An LLC is a business organization called a “limited liability company.” It’s a separate legal person from its owners. This means you are not personally liable for the LLC’s debts, obligations, or liabilities. In addition, the LLC cannot be sued without joining the owner(s) and the LLC.

The LLC is similar to a corporation, such as a C Corporation, because it has a distinct legal personality. However, it differs in several ways. For one thing, unlike corporations, LLCs do not issue stock. Instead, each member owns a percentage interest in the company. But there are advantages to being part of an LLC. Some states offer tax benefits to businesses organized as LLCs, while others allow LLCs to avoid certain types of taxes altogether.

Although limited liability companies have become prevalent business entities, many small business owners or people forming a start-up business are still unfamiliar with ownership and structure issues related to an LLC. A Denver business attorney has prepared the article below to discuss ownership issues of an LLC, which is a typical question for business owners and those starting up a business. Please consult your business attorney with specific facts, questions, and circumstances.

Who Owns An LLC In Colorado?

The owner of an LLC is referred to as a member. This is true whether it is a sole proprietorship, partnership, corporation, trust, or another entity. In most cases, the owner is the same as the manager. There is no requirement that the owner is human; there could be businesses or legal entities that are owners of an LLC, such as corporations and trusts. It is important to note that while many people refer to the owner as “the owner,” this isn’t always accurate. For example, someone may be an employee of an LLC but not necessarily the owner. Likewise, someone may be the manager of an LLC but may not be an owner.

An LLC’s varying ownership interests are vital for a business owner to understand. They can be instrumental in the overall structure of the 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

Colorado LLC Act

The Colorado Limited Liability Company (LLC) Act provides the framework for creating limited liability companies. This article explains how to set up an LLC in Colorado.

To avoid potential problems later, it is crucial to understand the basics of the Colorado LLC Act. If you are considering forming an LLC, read this article carefully to learn about some of the most common mistakes people make when setting up their LLC.

The Colorado Limited Liability Company act requires every limited liability company to have at least one member. Each member must hold membership interests in the company equal to their ownership interest in the business. A member may become a manager or director of the company. Members are personally liable for debts and liabilities of the company. If a member becomes insolvent, the remaining members may force them out of the company.

A person who wishes to form a Colorado LLC must file articles of organization with the Secretary of State within 30 days of creating it. Articles of Organization do not include operating agreements, contracts, or leases. They merely describe how the company will operate. Once formed, the LLC cannot be dissolved without filing a certificate of dissolution with the Secretary of State.

In addition to filing articles of organization, the LLC must register with the Division of Corporations and Commercial Code within 60 days of formation. This includes registering names under the fictitious name statute, providing registration notice to creditors, and maintaining membership records.

If you plan to use the LLC for real estate transactions, you must obtain a Real Estate License. You must also provide proof of insurance coverage for $100,000 per occurrence and maintain general liability insurance covering the LLC.

You must pay annual fees to renew your LLC. These fees range from $50 to $250. Fees vary based upon whether you are a domestic or foreign LLC.

Personal Liability

The Colorado Limited Liability Company Act protects individual owners from being held personally liable for the company’s debts. This protection applies to the company owner and each member, officer, director, or manager. There are many reasons why people form companies in Colorado. Those reasons include protecting assets from lawsuits, limiting exposure to creditors, avoiding taxes, operating separately from family members, and minimizing personal risk.

However, there are some drawbacks associated with forming an LLC in Colorado. First, it is essential to understand that even though you cannot be sued individually, you can still be held accountable for the company’s actions. You could be responsible for the debt if the company does something wrong. Second, because the state requires that all members of an LLC sign documents related to the formation of the company, it can be challenging to operate without incurring significant legal fees. Finally, the state requires that all corporations file annual reports with the Secretary of State’s office. These filings require substantial amounts of paperwork and can be very expensive.

