The LLC is the little business entity that could. Unfortunately, many services market it as the cure-all to every problem a small business has. LLCs are solid business entities, but they are not perfect. In this article, we take a look at one of the marketing claims you often see regarding an LLC and whether it has any merit.
As with any product or service being sold, you should really take marketing claims with a serious grain of salt. Not every car can be the best in the world and not every marketing claim regarding business entities is true either. This is particularly true when it comes to the claim that corporate entities are “bad” because you have to keep corporate minutes. Oh, the horror! Keeping corporate minutes is a simple process and not a factor that should be considered when deciding whether a corporation is the best choice for your business.
The flip side of this marketing theme is that limited liability companies are great because you don’t have to keep corporate minutes. Is this true? Yes and no. Every state deals with the issue in different ways, but it can be said that some states do not have any statutory laws passed by the government that require you to do so. So, is that the end of the discussion? Not by a long shot.
You are absolutely out of your mind if you do not keep corporate minutes for your LLC. Why? Well, let’s imagine a scenario where the LLC gets sued by some other party. As is often the case in litigation, things can get nasty quickly. In your case, they suing party starts asserting that the LLC is really just a shell entity and should be set aside so the real party [that would be you] can be held responsible for your untoward conduct.
At this point, the court is going to have to make an evaluation about whether the LLC is valid or not. What is one of the key things it is going to look at? You guessed it – the documents in the corporate book. Specifically, do they show that the LLC was functioning as a real business or as your play thing? Well, now you have a problem. Why? You don’t have any minutes or corporate documents! How do you think the court is going to view the LLC in light of that? Not well!
An LLC is a great business entity choice in certain situations, but not so much in others. Put another way, some of the marketing claims are correct. The claim that you don’t need to keep corporate minutes, however, is one that can get you into serious trouble.
Richard A. Chapo is with SanDiegoBusinessLawFirm.com where you can get a quickie 1 hour consult [http://www.sandiegobusinesslawfirm.com/1-Hour-Consult] to answer your legal questions without any hassle.