Keeping accurate accounting records is part of your responsibility as an owner of a limited liability company. Using the data from your company's books, you can generate financial reports to gauge the health of the business. Most entrepreneurs wouldn't want competitors or other outsiders to have access to this proprietary information about their businesses; however, certain parties have a right to see your LLC's books and related financial records upon request.
Rights of LLC Members
The other owners, known as members, of your LLC have a right to see the company's financial information upon request under the business laws of most states. Typically, the law provides that any member of a member-managed LLC must have access to the company's records even if the member is not involved in running the business on a daily basis or is estranged from other members. A member of an LLC that is run by a manager, rather than the members directly, has the right to inspect business records that relate to that member's interests. Financial information directly affects a member's ownership position in the company, so the manager would have to comply with the member's request to see the financial records.
Read More: Does an LLC Always Have Members?
Demands by State and Local Agencies
LLCs operate under the laws of the state in which the business filed its formation paperwork. Various state and local agencies require LLCs to produce financial records upon request. For example, the state tax authority has the right to audit your company's books to determine if you're collecting sales taxes properly. You may also have to show your company's financial records to prove compliance with payroll and income tax requirements.
Audits by the Internal Revenue Service
The IRS requires all businesses to track expenses, income, assets, liabilities and equity to substantiate tax filings including income tax returns and payroll withholding reports. The agency can request your financial records at any time. While the IRS only audits a small fraction of businesses every year, your company is required by federal law to comply if you're on the audit list.
Requests by Third Parties
You may have to show your company's financial records to third parties under certain circumstances. For example, if someone sues your company, a judge might order you to provide financial information to the court or the plaintiff. You might also have to provide financial information based on the terms of a contract. For example, if the LLC has a retail lease where the rent is based on a percentage of sales, the landlord may have the right under the contract to see the company's financial information.
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