Maintaining Indiana Limited Liability Companies: Part I Statutory Requirements

iStock-185255574-1-300x200Compared with corporations, limited liability companies are generally low maintenance, but not entirely maintenance free. A few requirements are imposed by statute, and the operating agreement may or may not create some additional formalities that must be observed. In addition, there are good practices that, in addition to observing the required formalities, help preserve the liability shield that protects the owners’ assets from creditors of the LLCs (or the “corporate veil”). Part I addresses the statutory requirements and the types of requirements that are sometimes found in operating agreements; Part II will address some best practices.

NOTE:  This post and Part II address only the requirements and best practices related to “corporate” governance, particularly those that are relevant to preserving the corporate veil.  For any particular LLC, there may be a myriad of other legal requirements and best practices related to other areas, such as employer-employee relationships and permits or licenses that are necessary to conduct the LLC’s business, that are not addressed here.

Statutory Formalities

We have discussed the statutory requirements before, but they are worth another review. The Indiana Business Flexibility Act (I.C. art. 23‑18) and the Indiana Business Organization Code (I.C. art. 23‑0.5) impose the following requirements on Indiana LLCs. To file documents with the Indiana Secretary of State, register for an account on Access Indiana, or inbiz.in.gov.

Articles of organization. This one could go without saying because it an LLC does not exist until its articles of organization have been filed with the Indiana Secretary of State, but we’ll mention it for the sake of completeness. See I.C. § 23‑18‑2‑4.

Registered agent and registered office. The LLC must maintain on file with the Secretary of State the name of its registered agent and the address of its registered office at which the registered agent will accept legal papers on behalf of the LLC. The address of the registered office must be a street address, not a post office box. See I.C. ch. 23‑0.5‑4. LLCs are obligated to keep the registered agent informed of the name, the business address, and the business telephone number of a person who is authorized to receive communications from the registered agent on behalf of the company. I.C. § 23‑0.5‑4‑3(d).

Biennial reports. Each LLC must file with the Indiana Secretary of State a biennial report, also called a business entity report, every other year in the same month in which the articles of organization were filed. For example, if the articles of organization were filed in December 2016, the LLC must file a business entity in December of every even numbered year, beginning in 2018. If the articles of organization were filed in January 2017, the business entity report will be due in January of every odd-numbered year, beginning in 2019. See I.C. § 23‑0.5‑2‑3.

Required records. I.C. § 23‑18‑4‑8 requires each LLC to maintain the following records or information at its principal place of business:

  1. A list with the full name and last known mailing address of each member and manager, if any, of the limited liability company from the date of organization.
  2. A copy of the articles of organization and all amendments.
  3. Copies of the limited liability company’s federal, state, and local income tax returns and financial statements, if any, for the three most recent years, or if the returns and statements were not prepared, copies of the information and statements provided to or that should have been provided to the members to enable them to prepare their federal, state, and local tax returns for the same period.
  4. Copies of any written operating agreements and all amendments and copies of any written operating agreements no longer in effect.
  5. Unless otherwise set forth in a written operating agreement, a writing setting out the following:
    • The amount of cash, if any, and a statement of the agreed value of other property or services contributed by each member and the times at which or events upon the happening of which any additional contributions agreed to be made by each member are to be made.
    • The events, if any, upon the happening of which the limited liability company is to be dissolved and its affairs wound up.
    • Other writings, if any, required by the operating agreement.

Note, however, as we have discussed before, failure to maintain these records is not a basis for setting aside the liability shield that protects the members from the company’s creditors. I.C. § 23‑18‑4‑8(e).

Unlawful Distributions. The Indiana Business Flexibility Act prohibits distributions of LLC assets to the owners if, after the distribution, (i) the company will be unable to pay its obligations as they become due or (ii) the company’s debts will exceed the value of its assets. Ind. Code § 25‑18‑5‑6.

Assumed business name.  For legal documents, you should use the full legal name of the LLC (including the “LLC” or “L.L.C.”).  In other contexts, such as advertising, you may use another name, known as an assumed business name or sometimes a dba (for “doing business as”) name.  An assumed business name can be very close to the legal name, perhaps just omitting the “LLC,” or it can be completely different.  If you use an assumed business name, you must file a certificate of assumed business name with the Indiana Secretary of State.  As of January 1, 2018, assumed business names are governed by I.C. § 23‑0.5‑3‑4.  Failure to file a certificate of assumed business name is a Class B infraction.

Registration to do business in other jurisdictions.  When an Indiana LLC conducts business in another jurisdiction, it will likely be required to register, or to qualify to do business, in that jurisdiction. The question often arises, how much contact with a particular state or jurisdiction is sufficient to require the LLC to register?  Unfortunately, that question must be answered on a state-by-state basis, and, even more unfortunately, the line is often so blurry that it is not always obvious whether it has been crossed. The registration process, once it is triggered for a particular jurisdiction, but also be analyzed on a state-by-state basis.  Many jurisdictions require nothing more than a simple form, a copy of the Indiana articles of organization, and a modest fee; others require more information or documentation and the payment of larger fees.

Operating Agreements

Although Indiana LLCs are not required to have written operating agreements, the best practice is for every LLC, including those with only one member, to have one. Generally, a well written operating agreement imposes as few procedural requirements as possible, but some mandatory procedures are sometimes included, particularly when it comes to protecting the interests of minority owners. Common examples include mandatory meetings of members and requirements for decisions made by the unanimous consent of members to be in writing. Members and managers should familiarize themselves with the operating agreement and refer to it frequently to make sure no requirements are overlooked.

[Revised December 28, 2017 to add the second paragraph regarding requirements other than those related to corporate governance and the discussion of registering to do business in other jurisdictions.  Revised December 30, 2017 to add the paragraph on unlawful distributions. Revised January 1, 2018 and January 2, 2018 to add the paragraph on assumed business names.]