Are Members of a LLC Required to Attend Annual Meetings?
One of the benefits of forming a Limited Liability Company (LLC) for your business is the flexibility it offers its members. Compared to other types of incorporated entities, the formal requirements required for a LLC are minimal. In Arizona, the members and managers of a LLC are not required by law to hold annual meetings. Also, a tax election by an LLC to be treated as an S-Corporation or C-Corporation for income tax purposes does not subject the LLC to state law requirements for corporations to hold shareholder meetings or board meetings. However, many Operating Agreements do require annual meetings and most attorneys believe it is beneficial to hold them.
Below are two reasons why the members and managers of your LLC should hold annual meetings:
- Reduce likelihood the corporate veil will be pierced. Creditors or other parties who seek to hold the members of the LLC liable for debts of the entity file an action to “pierce the corporate veil.” One of the primary ways a creditor can successfully pierce the corporate veil is to prove that the LLC was not operated like a prudent business. In other words, meetings were held and important business decisions were voted on by the members and managers. It is important that the LLC documents the fact that the meetings were held.
- Members vote on important LLC actions. A business that is owned by several parties should inform the members and managers of important decisions and provide them the opportunity to vote to approve or reject proposed actions. For example, if the LLC is going to borrow a significant amount of money, all members should be provided notice of a meeting where they can discuss the proposed loan and vote on whether or not to sign the loan documents.
If your small business is incorporated as a LLC and you are not sure if your Operating Agreement requires annual meetings or how to go about holding and documenting them, we can help. The small amount of time and money it takes to comply with the annual meeting requirements are well worth the protection it provides you and the other LLC members and managers in the future.
If you are starting a new business, let us help you comply with all the various applicable laws, regulations and rules. The attorneys at Nielsen Law Group can help with all business formation matters. You can schedule your initial consultation by calling (480) 888-7111 or submitting a web request here.