Do LLCs Have Corporate Formalities?
One of the attractions of limited liability corporations is that they are less rigid and formal than their corporate counterparts. That said, there are certain formalities to which the LLC must adhere in order not to be brought into question by the SEC. It is important in all situations where you have questions about your business to consult with Bryan business lawyers.
Corporate and LLC Formalities
Corporations are required to maintain clear and distinct formalities. These include the holding of at least one meeting between shareholders and the director per year. Moreover, they are required to keep minutes of all meetings. Indeed, many shareholder and boards of director actions require formal meetings that are documented.
You should not be misled into thinking that just because you formed as an LLC you thereby are avoiding such formalities. There are some very distinct advantages that come with forming as an LLC, such as pass-through taxation, but these come with a price. When a corporation is determined to be operating out of accordance with its bylaws, courts may in essence “pierce the corporate veil” and cause the owners to be personally liable for any indebtedness that the company has incurred. To a lesser extent this is true of an LLC as well. The following are examples of improper conduct which may cause the court to act:
- One member exercises too much control
- A member engages in conduct that is improper and unbecoming
- If the above conduct causes another company to be denied access to legal remedy in a lawsuit the courts may “pierce the corporate veil,” that is, make all members responsible for the company's debts.
What Are Some LLC Formalities?
The most important formality you need to keep is to have a well-written operating agreement. This document spells out the defined roles of each member, indicates how profits will be divided, how the company will be operated, and what tax rules apply.
It is very important that you maintain accurate records for all business transactions, and keep minutes of meetings. These, as well as bank statements, tax returns, resolutions passed by the governing body, etc., should all be kept for a minimum of three years.
One way in which LLCs get in trouble is when they comingle funds with individuals within the company. Another is when the company suffers a deficiency in capitalization. In essence, it is important that each member of the entity works to maintain a clean house to avoid any question of impropriety.
For Further Questions of Legal Assistance
If you have questions or need help resolving a matter in which your company formalities have been called into question, don't hesitate to call the Bryan business lawyers at Peterson Law Group. Call 979-703-7014 or 936-337-4681 today.