Annual or Regular Meetings of Members and Managers
It is a necessary business practice to hold regular company meetings to approve important company actions and document the reasons for those decisions. Managers and members can hold meetings throughout the year, documenting the important decisions as they are made. Alternatively, since most business owners are busy operating the business, managers and members can meet once at the end of the year to document and approve all company action.
Why are meetings and minutes so important? What’s the worst that could happen?
The Arizona statute does not explicitly require an LLC to hold annual meetings. However, if you do not hold meetings and take notes to document that you held the meeting, there is no record to show that action taken was on behalf of the company. As a result of failing to document your company meetings, the Arizona courts, IRS, and creditors can determine that you have ignored your company’s separate existence and you have been acting as an individual, rather than acting through the LLC. If this happens, the protection of the LLC may be “pierced” and you may be held personally responsible for the company’s actions and debts. Unfortunately, in these challenging times, we are seeing more and more lawsuits and third parties are making every attempt to pierce the company veil and reach the owner’s personal assets for company obligations.
Our experience: Recently, our office has seen situations where members and managers did not document their actions, they failed to take minutes of their meetings, the companies were sued, and the members, mangers, and their spouses were personally named in the lawsuit. Since there were no company minutes, the individuals remained in the lawsuit and their personal assets were exposed to satisfy the company’s obligations. The moral of the story – DOCUMENT COMPANY ACTIONS AT LEAST ANNUALLY!
How can I avoid personal liability?
There are steps you can take to avoid personal liability for company obligations – which is, after all, one of the reasons that you formed the LLC in the first place. You should plan for your LLC to have member or manager meetings at least annually and prepare minutes of the meeting. Minutes are simply a summary of what happened at a meeting and define the reason for taking the company action; they do not have to be a verbatim account of the meeting. Minutes will also include “resolutions” which are formal actions taken at the meeting to approve the company action. The minutes should be approved by the appropriate parties (members if the company is member managed and managers if the company is manager managed), signed and kept in a safe place together with minutes of previous meetings. We recommend that you keep the records in a corporate book.
Remember: Minutes should be taken every time a major decision is made for the company – whether a formal or informal meeting. If you have not taken minutes over the course of the year, then use this opportunity to hold an annual meeting and document all important decisions and actions taken by the company over the course of the last year!
What kinds of actions should I include in the minutes?
Click here for a list of items to consider when holding your annual meeting.