Inspection Rights for Members of San Diego Limited Liability Companies
One of the long-standing hallmarks of corporate governance in California and in the US generally is the idea that shareholders and other owners of corporate entities are entitled to inspect the “books and records.” This has been enshrined in various statutes here in California and elsewhere for over 100 years. The same rule applies for a newer corporate entity — the limited liability company (“LLC”). Corporations in various forms have been around for several centuries. The modern corporate form can be dated the Companies Act of 1862 passed in the United Kingdom. By contrast, the modern form of the LLC is only about 50 years old and was only formally approved as a pass-through taxable entity by the US Internal Revenue Service in the 1980s.
The right of inspection that has existed for corporations has been exported into the rules and statutes governing LLCs. The current statute here in the Golden State governing LLCs is the Revised Limited Liability Company Act (“RULLCA”). Under the RULLCA, a member of the LLC has a statutory right to inspect and copy the LLC’s books and records. See Cal. Corp. Code, §17704.10(b).
This right cannot be abrogated in the LLC’s articles of organization or its operating agreement. In order to exercise the right of inspection, a “request” for inspection must be sent to the Manager of the LLC (or other member designated to receive such notices). An email is probably sufficient as a “request.” The request must also:
- Specify a cause “reasonably related to the interest of [the requesting] person as a member, manager, or transferee”
- Provide a reasonable time period for the inspection
- Must specify a time for inspection which must be during “normal business hours” and
- Must specify the place for the inspection which is generally where the records are customarily kept
Failure of the LLC to respond within 30 days or to respond fully within 30 days can subject the LLC to litigation and potential action by the California Office of the Attorney General. Should the requesting member be successful in court in compelling compliance, the LLC can be required to pay the attorneys’ fees of the requesting member. All members of an LLC are entitled to inspect the following:
- A current list of the full name and last known business or residence address of each member
- A current list of the full name and business or residence address of each manager (if applicable)
- The articles of organization and all amendments thereto
- Copies of the LLC’s tax returns
- Copies of the operating agreement, if any exists in writing
- Copies of the financial statements, if any, for the six most recent fiscal years
- The books and records of the LLC “… as they relate to the internal affairs of the limited liability company for at least the current and past four fiscal years”
Copies of the first, second and fourth items are to be provided free of charge. The remainder may be inspected and copied by the requester at the requester’s expense. The final category is a bit vague, but generally includes documents that might normally be kept in a corporate minute book such as minutes of member meetings and meetings of the LLC managers (if any).
Contact San Diego Corporate Law Today
For more information or for advice and counsel with respect to various corporate forms, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard can be reached at (858) 483-9200 or via email. Like us on Facebook.