Non-Economic Members In An LLC

Having 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 contribute 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 recognized as a member, and thus. However, the assignee may receive the right to receive profits and losses from the LLC (the economic portion), and 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. However, the assignee can still receive the economic portion of the original member’s interest.

If you have questions about your LLC or other business matters, speak with a Denver business attorney at The McGuire Law Firm.

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 mean to or not. When forming the actual entity, many business owners are unaware of the statutory requirements to form the business in Colorado. A Denver business attorney has prepared the article below to provide information regarding the requirements, but please remember to consult directly with your business attorney.

Starting an LLC in Colorado

There are four different ways to form an LLC in Colorado. You can do it online, over the phone, via mail, or in person. To start one, you must file Articles of Organization with the state. The process takes about 10 minutes and costs $75. You can find out how to do it here. Once you’ve done that, you’ll need to register your LLC with the IRS. This is free, and it takes a few days. You can find out more information here.

Next, you’ll need to open a bank account. Starting a sole proprietorship, you’ll need to use a checking account. An LLC needs a savings account. You can set up a separate savings account for your LLC under its name, just like you would for a regular business. You’ll need to provide proof of identity, physical address, and photo ID to open a savings account. You can learn more about opening a savings account here.

Once you have checking and savings accounts, you can choose whether or not to issue stock. Stock is ownership shares of the company. Each owner gets one vote per share. If you decide to issue stock, you’ll need to pay $25 for each class of stock you want to issue. For example, if you wanted to issue five classes of stock, you’d pay $125. There are no limits to the number of classes you can issue; however, there are limits to the amount of money you can raise.

You can learn more about how much you can raise here. Finally, you’ll need to fill out a federal tax return. This is called Form SS-4. You can download a copy of this form here.

If you follow those steps, you’ll be ready to go. But keep in mind that once you open your LLC, you won’t be able to operate without filing additional paperwork with the state. And even though you don’t owe taxes now, you still need to file quarterly returns with the IRS.

 Forming An LLC 

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 proper name and mailing address of the persons that are forming the LLC;
• Whether the LLC is member-managed or a 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 permits but does not require the article to disclose any other matter relating to the LLC or the articles of organization that the persons forming the business determine to include in the articles.

Colorado LLC or Colorado LLP?

A limited liability company (LLC) and a limited liability partnership (LLP) are both legal entities that allow individuals to form businesses without filing articles of incorporation or formation documents. A limited liability company (LLL) is similar to a corporation, while a limited liability partnership (LPL) operates like a general partnership. Both types of companies offer limited liability protection to owners and managers.

There are many differences between LLCs and LLPs, including how each entity is taxed. However, one significant difference is that LLCs can operate across state lines, whereas LLPs cannot. In addition, LLCs can issue stock, while LLPs cannot. If you want to start a small business, consider forming a Colorado LLC.

Other Partnerships

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 intending to do so!

Limited partnerships require filing a certificate with the Colorado Secretary of State. All of the general partners must approve the filing of certificates of the limited partnership. CULPA or CUPL will govern a limited partnership, but limited partnerships formed on or before August 10, 2016, that do 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.

Foreign State Recognition

A foreign LLC is treated differently than a domestic LLC in most states. A foreign LLC must file articles of organization with the Secretary of State in every state where it intends to do business. In addition, the foreign LLC must register in every state where it does business. These steps are required regardless of whether the LLC is formed in the United States or overseas. If the LLC is registered in one state but not in others, it is considered domiciled in that state.

The LLC’s status as a foreign entity makes it subject to additional requirements imposed by some states. For example, many states require foreign entities to obtain licenses or permits, pay taxes, provide information about ownership interests, and comply with laws regarding corporate governance and conflicts of interest.

In contrast, domestic LLCs are recognized in all 50 states without action. Once a domestic LLC files articles of organization with the secretary of state, it is automatically deemed valid and enforceable throughout the United States.

Need Further Assistance? 

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

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.

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.