States typically require business entities like corporations and LLCs to keep certain types of records.In addition to being a good business practice, keeping records per the state rules helps avoid possible fines or penalties for not doing so.
Records that corporations and LLCs have to keep usually fall into one of these categories:
- organizational and operating documents
- ownership and capital contribution
- tax and financial records
- records of actions taken
But, there’s a wide variation among the states in the precise information a company has to keep. And, keep in mind, if you expand into other states, you must check the other state’s recordkeeping rules too. States also vary in their rules regarding digital storage, length of time you have to keep the records, and record inspection by certain qualifying persons like members and shareholders.
Here are three essentials to be aware of regarding corporate and LLC recordkeeping.
1. Corporations generally face more state-imposed record requirements
States vary in the details of their recordkeeping rules. Often, certain records have to be stored at your principal place of business. A corporation may have to keep the following types of corporate books and records:
- Annual reports and financial statements
- Articles of Incorporation and Amendments
- Records of shareholder and director meetings, and, adopted resolutions or actions taken
- Documentation for actions taken without a meeting
- Corporate bylaws and amendments
- Names and addresses of directors and officers
- Shareholder records including name, address, number and class of shares
2. LLCs have fewer mandated records, but most states have some requirements
LLCs are widely known for having fewer “formalities” and offering more flexibility than corporations. But many states still have recordkeeping rules for LLCs as well as corporations. As with corporations, each state’s recordkeeping rules vary by state and some information may have to be stored at your principal place of business.
Typical information an LLC may have to keep includes:
- Members and managers including name and address
- Articles of organization and amendments
- Contribution information
- Financial statements and tax returns
- Operating agreement and amendments
Even if these records are not required by the state, it is important that an LLC have an operating agreement to ensure smooth operations. It is also important to document major transactions for tax purposes.
3. Your record retention policy should cover other records too
Depending on your industry and type of business, you may have to keep other types of records too. For example, different government agencies may require certain businesses – like those dealing with hazardous materials – to keep additional or different records. Or, you may have to keep certain tax, employment, contract, or other information for a set period of time.
A good record retention policy is one that fits your business needs and helps prune the records you no longer need, from those you still need to keep. Setting up a policy early on helps avoid the “pile-up” of all those documents, folders, etc. that get “saved” over the years, but that no one ever wants to have to sort through. With the right records management program, your documents and data will be in a form that makes it easy for you to organize and retrieve them.