Tuesday, March 27, 2007

Does A Michigan LLC Need To Maintain A Minute Book?

In short, yes.

As an attorney, one of the misconceptions I am commonly confronted with is the idea that a Limited Liability Company (LLC) is exempt from the need to maintain the kinds of records that would typically be found in a corporate minute book.

In Michigan, LLCs are required to maintain certain records. By statute, an LLC is required to keep numerous records at its registered office or principal place of business, including copies of tax returns, financial statements, operating agreements, and records relating to distributions and voting rights. To view the statute, click here.

The statute does not use the word “minute book”, but the requirements of the statute are items that you would expect to find in a minute book for a company.

Why is this important? First, because the statute says these records “shall” be maintained. Following the requirements of the statute is not optional. Of equal, or perhaps greater, importance, is that failure to maintain corporate formalities, including keeping proper records, is a key factor in determining whether an adverse party may “pierce the corporate veil”, thereby defeating the limited liability protection of the company and allowing the adverse party to directly take action against individual members.

One other item to keep in mind is that the requirements of the statute should be viewed as a floor, not a ceiling, meaning that as a matter of practice we recommend that our clients maintain more records then just the bare minimum required by the statute. This not only eases administrative work for the company over time, it is also provides the members with greater protection against claims that seek to pierce the corporate veil.

The recordkeeping requirements of the Michigan statute are not overly burdensome and the results of failure to comply with the statute can be significant. On at least an annual basis, our office reviews the records for not only the corporations we represent, but also the LLCs we represent. Give the annual records of your company the attention they need by performing an annual review or, if you have questions, contact me to arrange a consultation to review your company’s records and to help set up an efficient recordkeeping system for your LLC.

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