Time and time again we are asked to re-create the corporate records of an entity. The fire drill is ignited by the need for financing, a large asset transaction, an IRS audit, an impending sale of the business or litigation. Business owners lose their mind that these seeming inconsequential items are holding up the transaction and their plans to go fishing. We recently reviewed the records of an entity that was seeking investors, only to find out that the ownership records were inconsistent and potentially unauthorized. Like properly maintaining your gear, an annual review and update to your corporate records will prevent adverse consequences in the future.
The Arizona corporate code, the partnership act and the new limited liability company act all contain minimum records you should maintain and are required to disclose if requested by an eligible party. The minimum requirements vary slightly depending on whether the entity is classified as a corporation, limited liability partnership or limited liability company as follows:
Corporations (ARS Section 10-1601)
A corporation is required to maintain:
1. Its articles or restated articles of incorporation and all amendments to them currently in effect.
2. Its bylaws or restated bylaws and all amendments to them currently in effect.
3. Resolutions adopted by its board of directors creating one or more classes or series of shares and fixing their relative rights, preferences and limitations, if shares issued pursuant to those resolutions are outstanding.
4. The minutes of all shareholders’ meetings and records of all action taken by shareholders without a meeting for the past three years.
5. All written communications to shareholders generally within the past three years, including the financial statements furnished for the past three years under section 10-1620.
6. A list of the names and business addresses of its current directors and officers.
7. Its most recent annual report delivered to the commission under section 10-1622.
8. An agreement among shareholders under section 10-732.
Limited Liability Partnerships (ARS Section 29-305)
Limited Liability Partnerships are required to maintain:
1. A current list of the full name and last known business address of each partner separately identifying the general partners in alphabetical order and the limited partners in alphabetical order;
2. A copy of the certificate of limited partnership and all certificates of amendment thereto, together with executed copies of any powers of attorney pursuant to which any certificate has been executed;
3. Copies of the limited partnership’s federal, state and local income tax returns and reports, if any, for the three most recent years;
4. Copies of any then effective written partnership agreements and of any financial statements of the limited partnership for the three most recent years; and
5. Unless contained in a written partnership agreement, a writing setting out: (a) The amount of cash and a description and statement of the agreed value of the other property or services contributed by each partner and that each partner has agreed to contribute; (b) The times at which or events on the happening of which any additional contributions agreed to be made by each partner are to be made; (c) Any right of a partner to receive, or of a general partner to make, distributions to a partner that include a return of all or any of the partner’s contribution; and (d) Any events on the happening of which the limited partnership is to be dissolved and its affairs wound up.
Limited Liability Companies (LLCs) (ARS Section 29-3410)
LLCs are required to maintain:
1. A current list of the full name and last known address of each member and manager.
2. A copy of the articles of organization and all amendments to the articles of organization.
3. A copy of all current and prior written operating agreements and amendments to all current and prior written operating agreements.
4. Any record of a member’s obligation to make a capital contribution to the company.
5. A copy of the company’s federal, state and local income tax returns and reports, if any, for the three most recent years.
6. A copy of the company’s financial statements, if any, for the three most recent years.
Making sure these records are consistent with your accounting records, the information disclosed to the Arizona Corporation Commission, your lender and investors will prevent mistakes, confusion and ambiguities that potentially can be exploited by a third party in the future. In certain circumstances, a party may be able to pierce the corporate veil and hold the owners personally liable if the corporate formalities are not adhered to. Don’t let this happen to you. The team at DeAngelis Legal is ready to help if you have a corporate mess and are ready to get it cleaned up. Just give us a call and we will take care of it while you spend more time fishing.
