LLC Books and Record-Keeping
Keeping detailed LLC books is not a formal requirement like it is for corporations and is partly why LLCs are so attractive to startup entrepreneurs. That being said, there are some records that are mandatory for maintaining limited liability status. What’s more, LLCs should keep track of their documents to stay protected from lawsuits and other liabilities.
This guide explores what documents you should keep track of in your LLC books.
LLC Organization and Operational Documents
The primary organizational documents an LLC should have in their books include their formation documents and operating agreement. These documents are typically required in every state and serve as the groundwork for your LLC’s structure.
Other documents, such as those that detail company decisions, are often optional but should be included in your LLC books so you can keep track of your company’s finances and overall decision-making.
Articles of Organization
The Articles of Organization (also known as a Certificate of Formation or Certificate of Organization in some states) are required by law in every state. This document serves as proof that the LLC was formed legally in that particular state and outlines some of the key structural elements of the LLC, which can include:
- Whether the LLC will be managed by members or managers
- Whether the LLC is a series LLC, a PLLC, etc.
- The LLC’s duration (if not perpetual)
- The LLC’s legal purpose
While you can file the Articles of Organization on your own, you can also use the help of an attorney or an LLC formation service to avoid any filing mistakes.
Operating Agreements
An operating agreement is an important document that defines how the business will run. It includes things like who owns the LLC, what percentage each member has in the company, when payments are due, and how much money each member gets paid.
Most states do not require that an LLC maintain an operating agreement, but some, including California, Nebraska, New York, Maine, Delaware, and Missouri, do require them. Regardless, it’s good practice to create and maintain one.
You can find sample operating agreements online, including our free operating agreement template.
Capital Contributions
Capital accounts are accounts of each LLC member’s financial investment into the company. After initial investments are made (which are typically outlined in an LLC’s operating agreement), additional contributions can be made later on. Because capital contributions can affect ownership percentages, the company should keep detailed records when they occur.
Keeping track of capital contributions in your LLC’s books helps outline how much money is invested into the company (and by whom).
Minutes and Resolutions
If your LLC decides to hold formal meetings, it’s important to keep meeting minutes in your LLC books, as well as any resolutions that occur as a result of these meetings.
Though the specifics will vary, meeting minutes should note who was present, what agenda items were discussed, and the results of any votes. Resolutions should include a detailed description of the resolution, the date the resolution goes into effect, and the signatures of each deciding member.
You can use an LLC meeting minutes template and an LLC resolution template to help you get started.
Financial Records
Financial records like business bank account statements, cash flow projections, sales reports, tax returns, and profit and loss statements are all part of keeping financial records. These limited liability company records help you understand where your money went and how well your business is doing.
Tax Records
Taxes are another area where limited liability companies differ from corporations. Instead of paying corporate income tax, LLC owners only pay personal income tax on their share of profits.
Your tax records will primarily include federal and state income taxes as well as payroll taxes. Some common IRS tax filings for LLCs include:
- Form 1065: Return of Partnership Income
- Form 1099: Miscellaneous Income
- Schedule K-1 (Form 1065/Form 1120-S): Partner’s/Shareholder’s Share of Income
- Schedule C (Form 1040): Profit or Loss From Business
- Schedule SE: (Form 1040): Self-Employment Tax
You can download these forms from the IRS website and your state’s applicable department website (e.g., Department of Revenue, etc.). If you use accounting software like FreshBooks, you can typically import these forms directly to the platform.
In addition, you need to keep track of your corporate expenses so you can report them on your personal return.
The IRS recommends that businesses keep their federal tax records for a minimum of three years, though this will vary depending on your LLC’s filing habits.
For more information, check out our guide on how to file your LLC taxes.
Should I Keep Books for My LLC?
Maintaining good record-keeping habits for your LLC books can help your company avoid any financial or liability-related issues later on. Note that each state has its own requirements when it comes to maintaining documents and operating agreements (even if you don’t have to file them), so make sure you check with your state’s business services division.
Frequently Asked Questions
A corporate record book traditionally holds all of a corporation’s important documents in one place. For an LLC, a record book will likely contain:
- Articles of Organization
- Operating agreement
- Meeting minutes
- Resolutions
How often you update your LLC record book will depend on your company’s needs. Some companies may only need to update their books annually for periodic reports and annual meetings. Others may need to update more often if they need to pass resolutions, make financial decisions, or have frequent meetings.
A minute book is a document that lists all the activities that happen in an LLC. It tracks what happens at regular and special meetings.
LLCs are not required to keep records of meeting minutes and are therefore not required to keep a minute book. If they choose to do so, their minute books should contain the meeting minutes of each company meeting.
Capital accounts are "individual accounts" of each LLC member's monetary investment into the company. After their initial investment, LLC members can raise their capital account's balance by increasing their share of profits or by making additional financial contributions. They can decrease their balance by making personal financial withdrawals or getting rid of their shares.
Adjustments to capital accounts can occur throughout the lifetime of the LLC according to the member's share of profits and losses as well as their ownership percentage.
Limited liability companies are formal business entities, but they are also hybrid structures. Like corporations, LLCs enjoy limited liability protection. Unlike corporations, LLCs have much more tax flexibility (similar to that of a sole proprietorship or partnership) and have fewer formal regulations.
Yes, LLCs are a popular business structure for small businesses because they combine the benefits of both formal and informal business structures. Plus, LLCs benefit from increased credibility due to their structure, making them ideal for a new business in need of business credit or loans.
While corporations offer limited liability protection, they also have stricter rules and regulations. Informal business structures like sole proprietorships offer flexibility, but they come with their own legal and tax issues. An LLC combines the best of both structures.
For one, an LLC can choose its tax status. Where corporations experience “double taxation,” an LLC with a default tax status (i.e., disregarded entity or partnership) allows its owners to have their profits “pass through” to their personal tax returns without being taxed at the entity level.
In addition, the owners of a limited liability company are not typically held personally liable for the debts of the company, as is the case with a sole proprietorship business entity.
The US Equal Employment Opportunity Commission requires all employers to keep employment records for at least one year. A business entity must also keep payroll records for at least three years.
It is good practice to hold on to tax returns for anywhere from three to seven years after they are filed, according to the IRS. The amount of time recommended to hold on to other financial documents (e.g., cash flow, balance sheets, profit and loss statements, etc.) varies, but many recommend that these records be kept for a minimum of seven years.
Keeping track of tax returns and related financial documents will help should the IRS decide to audit your LLC, but it will also come in handy when trying to make future financial decisions for your company.
An LLC resolution is used when LLC members make big decisions, such as adding a member or amending the Articles of Organization. An LLC’s resolution books should contain the following information:
- The date of the meeting
- Who was present
- What actions were taken
- Who signed the amendment
No, a limited liability company is not required to use a corporate seal, though they can use one if they so choose.