Hopefully many of you remember Vitameatavegemin from the classic “I Love Lucy” show. How in the world does this relate to a limited liability company (LLC) you say? Well is your LLC tired, run down, listless? Has it fallen out of good standing and is it failing to follow corporate formalities? If so, you may need to pep it up a little. I touched on this topic briefly in an earlier newsletter addressing limited liability protection. To make sure you are taking the necessary steps with your LLC, consider these tips:
A common question I hear is whether LLCs are required to have annual meetings. The answer is “No.” One of the benefits of the LLC as compared to a corporation is that many of the traditional legal requirements are relaxed; thus the LLC form is more flexible and more suited for many small businesses. However the LLC should have some form of minutes or consent action signed by the managers or members to approve any major transactions within the LLC as they occur (such as a change in ownership, change in manager, or sale of business). This does not mean you need a consent action when your LLC buys a new coffee machine, though this may be one of the most important purchases you make! If you are not sure what transactions require approval of the members, check your operating agreement. Whenever the LLC borrows money from a bank, the bank will require the LLC members or managers to approve the loan transaction through a similar form of consent action or minutes. All of these documents evidence official legal action of the members or the managers and should be maintained along with the other LLC records.
The ownership records for an LLC should not be taken for granted. Most LLCs that we organize don’t issue ownership certificates. Again this is a distinction from corporations which usually have stock certificates. Instead the LLC ownership is recorded and maintained on a schedule in the LLC’s operating agreement. Whenever there is a change in ownership, such as upon death of a member or sale of an interest, this ownership schedule should be updated. Some LLC owners prefer to rely on the LLC tax returns and their CPA to keep track of the LLC ownership, but this is a mistake and it can lead to problems later if there is any inconsistency in the tax records versus the LLC documents. The better practice is to update the LLC ownership schedule as needed and then send a copy of the updated schedule to the LLC’s CPA or tax professional for use in the income tax reporting.
Finally, one of the most important items for an LLC is to keep the annual reports current with the NC Secretary of State. In North Carolina an LLC must file an annual report by April 15 of each year together with a $200 annual filing fee. These reports require very basic information about the LLC and its managers or members and can be filed online. From time to time the Secretary of State conducts audits of its LLC filings and initiates administrative dissolution of LLCs which don’t have their reports current. If you receive a notice from the Secretary of State along these lines, be sure to give that filing attention.
It doesn’t take much to maintain an LLC, but it is easy to let some of these simple items fall through the cracks. If it has been a number of years since you have focused on your LLC corporate records, you should dust them off and see what you have and what you may be missing. And if all else fails join the thousands of happy peppy people…watch I Love Lucy and you’ll understand.