M E M O R A N D U M

If your Company was formed under the Connecticut Limited Liability Company Act, the law mandates that a LLC follow certain practices in order to remain in good standing in the State. The purpose of this memorandum is to highlight the minimum "must do" actions and filings required to maintain the LLC's good standing and to assure that the Corporation remains an entity separate from the members to preserve the members' limited liability for LLC obligations.

It should be emphasized that this memorandum deals only with requirements under Connecticut's LLC Act. Connecticut has many other laws which regulate business activities, deal with the sale of securities, and impose taxes on businesses, as does the federal government (consult your CPA). Also, should the LLC conduct business in another state, it may be subject to the laws of the state (consult your attorney). Hence, this memorandum is limited in scope, as noted above.

With this reservation in mind, set forth below is the basic year to year LLC formalities required under the LLC Act. The Act contains many other provisions pertaining to such things as powers, capital structure, and fundamental changes, like an amendment to the Certificate of LLC or a merger with another entity, but these additional provisions are beyond the scope of this memorandum.

 1.    Annual Reports

Once the LLC's and First Report has been filed, the LLC is required to file subsequent annual reports with the Secretary of the State of Connecticut on or before the last day of the month, in which the anniversary of the filing of the Certificate of LLC occurs. This report must contain the following information:

  (a)    Name of the LLC;

  (b)    Address of its principal office; and

  (c)    The names and respective residence and business addresses of the members.

A filing fee must accompany the annual report (as of today, filing fee is $10.00); a member of the LLC must sign the report.

About a month before the annual report is due, the Secretary of the State should mail a form to the LLC for use in filing, but failure of the LLC to receive the form does not relieve it of the filing requirements

Failure to file an annual report on or before the due date will cause the LLC to be in default until the report is filed. There is an additional filing fee for such a late filing.

 2.    Statutory Agent for Service

Upon the filing of the Certificate of LLC, the LLC appoints a Statutory Agent upon whom process may be served in a lawsuit against the LLC. The LLC must maintain a statutory agent for service in Connecticut. If the person now appointed dies, moves from the State, resigns, or is removed by the LLC, the LLC must file with the Secretary of the State, an appointment of another Statutory Agent for service. The new Statutory Agent for service may be either (a) a natural person who is a resident of Connecticut or (b) a domestic corporation, or (c) any foreign corporation which has procured a certificate of authority to transact business in Connecticut. A form is available for this purpose. The form must be signed by a member of the LLC and by the Statutory Agent for Service. There is also a filing fee to the Secretary of State's Office.

Failure to maintain a Statutory Agent for Service may also lead to dissolution of the LLC by forfeiture if the Secretary of the State becomes aware of the deficiency and a new statutory agent is not appointed within three months.

 3.  Changes in Members

Any change between annual filings in the make up of the members of the LLC must be reported to the Secretary of the State. All members must sign the form used for this notice. There is also a filing fee to the Secretary of State's Office.

 4.  Annual Meeting of Members

An annual meeting of members of the LLC is not required to be held.

 5.   Meetings of Members

None is required, but it is good LLC practice to follow the annual meeting of members with a meeting of the newly added members. Meetings of members should also be held as often as may be required to authorize or ratify major LLC actions. Any meeting of the members may be dispensed with if consents of the actions taken (by resolutions) are signed by all of the members.

The absence of formal proceedings of members to authorize or ratify LLC actions is a factor in determining if the LLC entity is being disregarded.

 6.   Management

The statutes prescribe that each Connecticut LLC elect, either a management by a member or by a manager.

The member or partners manage the day-to-day affairs of the LLC generally.

 7.  Books and records

A Connecticut LLC is required to maintain correct and complete books and records of accounts.

Once again, failure to keep the required books and records, while carrying no direct penalty is evidence that the LLC members are disregarding the LLC entity.

 8.   Signing documents in a LLC capacity

The LLC will be making commitments, which will require that documents be executed on behalf of the LLC. While not a feature of the LLC Act, the courts and accepted business practices have come to recognize whether a commitment is made in a LLC, as opposed to an individual, capacity by the way the parties to the document are expressed. The LLC's name should always appear as the party, or the commitment should be made on the LLC's letterhead. On the signature line, the preferable practice is to name the LLC and have a member sign on a line below, prefaced by "By" and with his or her title indicated. Thus:

In that way, the other party to the transaction is clearly placed on notice that he is dealing with a LLC, not with the person who signs even though that person may be the sole member of the LLC.

If the foregoing practices are followed, the LLC will remain in good standing in Connecticut and avoid penalties. In addition, the possibility of a member's being held liable for an obligation of the LLC will be reduced appreciably. One of the purposes of organizing is to limit the liability of the members to the amount they have invested in their LLC. By failing to follow the practices outlined above, a LLC's owner may be exposed to personal liability for claims made against the LLC. This is sometimes called "piercing the corporate veil". Courts have applied this doctrine when owners of a LLC have failed to maintain the LLC as an entity separate from the members. While failure to follow the simple practices outlined in this memorandum will not automatically result in personal liability for LLC obligations, it is evidence that the LLC entity should be disregarded and the individual owners held liable. Put simple, if the owners of a LLC do not bother to treat their LLC like it really exists, the courts will not feel compelled to either.

N.B. If for any reason your LLC may be missing some of the compliance items mentioned above, a call to one of our attorneys can quickly rectify these problems at a very reasonable cost. You may also want to come in and discuss with us your current practices to be sure you are not exposing yourself to unknown liability.