What is a
limited liability company (LLC)?
What is the advantage to
creating an LLC?
The limited liability
company permits flexibility for special allocations and distributions of
cash and other assets to the owners in a manner similar to that of a limited
partnership.
Do you need a formal
operating agreement to form a LLC?
While a formal document,
called the Articles of Organization, must be filed with the Colorado
Secretary of State to form a limited liability company, the internal
operations of the limited liability company are generally governed by an
operating agreement. An operating agreement can be a verbal agreement or a
written agreement, but just like a partnership agreement, a written
agreement is always advisable. An operating agreement can also specify how
new owners will be admitted to the company. For example, although an
existing member can transfer his or her interest in the profits of the
company to a new person, the new person is generally not admitted to the
company as a full member unless the remaining members vote to admit the new
person. If the new person is not admitted to the company as a member, the
new person has no right to participate in the management of the business and
affairs of the limited liability company.
How do you form and
maintain a LLC?
A limited liability company
is formed by filing Articles of Organization with the Secretary of State.
If the Articles of Organization are filed in a paper format, the filing fee
is $50.00. If the Articles of Organization are filed electronically, the
filing fee is currently $0.99.
A limited liability company
must file an annual report with the Colorado Secretary of State in order to
remain in good standing and to retain its authority to engage in business in
the state. The annual report consists of the name and street address of the
company's registered agent, the address of the company's principal office,
and the name and address of the individual completing the report. The
report is due on or before the last day of the month during which the
company filed its Articles of Organization (the anniversary month) each
year, and the filing fee for a report submitted on paper is $25.00. A
limited liability company may file its annual report electronically
beginning two months prior to its anniversary month, and the fee for
electronic filing is currently only $0.99.
What are the rights and
responsibilities of an LLC's owners?
The owners of a limited
liability company are called members. Members have certain voting rights
that are provided by the Colorado statutes, and these generally include the
right to vote on the managers of the company, the right to approve transfers
of ownership interests by the other members, and the right to vote whether
to continue the company's existence upon the withdrawal of a member. A
member of a limited liability company may resign at any time by giving
written notice to the other members, unless resignation is prohibited in the
Operating Agreement. If the member violates the Operating Agreement by
resigning, the limited liability company may recover damages from the
resigning member for breach of the Operating Agreement, and may offset the
damages against amounts otherwise distributable to the member.
Who is responsible for
running an LLC?
A limited liability company
is managed by one or more managers. A manager can be a natural person or
another entity. The manager can be an owner or can be a non-member. The
owners elect the managers each year. The managers have complete authority
to act for the limited liability company unless their authority is limited
in the Articles of Organization or in the operating agreement. A limited
liability company may also appoint officers and other agents that have the
authority given to them by the owners. Therefore, a limited liability
company may have both a "manager" and a "president."
How do members
contribute to an LLC? Are members liable for company debts?
The members of a limited
liability company may contribute cash, property, services rendered, or a
promissory note or other binding obligation to contribute cash or property
or to perform services. The members and managers of a limited liability
company are not personally liable for the debts or obligations of the
company. However, a member of a limited liability company is personally
liable to the company to perform any enforceable promise to contribute cash
or property or to perform services for the limited liability company, unless
the obligation to make such contributions is waived by consent of all of the
members or unless the Operating Agreement provides otherwise. If the
members waive the obligation to make additional contributions, the member’s
obligation may be enforced by a creditor who has extended credit to the
limited liability company in reliance on the member’s obligation to make the
contribution. A member is also liable to restore distributions made to that
member while the limited liability company’s liabilities exceeded its
assets, and this liability extends for six years after a prohibited
distribution is made.
How is an LLC taxed?
A limited liability company
may elect to be taxed as a partnership or as a corporation.
How is an LLC dissolved?
A limited liability company
may be dissolved as a result of the passage of a stated amount of time or
the happening of a stated event specified in the Articles of Organization or
in the Operating Agreement. The owners of the company may agree to dissolve
the company at any time. The business of a limited liability company may be
continued under the provisions for continuation of business stated in the
Operating Agreement.
