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.

The video below has been prepared by a tax attorney and business attorney at The McGuire Law Firm to discuss capital contributions.

John R. McGuire is tax attorney and business attorney at The McGuire Law Firm.  The McGuire Law Firm represents and advises clients on tax matters from IRS debts and tax audits or overall tax planning and the tax implications of certain transactions.  Further, the firm represents small and medium sized business with their contract issues as well as the formation and sale of businesses or business interests.  In addition to his law degree, John holds an advanced degree in taxation known as an LL.M.  The McGuire LAw Firm provides a free consultation with a tax attorney.

A limited partnership could be considered a type of hybrid business structure because there are multiple types of partners/members. In a limited partnership there must be at least one partner who is liable for the debts of the partnership, and other business obligations.  Additionally, there must be at least one limited partner who is not liable and responsible for the business.  In comparison to a general partnership, a limited partnership cannot be formed simply by conduct.  Remember, a general partnership can be formed when two or more people begin conducting business for a profit.  A limited partnership must file the appropriate forms and papers with the necessary state agency such as the secretary of state.

The general partner will have management authority and will thus operate and manage the partnership and related business affairs.  The limited partner acts more as a passive investor, and does not have the responsibility of managing the business.  Thus, what can you compare a limited partner to?  In many respects, a limited partner is similar to a shareholder in a corporation.  The limited partner invests in the partnership and under the worst case scenario they may lose their investment, but such limited partner is not responsible for the debts and obligations of the partnership.  If a limited partner does exert too much control or dominance over the general partner or general partners, the limited partner could actually be liable for the business debts.  By exerting such control, the limited partner has de facto become a general partner of the limited partnership and thus exposed themselves to liability.  Different acts control such issues within a limited partnership and state law and case law should always be researched and reviewed.  Many current laws also allow business agreements that tailor the relationship between the partners and between the partners and the business. This may include tailoring the fiduciary duties a partner may have to the partnership and a partner not being liable for a breach of a fiduciary duty when one would expect such partner to be liable.  In many respects, it appears the fiduciary duties of a partner in a limited partnership can be limited more so than in a general partnership.

For tax purposes, a limited partnership is a pass through entity whereby the entity is not taxed, but items are passed through to the individual partners.

The one major drawback to the limited partnership is the exposure to the general partner.  Thus, most general partners within a limited partnership today would be corporations.  Because of the limited liability afforded to those who own and run the corporation, a limited partnership with a corporate general partner should help prevent personal exposure.

In Colorado, you state whether the LLC is member managed or manager managed within the Articles of Organization.  The operating agreement of the LLC will state and control the powers of the manager or managers, or the members as they manage the LLC.  It is recommended that the managers responsibilities and powers be well defined in the LLC operating agreement.

The video below has been prepared by a Denver business attorney to provide more information regarding the management structure and options of an LLC.  Please remember this article and video are for informational purposes.  It is recommended that you speak with your business attorney regarding the management structure of your business.

Contact The McGuire Law Firm to discuss your business questions and issues with a Denver business attorney.  A free consultation is offered to all potential clients!