Until the advent of LLCs, businesses essentially chose between the formal structure of a corporation or the informal structure of a partnership, depending on what benefit was most important to them -- limited liability or single taxation. The LLC is designed to combine both benefits in one business entity. Like a corporation, an LLC can only be formed by filing the required documentation, called articles of organization or certificate of formation, with the appropriate state office. However, like a partnership, an LLC can dispense with other corporate formalities such as formal meetings and maintaining minutes of meetings.
Piercing the Veil
The legal concept known as “piercing the corporate veil” is a significant reason why maintaining minutes of meetings is required for corporations. Creditors use this concept to argue to a court that, under particular circumstances, the corporate veil should be pierced so that its debts become liabilities to be paid from the personal assets of the shareholders. The circumstances needed to successfully argue that the corporate veil should be pierced typically center around whether the shareholders respected and engaged in corporate formalities, such as conducting regular meetings and maintaining minutes of meetings, or if they essentially treated the corporation’s activity and their activity as one and the same. LLC owners can face these same issues if their conduct does not reflect a respect for the separateness of the LLC’s activity from their own.
LLC Case Law Development
Because most states did not enact LLC laws until the mid-1990s, LLCs are still a relatively new business entity. In contrast to corporate law, there are very few court opinions interpreting LLC laws in the context of business disputes. This means that there is a level of uncertainty as to how LLC laws will be enforced in the future, particularly with respect to whether legal concepts applied to corporations, such as piercing the corporate veil, will also be applied to LLCs. However, case law is developing, such as in Connecticut where a September 2010 court opinion addressed the issue of whether a creditor could pierce the veil of an LLC and hold the members liable for its debts. The creditor’s argument was rejected by the court, which noted that the LLC abided by certain formalities, such as keeping separate books and filing required documents with the state to indicate that the LLC was a separate and distinct entity from its members.
LLC Record Requirements
Although LLCs are not required to hold meetings or maintain minutes of meetings, there are other record-keeping requirements specified in state LLC laws. These requirements usually include keeping records at the LLC's principal place of business that document such matters as: the full name and address of all members, past and present; the LLC’s state-filed formation document; the members’ operating agreement, if any; and the amount of each member’s contribution to the formation of the LLC, whether in cash or services. Complying with these LLC record-keeping requirements is important in the event a creditor should attempt to enforce the debts of the LLC against any of its members.