LLCs Part 5: A few Minutes for your LLC
This is the fifth in a series of six videos that will help you protect your personal assets.
What are minutes and why do I need them?
Minutes are just notes taken of discussions and decisions made during a meeting. There are two reasons why this is important.
First, it is a written record or proof as to what you decided to do and why. It is also a confirmation of actions you have taken as the business owner. Think about it, if you are sued and an attorney asks why you did something, if you don’t have written proof of those past decisions, you come off as making stuff up after the fact. This can be really important in an IRS audit.
Second, as a one or two owner company you have a tendency to just do whatever you want, whenever you want, and never take the time to document. The attacking attorney or the IRS knows this and can win easily when coming after you. Remember the video on “The two shall become one” – when there is no separation and certainly no proof of separation nor documentation on your decisions? You end up in deep water. Your personal assets are at risk.
But minutes aren’t required for LLCs, are they?
The issue isn’t “are minutes required by law”, the issue is do you want to ensure some level of liability or asset protection? If so, they are required. They are a key business practice to ensure you have the documentation you need to fend off an attacking attorney or the IRS in an audit.
What do I need to include in my minutes? Here are some standard topics:
Appointment of who is in charge for the next year – a manager or officer
What are the compensation levels for owner employees – attach the employment agreement
What was or is the justification for distributions or dividends taken
Admission or removal of partners/owners - attach any transfer documents
Approval of significant independent contractor agreements - attach those agreements
Changes in profit/loss sharing percentages - include an updated operating agreement
Approval of loans documents, including loans to or from owners - attach the promissory notes
Approval of lease documents, including those with owners - attach a copy of the lease
Confirmation of employee benefit plans or changes in existing ones
Confirmation of employee handbooks or changes in existing ones - attach a copy of the handbook
Selection of a law firm or CPA firm
Approval of financial statements for the company - attach the financial statements
Approval of insurance contracts
Approval of licensing arrangements
Approval of multi-state business operations and the related sales tax reporting
Approval of large purchases
How and when do I create the minutes?
Not all of the topics above get included in every set of minutes, only those that are relevant. And their are other topics that will come up that you should include as well.
I recommend doing your minutes quarterly, although some only do them annually (if at all). The benefit of doing them quarterly is you’re less likely to forget something or some decision you made. Waiting until the end of the year, if you’re like me, leaves you at risk for forgetting a key item.
The format is up to you and you can Google for some examples and templates. At a minimum they should identify the company, the timeframe, who is present at the meeting, whether and how you give notice of the meeting, the various topic items we’ve brought up and the decisions made - done as Resolutions, and one or more signatures verifying the minutes. One can make them super complicated and never do them, or keep them simple and get them done. I think you know what I’d choose!
Remember, it’s not rocket science but implementing good business practices.
So, what do I do?
This doesn’t need to be complicated and you can find templates to get you started. If you need help, you might have an advisor or attorney you work with that can get it done for you - or maybe just have them do the first set for you and then you can use that as a template.
For those of you that know you won’t get it done or just don’t want to, we can help you get it done for a reasonable single fixed fee. We have a service that sends you an email once a quarter. You answer a few questions and we write it up in the correct format. It keeps the process very simple and quick for you. You can contact us here.
It’s your financial future, it’s your call. I’ll meet you in the next and final video in this series. There are a few more things that you’ll need to know. See you there!
Check out my other videos for more ideas and if you like this video, please subscribe.