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Legal Advice at the Speed of BusinesSTM from a Licensed Attorney – Right here in Colorado

Colorado LLC Overview:

An entrepreneur in today's business environment should consider several key factors when determining which business form will work best in a given situation. Typically, the most important factors include limited liability, taxation, and organizational flexibility. Below is an overview of Colorado LLC information.


Colorado Limited Liability Company:

The Limited Liablity Company ("LLC") has become the dominant form for newly-created small and medium sized businesses in most states in America. In fact, the popularity of the Colorado Limited Liability Company has surpased that of the Colorado Corpration. Each year there are 3 LLCs formed in Colorado for each 1 Corporation formation. It is clear that LLC is the entity of choice for Colorado's entrepreneurs. The LLC has become so popular due to the fact that it gives business owners several advantages of the various business forms in one package. It is a hybrid which combines the flexibility and taxation benefits of a partnership with the limited liability protection of a corporation. Much like a corporation, an LLC is a legal entity which exists apart from its individual owners. The individuals therefore are not personally liable to creditors of the business, nor are they personally liable for tort lawsuits which arise from the business. 

Financially, this effectively limits an individual member's financial liability to no more than their investment in the LLC. This limit on financial liability for the business owner is very attractive considering that his or her personal assets cannot be touched in order to satisfy the debts of the Colorado LLC. Only the LLC itself is liable for its financial obligations.

From a risk standpoint, an LLC offers similar protection from tort lawsuits to the individual owners or members as a corporation does. This simply means that the members of an LLC are not held liable in legal suits for the wrongs that his fellow member(s) commit against third parties. Additionally, an LLC limits the liability of an individual from lawsuits brought by fellow members or managers of the LLC.


Colorado LLC Taxation:

A corporation is taxed two times; once on its income for the year as a corporation and also the dividends from the corporation are taxed under Internal Revenue Code Subchapter C. One of the most exciting aspects about an LLC is that the Colorado LLC Act allows business owners to choose how they want the business to be taxed. A Colorado LLC can choose to be taxed like a Corporation or like a general partnership. A general partnership is not treated as a separate entity for tax purposes, meaning that income or loss is passed through pro rata to the partners and taxed to them individually. Under IRS Code Subchapter K, a general partnership is only taxed once. The Colorado LLC provides the business owner with several options to choose from regarding taxation. Business owners should seek the advice of an accountant in regards to the particular tax implications of the Limited Liability Company.


Organizational Flexibility of a Colorado LLC:

The LLC offers the greatest organizational flexibility of all the business forms. The LLC is formed by filing Articles of Organization with the Colorado Secretary of State. While not required, it is highly recommended that an Operating Agreement be drafted in order to guide the parties in the operation of the business. The articles of organization are akin to the Declaration of Independence for the business, while the operating agreement acts like the LLC's Constitution. In the articles of organization and operating agreement, the Colorado LLC owners can choose whether they want the operations of the business to be flexible and informal like a general partnership or rigid with formal procedures like a corporation. For the small business, the formalities of a corporation such as formal board meetings to make decisions, minutes taken at board meetings, and annual shareholder meetings may not make much sense. The formalities may be simply impracticable to apply to the daily operations of an LLC consisting of only a few individuals.

A Colorado LLC may choose one of two forms of government: (1) member-managed, in which case the management of the LLC will be vested in its members; or (2) manager-managed, in which case the management of the LLC will be vested in a manager or managers. 

The individual owners of a Colorado Limited Liability Company have the option of contracting on a variety of issues in the operating agreement, including: voting powers of the individuals, the ability to delegate rights and control to other members, and the ability to create future rights in the LLC to other groups or members. Additionally, through these contractual agreements the LLC can be made freely transferable in the marketplace, or limitations can be placed on the transfer of its interest. The LLC can choose to dissolve upon death of a member, retirement of any member, upon the completion of a specified event, or the LLC may choose to have an unlimited period of existence. The LLC members also have the flexibility to finance their new business in various ways. They could personally underwrite the start up costs, obtain loans from a bank, and even sell interest in the CO LLC to outside investors. In sum, the Colorado LLC can contractually create a business entity that is either formal or informal in its operation and the owners can tailor the conduct of the business to their liking.