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Who Owns an LLC?

Who are the owners of an LLC?  Although, limited liability companies have become an extremely popular form of business entity, many small business owners or people forming a start-up business are still unfamiliar with ownership and structure issues related to an LLC.  The article below discusses ownership issues of an LLC, which is a typical question for business owners and those starting up a business.  Please remember to consult your business attorney with your specific facts, questions and circumstances.

The varying types of ownership interest in an LLC are very important for a business owner to understand, and can be very useful in the overall structure of business and even the drafting of operational documents such as the operating agreement.  The owners of an can be:

 

  • LLC Members with an economic interest (often called a “membership interest”) in the LLC;
  • Non-economic members; and
  • Assignees

The LLC Act in Colorado does not define “ownership interest” but the act defines “membership interest” as “a member’s share of the profits and losses of a limited liability company and the right to receive distributions of such company’s assets.”  When forming the LLC, the members will contribute cash, property or can provide services or a promissory to the note to the company.  In Colorado, a person can be a member and receive a membership interest without necessarily making a contribution or being obligated to the LLC in another manner.  Under such an arrangement, the member may receive a profits interest in the LLC whereby the member is allocated a share of the profits and losses of the LLC, but does not yet have a capital interest in the LLC.  A capital interest would be more defined as an interest in the value of the LLC.  In both cases, whether contributing capital or receiving an interest for services or an obligation, the member would hold a “membership interest” in the LLC and have the rights afforded in the act and within the operating agreement of the LLC.

The ability to have non-economic members within an LLC can be very advantageous for the LLC and the members.  The LLC Act in Colorado allows a member to be a non-economic member whereby the person is a member of the LLC but does not acquire a membership interest, and may not be obligated to make any contribution to the LLC.  The non-economic member may hold all of the rights of other members such as voting rights, but no right to an economic interest in the LLC.

An assignee may be admitted through the sale or transfer of an interest.  The assignee may not need to be admitted as a member, and thus although the assignee may receive the right to receive profits and losses from the LLC (the economic portion), the assignee may not have the right to participate in the management of the business, and vote.  The operating agreement of the LLC could control many of these issues.  Allowing the assignee the economic benefit of the interest but not the management portion of the interest can be very beneficial in a closely held business whereby the original members may not want the wife or other family member of an original member to have an operational or management power, but the assignee can still receive the economic portion of the original member’s interest.

Denver Business Attorney

 

 

Limited Liability Companies in Colorado

A limited liability company (LLC) is a popular choice of entity for many business owners in Colorado.  Further, many business owners in Colorado will form other forms of partnerships whether they actually mean to or not.  When forming the actual entity though many business owners are unaware of the statutory requirements to form the business in Colorado.  The article below has been prepared by a business attorney to provide information regarding the necessary requirements, but please remember to always consult directly with your business attorney.

In Colorado, a limited liability company is formed by filing articles of organization with the Colorado Secretary of State.  The articles of organization must provide the following:

  • The LLCs name and principal office address:
  • The name and address of the registered agent;
  • The true name and mailing address of the persons that are forming the LLC;
  • Whether the LLC is a member managed or member managed LLC; and,
  • That there is at least one (1) member of the LLC.

 

Section 7-80-204(1)(h) of the Colorado Revised Statutes also permit but does not require the article to disclose any other matter related to the LLC or the articles of organization that the persons forming the business determine to include in the articles.

Other Partnerships

A simple handshake can for a general partnership in Colorado, and no filing with the Colorado Secretary of State is necessary.  Section 7-64-202(1) of the Colorado Revised Statutes states, “the association of two or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership.  Thus, you can form a partnership and expose yourself to liability without even intending to do so!

Limited partnerships, however, require the filing of a certificate with the Colorado Secretary of State.  All of the general partners must approve the filing of certificate of limited partnership.  A limited partnership will be governed by CULPA or CUPL, but limited partnerships formed on or before August 10, 2016 that does not elect to be governed by CUPA will be governed by CUPL for issues not covered by CULPA.  The information required on the limited partnership certificate is:

  • The name of the limited partnership, and the initial and principal address of the limited partnership;
  • Name and address of the registered agent;
  • The name and mailing address of each general partner LLC; and,
  • That there are at least two partners in the partnership, and at least one of them is a general partner.

One should also note that a general partnership may become a limited liability partnership (LLP) and limited partnerships may become a limited liability limited partnership (LLLP), by filing a registration statement with the Colorado secretary of state.

The above article was prepared by John McGuire, a business attorney at The McGuire Law Firm.  Please consult directly with your business attorney or other advisors regarding your specific issues.

