Introduction:

Many businesspersons chose a limited liability company (“LLC”) instead of a corporation when commencing operations for the simplicity of its procedures. Unlike a corporation where bylaws and board of director and shareholder meetings are required annually, a LLC, in its operating agreement, can forgo that requirement and allow the owners to operate without having such formal proceedings and keeping records of same.

Which is a double-edged sword. While it makes it easier to operate the company, it can act to erode one of the most useful aspects of the entity, namely its limited liability status. Piercing the corporate veil is a doctrine which allows a creditor to impose personal liability on the owners of a limited liability entity if the owners failed to act in a manner which supports the independence of the entity. Commingling of personal assets with the entity assets and misrepresentation of status to third parties are typical and important aspects of claims to pierce but failing to observe entity formalities (separate accounts, the entity signing all contracts, failure to have meetings and minutes) can also influence the trier of fact in concluding that limited liability should not be allowed.

Or, as one trial counsel stated to the writer when defending against an attempt to pierce the veil before a jury, “If I can slap down on the table five years of minutes which they can then bring to the jury room, then you can bet the veil will not be pierced…”

There are other advantages of keeping minutes of regularly scheduled meetings as well as discussed in this article.

The Law:

There is no statutory or case law requirement for LLCs to have formal meetings or minutes of same. Note that the initial creation of the LLC did require a written operating agreement and articles of organization, both of which are filed with the state. But the LLC law, itself, requires no later meetings or minutes. The operating agreement can require such meetings, but most such agreements do not.

The mere failure to hold meetings or have minutes of same in an LLC will not eliminate its limited liability. Only when combined with other actions, such as executing contracts using a name that is not the LLC, commingling assets, misrepresenting its status and the like will limited liability be at stake…but it is a factor that a trier of fact can use in determining if, when combined with the other wrongdoing, the entity should not have limited liability.

Why Meetings?

There are other, perhaps even better reasons to have formal meetings and minutes.

  1. It keeps an excellent record of key events in the company and forces the owners to meet and confer on strategy, ownership and issues confronting the company.
  2. The record will eliminate later contradictory claims of what was decided and who supported what decision.
  3. It keeps a long-term record of progress (or lack of progress) on various plans and proposals.
  4. It solidifies in the minds of all the separate and corporate nature of the decision making in the entity and allows the give and take often needed for business decisions in a formalized setting.
  5. It can have the CPA or attorney attend to provide accounting/tax/legal input.
  6. It is useful in demonstrating actions and decisions to various governmental bodies from licensing boards to the IRS.
  7. And in times in which it is difficult for all to meet, such meetings can be via Zoom or conference call or even a later consent in lieu of the in-person meeting. This is termed a unanimous written consent in lieu of meeting. Rather than holding a meeting, the owners of an LLC, also known as members, can draft a document detailing the actions they wish to take on behalf of the LLC. Each of the members must sign this document to satisfy the meeting requirement. This document then becomes a substitute for holding a meeting.
  8. Above all, it promotes communication and clear decision making.

Conclusion:

There is a reason why corporations, as legal entities, have existed for a century and a half. They work. And the formalities, while not always needed, can be remarkably useful in both protection and communications. With a LLC one can pick and chose among the formalities desired and there are strong arguments for including formal meetings, at least annually, along with minutes signed off by the owners, being created.