One of the bigger risks in formulating a limited liability corporation (LLC) is that its members will incorrectly presume that their responsibilities end with their decision to enter into such an ownership structure.
A set-it-and-forget-it attitude among LLC members is understandable. Only within the last 10 years or so has the LLC gained popular acceptance in the United States as a relatively passive means of managing private property interests. But passive as the LLC may be in its operation, compared to alternatives, it's hardly without governance requirements. This is why today's wealth manager should see that clients with LLC membership interests--if they truly want their liability to be limited--make an active, ongoing effort to comply with the following common-sense rules.
Conduct regular meetings in accordance with operating agreement provisions. See that all members are present, and formulate an agenda all can receive and review well in advance of the meeting.
Ensure that minutes are taken. Draft meeting minutes should also be submitted for review in a timely fashion following the meeting so that attendees and their counsel can modify and/or correct the official record where concerns about clarity or accuracy may arise.
Have property and casualty insurance in place and make sure coverage is in the right name(s) to address associated risks.
Check your operating agreement language to be sure it goes beyond boilerplate. For example, have the LLC manager's day-to-day responsibilities been spelled out with adequate specificity and sufficient consideration of the unique asset(s) under management?
Perform an annual review that addresses past operating plan objectives that may be subject to revision in the year ahead due to rapidly changing personal or market conditions.
Given the relative newness of the LLC as a legal entity in the United States and the different laws governing them, members should err on the side of aggressive oversight.
Andrew McElwee is EVP of Chubb & Son and COO of Chubb Personal Insurance.