As discussed in my last blog, many business owners are looking at forming LLCs as a result of the new tax act. In addition to any potential tax breaks, there are some other advantages to forming a limited liability company instead of a corporation. One of the main benefits of forming an LLC over a corporation is that LLCs do not have to follow the corporate required formalities such as having annual meetings and taking minutes to document those meetings. This means LLC members have one less thing to worry about doing wrong (or failing to do at all) which, if they had formed a corporation, would have created a hole in their liability shield. This is true unless the LLC operating agreement states otherwise. If you would like the managers or members of your LLC to have regular meetings, be very careful when drafting this requirement into your operating agreement – if the agreement requires it, you must follow it. If you fear you may not follow such a requirement, consider making the meetings occur only if a manager or member calls them by giving notice to the members. Remember, flexibility is why LLCs are so well loved, and why many businesses are willing to pay the California LLC gross receipts fee of as much as $11,790 per year on top of the California minimum franchise tax.
Despite this flexibility, there are some records maintenance requirements every LLC should be aware of. Under 17701.13(d), the LLC Act requires the LLC to maintain in writing or other clearly legible form:
(1) A current list of the full name and last known business or residence address of each member and of each transferee set forth in alphabetical order, together with the contribution and the share in profits and losses of each member and transferee.
(2) If the limited liability company is a manager-managed limited liability company, a current list of the full name and business or residence address of each manager.
(3) A copy of the articles of organization and all amendments thereto, together with any powers of attorney pursuant to which the articles of organization or any amendments thereto were executed.
(4) Copies of the limited liability company’s federal, state, and local income tax or information returns and reports, if any, for the six most recent fiscal years.
(5) A copy of the limited liability company’s operating agreement, if in writing, and any amendments thereto, together with any powers of attorney pursuant to which any written operating agreement or any amendments thereto were executed.
(6) Copies of the financial statement of the limited liability company, if any, for the six most recent fiscal years.
(7) The books and records of the limited liability company as they relate to the internal affairs of the limited liability company for at least the current and past four fiscal years.
In addition to maintaining these records the LLC must be ready, on the request of a county assessor, to make available a copy of business records related to the amount, cost and value of all property owned or under the control of the LLC in that county.
The LLC must also designate and maintain an office in the state and an agent for service of process in the state. A foreign LLC only needs to designate and maintain an agent for service of process.
17701.13 (c) An agent for service of process of a limited liability company or foreign limited liability company shall be an individual who is a resident of this state or a corporation that has complied with Section 1505 and whose capacity to act as an agent has not terminated. If a limited liability company or foreign limited liability company designates a corporation as its agent for service of process in an instrument filed with the Secretary of State, no address for that agent for service of process shall be set forth in that instrument.
The address for the company, the agent for service and the names of the managers (or members in a member managed LLC) are kept up to date with regular filings of the Statement of Information form with the California Secretary of State. Failure to file the Statement of Information can result in a suspension of your LLC, just like failure to pay the California franchise tax can result in an FTB suspension, either of which can lead to a cancellation of your LLC.
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