What is a limited liability company (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.