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Which Financial Information Must an LLC Provide to its Members?

Photo of a portion of a balance sheet, symbolizing financial information that an LLC must provide to its members

Several months ago, I wrote “Which Financial Information Must a Corporation Provide to its Shareholders? “ This post – prompted by a client’s question – discusses the financial information that a California limited liability company must provide to its members. It also explains that such information cannot be waived by any member.

Section references below have been updated to reflect California’s new LLC law that took effect on January 1, 2014 (see RULLCA Brings New LLC Laws to California in 2014).

Corporations Code Section 17704.10(b) provides a broad set of rights to LLC members, managers and holders of transferable interests. These include, among others, the right to inspect and copy, during normal business hours and for purposes reasonably related to the person’s interest as a member, manager or holder of a transferable interest, the following records (specified in greater detail in Corporations Code Section 17701.13(d)):

  • A list of members and holders of transferable interests
  • A list of managers
  • The articles of organization
  • Federal, state and local tax returns
  • The operating agreement
  • Financial statements for the past six fiscal years
  • Books and records for the current and past four fiscal years

Furthermore, Corporations Code Section 17704.10(h) states that “Any waiver of the rights provided in this section shall be unenforceable.” This means that any provision in an operating agreement that purports to limit any of the foregoing information that an LLC must provide to its members will be void as a matter of law.

Photo credit: iStockphoto

Dana H. Shultz, Attorney at Law  +1 510-547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

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Business Entities
  1. 11/4/2011 | 5:25 am Permalink

    I have been trying to determine what the phrase “holder of an economic interest” means for a California LLC. So far I’ve found references to:
    . a “withdrawn member”
    . a bankrupt member
    . an heir to a deceased member
    . the executor of a deceased member’s estate
    . the trustee of the trust of a deceased member
    . a judgment creditor

    Are there others? Is, for example, a normal creditor (of the LLC or of a member of the LLC) a “holder of an economic interest,” e.g. a lending institution or a vendor?

    Thanks in advance for your insight.

  2. 11/4/2011 | 10:23 am Permalink

    @Dave

    Here is the easiest way to think about the issue you have raised:

    – The starting point is that members normally are holders of economic interests as part of their membership interests (which typically include, in addition, voting rights). This means, for example, that they may have a right to receive a portion of any distribution that the LLC makes to its members.

    – It is possible for all or a portion of a member’s economic interest to be transferred to someone else, either voluntarily or involuntarily. This might occur, for example, if a member sells (or tries to sell) his membership interest; or if a member dies; or as a result of divorce; or as a result of losing a lawsuit or through bankruptcy.

    – Under normal circumstances, a lender or creditor is not a holder of an economic interest in the LLC – the lender or creditor merely has the right to be paid whatever it is owed under the applicable agreement.