Limited liability companies are popular business structures because they provide liability protection for the owners, called members, while avoiding some of the restrictions of corporations. But rules regarding LLCs vary by state. North Carolina’s Limited Liability Act, located in Section 57C of the North Carolina General Statutes, governs LLCs in North Carolina. Article 3, in particular, addresses the membership and management of LLCs in the state. The state allows members to manage their LLC themselves or hire non-owner managers instead.
North Carolina LLCs must file articles of organization with the Secretary of State in order for the organization to be recognized as an LLC. Members can specify their management structure in these articles of organization, or they can create a separate document called an operating agreement. Frequently, LLCs opt to put minimal information in the articles of organization while putting more detailed plans for running the LLC in the operating agreement, since the operating agreement does not have to be filed with the state. For example, operating agreements can specify how the members plan to choose managers, how many managers there will be and how managers can be removed.
Access to Information
Section 57C-3-04 of North Carolina’s Limited Liability Act specifically addresses members’ access to information, including records. Each member has the right to obtain records from the LLC, though the articles of organization or operating agreement can set reasonable limits on accessibility. A member’s demands for information must be reasonable and related to the member’s interest as a member. For example, if spouses are both members of an LLC, one cannot demand information from the LLC for the sole purpose of using it against the other in a divorce. Generally, these records will already be in writing, but North Carolina permits LLCs to maintain records in other formats if the alternative format is capable of being converted into written form within a reasonable time. For example, an LLC could keep audio recordings of meetings if they are able to be transcribed in a reasonable amount of time.
Unless otherwise specified by the LLC’s articles of organization or operating agreement, members can request certain information specifically listed in the statute. This includes information about the status and financial condition of the business, business’s tax returns for each year, list of the names and addresses of each member, articles of organization, operating agreement, any powers of attorney granted by the business, and information about assets contributed by each member. If the LLC fails to keep records as required by this statute, articles of organization or operating agreement, it could face liability. However, such a failure does not allow anyone to come after a member’s personal assets.
All member requests for information must be placed in writing, made in good faith and for a proper purpose, and specifically describe the purpose and information requested. The request must be specific so the person fulfilling the request can retrieve the correct records. The LLC’s managers, who may also be members, have the right to keep certain information confidential for a reasonable period of time if disclosure of the information is not in the best interests of the company. For example, the manager could withhold trade secrets that could damage the company if made public.