What Is an LLC?
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
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.
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.