Disputes involving a California LLC: Know your informational rights
It is becoming increasingly popular to organize businesses as limited liability companies. An LLC does have many advantages, including pass through tax treatment, a liability shield for its members and a flexible management structure that can be tailored to the unique needs of your individual business.
However, given the structural flexibility of an LLC, it is only natural for LLC members who have a significant financial stake in the business to be concerned about their rights. Fortunately, California law affords LLC members certain informational rights that can prove invaluable in the event of an LLC dispute.
Members have access to tax documents, other financial records
Under the California Corporations Code Section 17106, LLC members or holders of some economic interest in the LLC may request, and must be provided with, certain information about the business. When requesting this information, the member or economic interest holder must have some purpose reasonably related to his or her interest in the business.
So what types of information must be provided when a proper request is submitted? For starters, a listing of other members and any others with an economic interest in the LLC, as well as a listing of those actively engaged in the management of the LLC. In addition, the documents that created the LLC and set forth the rules for its operation – i.e., articles of organization and any applicable operating agreement – must be provided. Finally, financial information can be the subject of an informational request, including financial statements spanning as far back as six fiscal years, business records going back as far as the last four fiscal years and tax returns filed at any level of government (local, state or federal).
Some informational disclosures must be made periodically by a California LLC whether prompted by a request or not. For example, LLCs with more than 35 members must provide all members with an annual report within four months of the close of the fiscal year that includes a balance sheet, income statement and statement of cash flows. All California LLCs, irrespective of their number of members, must supply, within three months of the end of the taxable year, any information necessary for members or other holders of an economic interest to complete their own tax returns.
When an LLC fails to respect these informational rights, a court can order compliance, and can also award monetary compensation to reimburse the member or economic interest holder for any damages incurred as a result as well as the cost of attorneys’ fees. The informational rights afforded to LLC members and economic interest holders by California statute may not be waived, although documents like an operating agreement may create additional rights.
Need help navigating a business dispute? Call a California LLC dispute lawyer
There are a variety of situations that can lead to a dispute over a business operating as an LLC. But whatever the situation, armed with the information you are entitled to by California law and with the right legal advocate by your side, you can do everything possible to pursue a resolution that is in your best interests. Contact a California LLC dispute lawyer today to get advice regarding your situation.
Mark Wilson, a trial attorney, has won nearly every case he has tried or arbitrated. He lost only one jury trial and obtained a complete reversal on appeal. Mr. Wilson represents clients in business litigation and legal malpractice cases and was named in the 2017 – 2020 SuperLawyers Top 50 Orange County lists. Mr. Wilson is a California State Bar certified specialist in Legal Malpractice Law and can be reached at 949-631-3300; [email protected]; https://www.kleinandwilson.com