LLC Meetings and Minutes – Why Have Them?
Introduction
Due to the ease of operating an LLC in place of a corporation, many entrepreneurs choose the limited liability company when they first start their businesses. A corporation may lose its good standing if it does not comply with the annual meeting and reporting obligations set forth by its home state, and it can also create an opportunity for creditors to overcome the corporate liability shield and seize shareholder assets. In contrast to a corporation, which must have yearly meetings of the board of directors, and shareholders, an LLC’s operating agreement may waive that requirement and permit the owners to conduct business without such formal procedures and the documentation of related records. LLCs may also have the advantage of being a single-person entity.
LLC too has its disadvantages. Although it makes running the business simpler, it also acts in undermining the entity’s most advantageous feature namely, a limited liability status. A limited liability entity’s owners may be held personally liable under the notion known as “piercing the corporate veil” if they failed to act in a way that supported the entity’s independence. Typical and significant elements of claims to pierce include mixing personal assets with the assets of the entity and misrepresentation of its status to third parties. However, failing to follow entity formalities (separate accounts, signing of all contracts by the entity, failure in conducting meetings, and taking minutes) can also persuade the individual that limited liability should not be permitted. The following are the most typical methods by that a lawsuit can break a company’s liability shield:
- Commitment of fraud by one or more members of the LLC.
- Merging personal and professional assets
- Lacking standard business practices
Or, as one trial lawyer put it to the writer when opposing a complaint to pierce the veil in front of a jury: “If I can slap down on the table five years of minutes which they can then bring to the jury chamber, then you can bet the veil will not be penetrated.”
In addition to the ones mentioned in this article, keeping minutes of regularly planned meetings has additional benefits.
The law
No legislation or case law mandates that LLCs hold formal meetings or keep minutes of those sessions. It should be noted that a documented agreement and articles of organization, both of which have been submitted to the state, were necessary for the LLC’s formation. The LLC statute, however, does not call for any additional meetings or minutes. Such meetings may be required by the operating agreement, but most such agreements do not.
An LLC’s limited liability will not be eliminated by the simple absence of meetings or meeting minutes. Limit liability is only at risk when paired with additional behaviors including signing contracts under a name other than the LLC, mixing of assets, lying about its status, and similar behaviors. However, it is a factor that a fact-finder can consider when deciding whether the entity should have limited liability in light of the other misdeeds.
Why there is a need for a meeting?
There are further, possibly even greater justifications for formal meetings and minutes.
- It keeps a great record of significant corporate events and compels the owners to get together and discuss strategy, ownership, and concerning matters.
- The record will get rid of any later assertions that were in conflict with what was decided and the stance of decision-makers regarding that decision.
- It maintains a long-term record of the advancement (or lack thereof) of different initiatives and proposals.
- It enables the give-and-take that is frequently required for business decisions in a formal context and establishes in everyone’s thoughts the separate and corporate nature of decision-making inside the corporation.
- To provide accounting, tax, and legal feedback, the CPA or attorney may be invited to the meeting.
- It helps in supporting acts and choices made before various governmental organizations, including the IRS and licensing boards.
- And when everyone can’t get together, such discussions can be conducted via a conference call, Zoom, or even a later agreement in place of the in-person meeting. This is a unanimous written approval in place of a meeting. The owners of an LLC sometimes referred to as members can create a document outlining the activities, they want to conduct on behalf of the LLC instead of convening a meeting. To fulfill the meeting requirement, each member must sign this form. The creation of a meeting is then replaced by the creation of this document.
- Above all, it encourages distinct decision-making and communication.
- It can also increase the credibility of the company with creditors and other stakeholders that come into contact by keeping accurate meeting minutes and holding annual meetings. These meetings also assist in safeguarding the liability protection offered by the corporation and LLC business structure.
Conclusion
There is a reason why companies have been recognized as legal persons for more than 150 years. And the formalities, while not always needed, can be remarkably useful in both protection and communications in business dealings. With an LLC, one can pick and choose the formalities required, and there are compelling reasons to include formal meetings, at least once a year, along with minutes that have been approved by the owners. Annual meetings are an excellent method to promote a thriving and well-run company, but they are not typically necessary for LLCs.