What is a limited
liability company (LLC)?
What is the advantage to
creating an LLC?
The limited liability
company permits flexibility for special allocations and distributions of
cash and other assets to the owners in a manner similar to that of a limited
partnership.
Do you need a formal
operating agreement to form a LLC?
While a formal document,
called the Articles of Organization, must be filed with the Colorado
Secretary of State to form a limited liability company, the internal
operations of the limited liability company are generally governed by an
operating agreement. An operating agreement can be a verbal agreement or a
written agreement, but just like a partnership agreement, a written
agreement is always advisable. An operating agreement can also specify how
new owners will be admitted to the company. For example, although an
existing member can transfer his or her interest in the profits of the
company to a new person, the new person is generally not admitted to the
company as a full member unless the remaining members vote to admit the new
person. If the new person is not admitted to the company as a member, the
new person has no right to participate in the management of the business and
affairs of the limited liability company.
How do you form and
maintain a LLC?
A limited liability company
is formed by filing Articles of Organization with the Secretary of State.
If the Articles of Organization are filed in a paper format, the filing fee
is $50.00. If the Articles of Organization are filed electronically, the
filing fee is currently $0.99.
A limited liability company
must file an annual report with the Colorado Secretary of State in order to
remain in good standing and to retain its authority to engage in business in
the state. The annual report consists of the name and street address of the
company's registered agent, the address of the company's principal office,
and the name and address of the individual completing the report. The
report is due on or before the last day of the month during which the
company filed its Articles of Organization (the anniversary month) each
year, and the filing fee for a report submitted on paper is $25.00. A
limited liability company may file its annual report electronically
beginning two months prior to its anniversary month, and the fee for
electronic filing is currently only $0.99.
What are the rights and
responsibilities of an LLC's owners?
The owners of a limited
liability company are called members. Members have certain voting rights
that are provided by the Colorado statutes, and these generally include the
right to vote on the managers of the company, the right to approve transfers
of ownership interests by the other members, and the right to vote whether
to continue the company's existence upon the withdrawal of a member. A
member of a limited liability company may resign at any time by giving
written notice to the other members, unless resignation is prohibited in the
Operating Agreement. If the member violates the Operating Agreement by
resigning, the limited liability company may recover damages from the
resigning member for breach of the Operating Agreement, and may offset the
damages against amounts otherwise distributable to the member.
Who is responsible for
running an LLC?
A limited liability company
is managed by one or more managers. A manager can be a natural person or
another entity. The manager can be an owner or can be a non-member. The
owners elect the managers each year. The managers have complete authority
to act for the limited liability company unless their authority is limited
in the Articles of Organization or in the operating agreement. A limited
liability company may also appoint officers and other agents that have the
authority given to them by the owners. Therefore, a limited liability
company may have both a "manager" and a "president."
How do members
contribute to an LLC? Are members liable for company debts?
The members of a limited
liability company may contribute cash, property, services rendered, or a
promissory note or other binding obligation to contribute cash or property
or to perform services. The members and managers of a limited liability
company are not personally liable for the debts or obligations of the
company. However, a member of a limited liability company is personally
liable to the company to perform any enforceable promise to contribute cash
or property or to perform services for the limited liability company, unless
the obligation to make such contributions is waived by consent of all of the
members or unless the Operating Agreement provides otherwise. If the
members waive the obligation to make additional contributions, the member’s
obligation may be enforced by a creditor who has extended credit to the
limited liability company in reliance on the member’s obligation to make the
contribution. A member is also liable to restore distributions made to that
member while the limited liability company’s liabilities exceeded its
assets, and this liability extends for six years after a prohibited
distribution is made.
How is an LLC taxed?
A limited liability company
may elect to be taxed as a partnership or as a corporation.
How is an LLC dissolved?
A limited liability company
may be dissolved as a result of the passage of a stated amount of time or
the happening of a stated event specified in the Articles of Organization or
in the Operating Agreement. The owners of the company may agree to dissolve
the company at any time. The business of a limited liability company may be
continued under the provisions for continuation of business stated in the
Operating Agreement.
