It goes without saying that thorough recordkeeping is good corporate governance. However, some businesses may not know that it is also the law. Corporations and limited liability companies (LLCs) that are organized under Minnesota law must maintain certain records and allow their shareholders or members to access the records upon request. This article briefly outlines the statutory recordkeeping requirements for Minnesota corporations and LLCs, as well as the potential consequences of failing to keep and provide access to required records. (Recordkeeping not governed by Minnesota law, such as employment recordkeeping under federal law, is not covered here.)
Every Minnesota corporation must keep the following records at its principal office or at another place in the United States designated by the corporation’s board of directors:
- Share register – a document not more than one year old containing the names and addresses of the shareholders and the number and classes of shares held by each shareholder;
- Meeting minutes – minutes or other records of all meetings of shareholders and the board of directors for the last three years;
- Organizational documents – the articles of incorporation and bylaws, including all amendments currently in effect, and any agreements incorporated into the articles of incorporation;
- Financial documents – (1) the financial statement for the most recent interim period prepared for distribution to the shareholders or a governmental agency, and (2) a financial statement reflecting the corporation’s most recently ended fiscal year that includes a balance sheet and income statement for the fiscal year;
- Reports to shareholders – any reports made to shareholders in the last three years;
- Director and officer contacts – a list of the names and addresses of the corporation’s directors and officers; and
- Other agreements – copies of voting trust agreements and shareholder control agreements affecting the corporation.
A shareholder of a private corporation may demand to see any of the above records, and the corporation must make the records available within 10 days of the demand. A shareholder may also demand to see any other corporate record, but is not entitled to get it unless the shareholder proves the demand is reasonably related to his or her interest as a shareholder. If a corporation fails to produce records as required, the shareholder could sue to force the corporation to produce them and, if successful, could be awarded attorney fees and other costs. Such failure could also be used to support a shareholder’s demand for a fair value stock buyout if the information not produced is material and the shareholder is unfairly prejudiced.
Until 2018, the statutory recordkeeping and access requirements for Minnesota LLCs were similar to the specific requirements for corporations. But, the new Minnesota LLC statute, which became applicable to all Minnesota LLCs on January 1, 2018, is much more flexible. For example, there is no specific list of records an LLC must keep. Rather, the LLC operating agreement may provide recordkeeping responsibilities to members, managers, or a board, depending on the LLC’s governance structure. Nonetheless, thorough financial and organizational records should be kept because LLCs are still required to produce records and information to members upon request.
For member-managed LLCs, the general rule is that a member may inspect and copy any record maintained by the LLC regarding its activities, financial condition, and other circumstances, to the extent the information is material to the member’s rights and duties under the LLC operating agreement or applicable law. Further, even without a member demand, the LLC and all members (to the extent members have the necessary knowledge) must provide to each member any information concerning the LLC’s activities, financial condition, and other circumstances that is material to the member’s rights and duties under the LLC operating agreement or applicable law.
For manager- and board-managed LLCs, the general rule is that a member may obtain, inspect, and copy full information regarding the LLC’s activities, financial condition, and other circumstances if the member seeks the information for purpose material to his or her interests as a member, if the member makes a written demand to the LLC describing the information sought and the purpose for seeking it, and if the information sought is directly connected to the member’s purpose.
The LLC operating agreement may limit or clarify these general rules for accessing and producing company records, so long as it does not unreasonably restrict the LLC’s obligations to make records available or members’ rights to obtain records and information.
By following the recordkeeping requirements in Minnesota law, corporations and LLCs will both reap the benefits of sound corporate governance and aid in carrying out their obligations to shareholders and members.
Eric Johnson is an attorney at Fryberger Law Firm, practicing primarily in the areas of business litigation, banking and lender support services. He can be reached at Fryberger’s Duluth office at (218) 722-0861.