If you have ever owned a business or thought about starting your own business, we are sure you have heard the phrase, “corporate books and records.” And someone likely told you to “maintain and update” those books and records. Right?
Irrespective of the kind of business entity you have, a business’s books and records typically includes (1) operational and organizational documents, such as operating agreements and their amendments, articles of incorporation or formation, and the names and contact information of all members, officers, directors, and shareholders; (2) tax and financial records, such as tax returns, biennial financial statements, and any other financial statements that are required by the State; (3) ownership records and schedules of capital contributions; and (4) other agreements entered into by the entity and any other documentation indicating actions taken by the entity (i.e. corporate resolutions, meeting minutes).
So, where are these books and records maintained? Typically, the corporate books and records are maintained by a corporate secretary. If you are in a partnership or sole proprietorship, and you do not have a designated corporate secretary, then you will likely maintain these records in your principal place of business. No matter where you decide to maintain these books and records, be sure to know where they are maintained, that they are maintained in a safe place, and let your partner or other trusted fiduciary (such as your attorney, accountant, or bookkeeper) know where the books are in the event they need to be accessed in your absence.
How often should the books and records be updated? As often as necessary. In our experience in running our own firm and business as well as in counseling our business clients, Laura and I (Amy) encourage that the books and records should be updated, at a minimum, when changes arise and in accordance with the entity’s State requires such updates. For example, in New York, businesses are required to file biennial statements with the Department of State to keep the entity’s information up to date. Any time there is an amendment to the operating agreement, the amendment should be reflected in writing, signed by all members, and a copy of the amended agreement should be duly maintained. Annual tax returns should be maintained. Depending on how frequently you and the other partner(s), member(s), and officer(s) deem appropriate, your financial statements (profit and loss, balance sheet, ledgers, etc.) should be updated on a monthly or quarterly basis. Any change in ownership interest and capital contributions should be reflected and updated as quickly as administratively possible.
How long should the books and records be retained until they can be discarded? Unfortunately, there is no bright-line answer to this question. It depends on factors such as (i) what the record is, (ii) what type of industry you are in or business you operate; and (iii) whether state or industry regulations require certain documents to be retained for a specific time period. Lawyers, for example, are required to retain client and legal files for at least five years, and many states require longer retention periods. Business tax returns should be retained for seven years, in the event that the business needs to refer to these returns or an audit is undertaken. For any questions on retention periods and policies, it is best to consult with an attorney or professional who can guide you to better understanding your obligations and responsibilities.
Disclaimer: The information contained in this post is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls and communications. Contacting us, however, does not create an attorney-client relationship.
