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A Trap For The Unwary In Alaska’s LLC Statute

A popular form of incorporation that Atkinson Conway & Gagnon often deals with, both in creating them and in structuring deals using them, is the Limited Liability Corporation. There is, however, a nasty little penalty lurking in Alaska’s Limited Liability Company statute that both other practitioners in this state and owners and managers of those LLCs should be aware of.

As with most business forms, members of an LLC have a statutory right to review the books and records of the LLC. What is different about LLCs, is that if a manger or member of an LLC refuses a member’s rightful demand to examine the books of the LLC, that manager or member is personally liableto the demanding member for a penalty in the amount of either $5,000 or 10% of the value of the demanding member’s interest in the LLC, whichever is greater. Consequently, by refusing a rightful demand to review the books and records of an LLC, a manager or member of an LLC runs not only the risk of litigation to compel production of the books but personal liability that, for a highly valued LLC, could be hundreds of thousands of dollars.

So think twice about shooting off that snide letter to your business partner, telling him to go stick his head in the sand when he asks to see the books. You just might get a costly bill in return.

Continue reading for the full statute.

AS 10.50.870. Inspection of Records.

(a) A limited liability company shall make its books and records of account, or certified copies of them, reasonably available for inspection and copying at its registered office or principal office in the state by a member of the company. Member inspection shall be upon written demand stating with reasonable particularity the purpose of the inspection. The inspection may be in person or by agent or attorney, at a reasonable time and for a proper purpose. Only books and records of account, minutes, and the record of members directly connected to the stated purpose of the inspection may be inspected or copied.

(b) A manager, or, if the company is not managed by a manager, a member, who, or a limited liability company that, refuses to allow a member, or the agent or attorney of the member, to examine and make copies from its books and records of account, minutes, and record of members, for a proper purpose, is liable to the member for a penalty in the amount of 10 percent of the value of the limited liability company interests owned by the member or $5,000, whichever is greater, in addition to other damages or remedy given the member by law. It is a defense to an action for penalties under this section that the person suing has within two years sold or offered for sale a list of members of the company or any other limited liability company or has aided or abetted a person in procuring a list of members for this purpose, or has improperly used information secured through a prior examination of the books and records of account, minutes, or record of members of the company or any other limited liability company, or was not acting in good faith or for a proper purpose in making the person’s demand.

(c) Nothing in this chapter impairs the power of a court, upon proof by a member of a demand properly made and for a proper purpose, to compel the production for examination by the member of the books and records of account, minutes, and record of members of a limited liability company.