Who Does a LLC Have to Show Financials To?

By Terry Masters

Keeping accurate accounting records is part of your responsibility as an owner of a limited liability company. Using the data from your company's books, you can generate financial reports to gauge the health of the business. Most entrepreneurs wouldn't want competitors or other outsiders to have access to this proprietary information about their businesses; however, certain parties have a right to see your LLC's books and related financial records upon request.

Rights of LLC Members

The other owners, known as members, of your LLC have a right to see the company's financial information upon request under the business laws of most states. Typically, the law provides that any member of a member-managed LLC must have access to the company's records even if the member is not involved in running the business on a daily basis or is estranged from other members. A member of an LLC that is run by a manager, rather than the members directly, has the right to inspect business records that relate to that member's interests. Financial information directly affects a member's ownership position in the company, so the manager would have to comply with the member's request to see the financial records.

Demands by State and Local Agencies

LLCs operate under the laws of the state in which the business filed its formation paperwork. Various state and local agencies require LLCs to produce financial records upon request. For example, the state tax authority has the right to audit your company's books to determine if you're collecting sales taxes properly. You may also have to show your company's financial records to prove compliance with payroll and income tax requirements.

Ready to start your LLC? Start an LLC Online Now

Audits by the Internal Revenue Service

The IRS requires all businesses to track expenses, income, assets, liabilities and equity to substantiate tax filings including income tax returns and payroll withholding reports. The agency can request your financial records at any time. While the IRS only audits a small fraction of businesses every year, your company is required by federal law to comply if you're on the audit list.

Requests by Third Parties

You may have to show your company's financial records to third parties under certain circumstances. For example, if someone sues your company, a judge might order you to provide financial information to the court or the plaintiff. You might also have to provide financial information based on the terms of a contract. For example, if the LLC has a retail lease where the rent is based on a percentage of sales, the landlord may have the right under the contract to see the company's financial information.

Ready to start your LLC? Start an LLC Online Now
How to Buy a Membership Interest in an Existing LLC
 

References

Resources

Related articles

What Is an LLC License?

A limited liability company is a type of business structure that shields the owners of the company from personal liability for the financial dealings of the operation. An LLC does not pay federal taxes since the profits are only reported on the owner's tax return as personal income. The creation of an LLC is governed by state law and members must file certain documents with the appropriate state department to gain approval to operate as an LLC.

What's an LLC?

An LLC, or limited liability company, is a flexible form of business entity that provides its owners with the safeguard of limited liability. An LLC can have any number of owners, known as members, so the entity is suitable for both sole proprietors and larger businesses. Although each state has its own laws for LLCs that are registered within its jurisdiction, the general rules regarding formation, limited liability, taxation and operation of the LLC are broadly similar.

LLC Managers vs. Members

When you create a limited liability company, the owners are referred to as its members. By virtue of holding a membership interest in an LLC, you have the right to actively participate in the management of the business. Alternatively, the LLC may hire non-member managers to oversee the daily operations as employees of the company. However, a member may also hold a management position similar to that of an employee.

LLCs, Corporations, Patents, Attorney Help

Related articles

How to Find a Company's EIN

An Employer Identification Number for a business entity is analogous to a Social Security number for an individual. The ...

What Financial Liability Does Each Member of an LLC Accrue?

Limited liability companies play a valuable role in today's business world and are a common alternative to ...

The State of North Carolina LLC Act & General Statutes Section 57C-3-04

Limited liability companies are popular business structures because they provide liability protection for the owners, ...

How to Find a Corporation's Public Records

Corporations are required by law to make certain information available to the public so people know whom to contact ...

Browse by category
Ready to Begin? GET STARTED