In my last post, I went over how a California Limited Liability Company (LLC) is managed. One of the possibly ways to do so is to hire a person to fill that role. By default, the various members or owners of the LLC can manage the LLC between themselves as a group with meetings, votes on decisions, etc. Some members, understandably, don’t want to manage the LLC themselves. Having meetings and conducting votes can, for instance, cause conflict and disagreement. It also can take significant time and energy to handle the administrative tasks needed to actually run an LLC properly. The members might conclude that these administrative tasks are a necessary evil of the real world, the burden of which should be minimized as much as possible. The real focus should be on actually running their business.
In a prior post from 2024, I went over one of these administrative tasks — namely, the need to file Statements of Information with the California Secretary of State. Today, I want to go over another of those administrative tasks, namely the paperwork that a California LLC must maintain by law. In my experience, this is something that is a significant problem for the average person who, for instance, just started an LLC as a means to the end of running their business. Generally-speaking, the average person tends to do a very poor job of maintaining documentation and paperwork.
The relevant California law here is Section 17701.13(d) of the California Corporations Code, which states:
Each limited liability company shall maintain in writing or in any other form capable of being converted into clearly legible tangible form at the office referred to in subdivision (a) all of the following:
(1) A current list of the full name and last known business or residence address of each member and of each transferee set forth in alphabetical order, together with the contribution and the share in profits and losses of each member and transferee.
(2) If the limited liability company is a manager-managed limited liability company, a current list of the full name and business or residence address of each manager.
(3) A copy of the articles of organization and all amendments thereto, together with any powers of attorney pursuant to which the articles of organization or any amendments thereto were executed.
(4) Copies of the limited liability company’s federal, state, and local income tax or information returns and reports, if any, for the six most recent fiscal years.
(5) A copy of the limited liability company’s operating agreement, if in writing, and any amendments thereto, together with any powers of attorney pursuant to which any written operating agreement or any amendments thereto were executed.
(6) Copies of the financial statement of the limited liability company, if any, for the six most recent fiscal years.
(7) The books and records of the limited liability company as they relate to the internal affairs of the limited liability company for at least the current and past four fiscal years.
As usual, I’ve bolded and underlined various parts of the statute that I think are important. Section 17701.13(d), however, is a long statute given all 7 of its subparts. If you can get past the unwieldy length, though, you’ll see that the documents that the LLC needs to have readily at hand fall into four basic categories.
- The first pertains to the members of the LLC, including their names, address, financial contribution, as well as allocations of profit and loss.
- The second category relates to the LLC’s manager, namely the manager’s contact information. This assumes, of course, that the LLC is not managed by its members.
- Third, the LLC needs to have its legal paperwork at hand, such as its Articles of Organization and amendments thereto as well as its Operating Agreement and amendments thereto.
- Lastly, you can see that the LLC needs to have all manner of financial documentation at hand also. Specifically, tax returns for the last six years, financial statements (for instance, profit and loss as well as a balance sheet) for the last six years, as well as books and records for the last four years.
The first item I bolded and underlined — “any other form capable of being converted into clearly legible tangible form” — is important as well. In short, an LLC can have all of this required documentation in hard copy format. This might be cumbersome in the real-world. Having vital records only in hard copy format is also risky in terms of loss, theft, etc. Thankfully, a lot of this documentation nowadays is likely to be stored on a computer somewhere. The file on the computer can hopefully be quickly opened, printed, emailed, etc. as needed.
As you can hopefully see, this required documentation is not complicated. In theory, if the average person was sufficiently organized and disciplined, they should be easily able to have these documents organized in the way California law requires with very simple tools. However, in the real world, people procrastinate and papers often end up somewhere other than the file in which they are supposed to be placed. If you’re a member in an LLC and you, realistically, admit to your self that you’ll likely be unable to keep up with this documentation, that could be a sign for you to hire a manager instead and spare yourself all of the administrative headache that comes with running an LLC. You can then focus all of your attention and energy on running your business. Being able to run your business was, after all, the whole point of having an LLC in the first place.
As always, I hope you found this post helpful and informative. It is not meant to be a comprehensive discussion of all of the details and possibilities that might exist when dealing with keeping documents and records in a California LLC. If you are dealing with a situation involving record-keeping in a California LLC, please do conduct your own research as I have no way of knowing anything about your situation. If you are dealing with a situation involving record-keeping in a California LLC, please do also consider finding a lawyer with whom you can discuss the specifics of what you’re dealing with.
Good luck!
Andy Chen
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