your formation documents. Let's dig into specific documents you need a record of.
Operating agreement: An LLC's operating agreement is an important document outlining how the business will be run. A copy (along with amendments) should be kept at the principal office of the business. The operating agreement will usually have the following information on it:
- Each member's capital contribution and agreement regarding future contributions (if any).
- The procedure to distribute profits and losses.
- The rights of any members to receive distributions.
- Member voting rights.
- Admittance and withdrawal procedures for new and old members.
Member and manager information: In regards to member and manager information, this needs to be kept up-to-date. Maintaining a list with the name and address of all current and past members is the bare minimum. The same details should be kept of managers.
Meeting minutes: Most LLCs aren't required to hold meetings by state law. However, in the operating agreement, a mandate on meetings could be included. In this case, the best practice to follow is to have someone taking accurate meeting minutes with the following information:
- The names of attendees.
- Votes or decisions chosen.
- Any other useful information made.
And even though meetings aren't necessary, some state laws may require you to keep the minutes of any that are held.
Taxes and Finances
Income tax returns: The IRS can do an audit on any tax returns for the last three years. That is the minimum amount of time all LLC income tax returns at federal, state, and local levels should be kept. There is a loophole in the law with no statue on limitations if fraud is suspected; therefore, you should keep tax records on a permanent basis.
As expenses, credits, and income related to taxes, all related records should be kept. This includes keeping the following for at least three years:
- Deposit slips for the business.
- Credit card statements for all accounts.
- All invoices.
- Checks canceled.
- Bills paid.
Employment taxes: If your LLC has employees, you must pay employment taxes. You should keep all employment tax records for at least four years as recommended by the IRS. You'll also want to keep their personal details, employment details, payment information, and W-4 forms.
Financial records and contracts: All financial statements, financial records, and business contracts that an LLC creates should be kept for at least three years.
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