LLC Formation and General Issues by Denver Business Attorney

Limited liability companies (LLC) have been very popular entity choices in recent times.  An LLC can be very flexible in terms of denver business lawyer Denver Business Attorneyprofit, loss and other item allocation, and other membership issues.  However, as a business attorney, I am often asked, how do I form an LLC?  Thus, I have drafted the article below to provide some general information regarding the formation of an LLC, articles of organization and general tax matters to consider.

To form an LLC in Colorado, you can go to the Colorado Secretary of State website to complete and file your articles of organization.  First, you will check on the name for your LLC to see if it is available.  Once availability has been checked, you can complete the articles of organization.  The articles of organization will state: the name of the LLC; the address of the LLC; the registered agent of the LLC; the members of the LLC and their addresses; who is filing the articles; whether the LLC is member managed or manager managed and other information.  Once you have completed the articles, you pay a filing fee, which is currently $50 and the articles are filed with the secretary of state.  Typically, you will also pay a yearly renewal fee to the secretary of state.

After completing the articles, you may wish to obtain an EIN depending upon your circumstances.  You can obtain an EIN on the IRS’ website.  Most banks will now allow you to open a business bank account with your articles of incorporation and EIN.

In most circumstances, if you have a multi-member LLC, it is recommend that you have an operating agreement, which is a partnership agreement and controls certain actions and issues within the LLC and between the LLC members and potentially the LLC manager.

For tax purposes, a multi-member LLC will file a 1065 U.S. Partnership Income Tax Return and the pass through items will be reported to the members on a K-1.  A single member LLC is considered a disregarded entity for tax purposes and thus is treated like a sole proprietorship and the individual will file a Schedule C with their 1040 Individual Income Tax Return.  It is recommended that you speak with a tax attorney or tax professional regarding the individual tax implications of an LLC, as well as to the tax issues surrounding the formation of the LLC.  The formation of an LLC by itself may not create any taxable event, but the contribution of property and/or money to an LLC is likely to have tax consequences in the future that should be understood from the beginning if possible.  If you have questions regarding the formation of an LLC, you can contact The McGuire Law Firm to discuss such issues with a business attorney or tax attorney.

Contact The McGuire Law Firm to schedule your free consultation with a business attorney or discuss your individual or business tax questions with a tax attorney.  The McGuire Law Firm has law offices in Denver and Golden Colorado.

How is an LLC Taxed by Denver Tax Attorney

For many reasons, limited liability companies (LLC) are a popular choice of entity for small businesses.  An LLC can provide a lot of Denver Tax Lawyer Denver Tax Attorneyflexibility for the business owners in addition to limited liability.  However, many of the individual partners or members who form the LLC will ask, how is the LLC taxed or how am I taxed through the LLC?  These are good questions to ask and the article below has been drafted by a tax attorney to provide some information regarding the taxation of an LLC and the individual members.  If you have questions regarding the taxation of your business, please feel free to contact The McGuire Law Firm at anytime to speak with a tax attorney.

An LLC is considered a pass through entity, meaning that the profits, losses, gains, deductions and credits are “passed through” to the individual partners and members and these individuals will claim the items on their 1040 individual income tax return.  The items that individual members will claim are reported to the Internal Revenue Service and the individuals on a K-1.  Thus, an LLC does not pay income tax like a C corporation, the income is claimed by the individual partners per their partnership or operating agreement at the individual level.  Many partnerships will allocate items of income, gain, loss, deduction and/or credits per the individual’s membership or ownership percentage.  Some partnership agreements will call for special allocations, which brings about many other issues to discuss that are outside the realm of this article.

The income that is passed through to an individual member of an LLC is subject to social security and Medicare tax, often referred to as self employment taxes, in addition to federal withholding tax.  Partners from an LLC may also take guaranteed payments from the partnership.

If an LLC does have employees, than the LLC would be responsible for withholding social security, Medicare and withholding taxes and paying these employment taxes over to the IRS.  Further, the LLC would be responsible for unemployment taxes and other taxes such as sales tax, depending upon how the LLC operates.  The biggest point to make is that the LLC does not pay income tax on the net income from business operations because this income is reported on the partner’s 1040 income tax return and thus the individuals pay income tax within their individual income tax brackets on the partnership income.  It is possible for an S corporation to hold an ownership interest in an LLC.  Thus, the LLC would issue a K-1 to the S corporation, and the S corporation would claim the items on an 1120S tax return and pass such items through to the individual shareholder or shareholders of the corporation.

A Denver tax attorney at The McGuire Law Firm can assist you with business and individual tax questions and matters including the taxation of small businesses such as limited liability companies and S corporations.

Contact The McGuire Law firm to schedule a free consultation with a tax attorney!  The McGuire Law Firm has offices in Denver and Golden Colorado for your convenience.