Restricting Access to LLC Books and Records

Generally, LLC members are entitled to inspect the books and records of a limited liability company. But sometimes it’s appropriate to limit access.  For example, if you wish to grant employees a profits interest in the Company without making them voting members.   Both Delaware and New York statutes permit the LLC agreement to restrict access to varying degrees.   Delaware, as is more typical, has a more flexible statute and permits access to be “restricted” by an express provision in the LLC agreement.  Section 18-305(g) of the Delaware LLC Act.

New York permits the LLC managers to keep certain records confidential  for such time as the “managers deem reasonable” but the records have to be “trade secrets or other information the disclosure of which … the managers in good faith believe is not in the best interests of the … company or its business or which the … company is required by law or by agreement with a third party to keep confidential.” Section 1102(c) of the New York LLC Law.

So if you want to keep certain records beyond the purview of a profits interest member without being concerned that the records being restricted meet the New York standard, use a Delaware LLC.

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