How To Form A LLC In Colorado?

For anyone wondering how to start a business in Colorado, a Limited Liability Companies (LLC) may be a good option for you. Colorado LLC Laws provide business owners with many important protections. Prior to forming a LLC in Colorado, you should consult with a Lawyer practicing in the area of Business Law. An LLC coupled with the proper Articles of Organization and Operating Agreement can help to settle many concerns a new business owner may have.

A properly formed LLC that is filed with the Secretary of State, is considered a separate legal entity. This means that the LLC by law is endowed with certain powers apart from the owner. For example, an LLC can hold property, enter into legal contracts, and sue others. C.R.S. 7-80-104. The LLC can either be operated by the owners (members) or managers. The relationship between members and managers is often more clearly laid out in the Operating Agreement and Articles of Organization.

Step 1: Decide if an LLC is right for you?

LLC are wonderful business tools but anyone forming an LLC needs to be aware that an LLC provides you with limited liability protection. An LLC may not protect you from everything. For example, in the case of a professional service provider, an LLC may protect them from debts incurred by the business, the negligence of employees, and certain claims against the LLC. However, the LLC may not protect them from their own personal acts of negligence. Prior to forming an LLC, individuals should consult with an attorney to learn more about the limitations of different business entities.

Legal Disclaimer: The information provided on this page is not legal advice. It is meant to provide readers with things to consider when forming and operating an LLC. It is in no way an exhaustive list of all the requirements needed to form and operate an LLC. Larranaga Law cannot represent you until a formal engagement letter has been signed. Please consult with an attorney regarding your specific circumstances.

Step 2: Make a business plan?

Prior to starting any business, you should have a general idea of what you would like to accomplish and how you are going accomplishing those goals. Avoid being a wildcatter meaning do not risk your money and your reputation on the chance that you may get lucky and strike oil. While a couple of the original wildcatters succeeded, allot of them went bankrupt as well. Spend a couple of weeks doing market research, thinking about how your business is going to run, and how you would like to structure the business.

Step 3: Create a name for yourself   

While this step sounds easy, this is often a really difficult decision. A person should approach this considering both the regulatory and marketing implications.

In terms of regulation, many industries regulate business names. For example, the legal industry has a prohibition on misleading names. If you are a licensed professional, you should check the appropriate governing rules to determine if they have any similar limitations. In Colorado, the name of an LLC must include an abbreviation indicating that the business is an LLC. C.R.S. 7-90-601. For example, if you want your business name to be Todd’s Bakery then it should look like Todd’s Bakery LLC.

Another consideration needs to be trademarks. Stay away from recognizable names especially if they offer similar services. Both tort law and trademark law present unique risks. A good first step is checking to see if your selected name is available on the secretary of state website.

In terms of marketing, certain names work better than others. Call a couple of friends or form a focus group to determine which names work best. Names should reflect the traits which you would like your business to project. For example, if you would like to project integrity consider something simple and straight forward. Consider consulting a marketing expert prior to finalizing your name selection.

 Legal Disclaimer: The information provided on this page is not legal advice. It is meant to provide readers with things to consider when forming and operating an LLC. It is in no way an exhaustive list of all the requirements needed to form and operate an LLC. Larranaga Law cannot represent you until a formal engagement letter has been signed. Please consult with an attorney regarding your specific circumstances.

Step 4: Decide on the owners and management structure.

In an LLC, owners are referred to as members. Members can run the day-to-day operation of the business or they can appoint managers to run the business. A manager may be a member or an independent 3rd party. Regardless, you need to know who is in charge.

Step 5: Appoint a Registered Agent

In Colorado every LLC must have a registered agent. C.R.S. 7-90-701. The registered agent serves a couple of important purposes. Primarily, they allow for service of process on the LLC regardless of the location of the LLC’s members or managers. A member or manager may be a registered agent provided the minimal requirements are met.

Step 6: File and Form the LLC

In Colorado, an LLC is formed upon the delivery of the Articles of Organization to the Secretary of State. C.R.S. 7-80-203. The person forming the LLC must be at least 18 and does not need to be a member of the LLC after the formation occurs. C.R.S. 7-80-203.

Per C.R.S. 7-80-204, the Articles of Organization must include:

·        The LLC’s name

·        The LLC’s initial principal office’s address

·        The name and address of the registered agent

·        The true name and address of the person forming the LLC

·        A statement indicating if management is vested in one or more managers or vested in the members.

·        A statement indicating that there is at least one member; and

·        Other

The other requirement can be particularly important. Please refer to the applicable law for your particular industry to determine if additional terms are required to be included the Articles of Organization. If you make a mistake, do not panic. In many cases you may be able to amend or restate them.

C.R.S. 7-90-301 provides the following additional requirements:

·        The document must be in English

·        The document must be in the medium prescribed by the Secretary of State

·        The document must be delivered using the means prescribed by the Secretary of State

·        The document shall state the sections or sections of the organic statues pursuant to which it is delivered to the secretary of state for filing

·        The document must state the true name and mailing address of at least one person causing the document to be delivered for filing

·        The document shall include any required cover sheets; and

·        The document shall be delivered along with any required fees.

Currently in Colorado, the Secretary of State has a great website that allows you to submit documents electronically. Be thorough when creating your filing.

Legal Disclaimer: The information provided on this page is not legal advice. It is meant to provide readers with things to consider when forming and operating an LLC. It is in no way an exhaustive list of all the requirements needed to form and operate an LLC. Larranaga Law cannot represent you until a formal engagement letter has been signed. Please consult with an attorney regarding your specific circumstances.

Step 7: Create an Operating Agreement

The Operating Agreement is in a sense an agreement between members of the LLC about how the LLC will conduct operations. Although an LLC is a separate entity, it is bound by the operating agreement. C.R.S. 7-80-108.

Operating Agreements can dictate how new members may be brought into the LLC, forbid certain practices, describe the relationship between members and managers, and so on. The Operating Agreement is basically your opportunity to spell out the rules of the road for almost everything relating to managing and operating your LLC subject to certain exceptions. Operating Agreement become extremely important when you have more than one member in your LLC or you would like to appoint a 3rd party to manage the LLC.  An operating agreement can be executed at any time prior to or after the formation of your LLC. C.R.S. 7-80-108.

If you are in a heavily regulated industry, consider placing limitations on management to help reduce the risk of inadvertent errors. Consent of all members of the LLC is required to amend an operating agreement. C.R.S. 7-80-401.

Step 8: Get your EIN

Taxes are apart of life. Ensure that you are paying yours properly by consulting with the appropriate tax consultants.

Step 9: Additional Members and Funding the LLC

Prior to adding additional members, the existing members should establish an operating agreement. If new members are buying into the LLC, consider executing written contracts to ensure that the LLC is properly funded. Members can contribute to the LLC in the form of cash, property, services, or other. C.R.S. 7-80-501. Members can be admitted without contributions as well depending on your operating agreement. C.R.S. 7-80-501.

Important Overall Tip: Comply with all applicable laws

Forming an LLC is only part of the battle. Members and Managers owe the LLC a duty of good faith and fair dealing.

An LLC as a legal entity that is governed by law. Unless explicitly authorized by statue or other, an LLC has to comply with the same laws that everyday people comply with and specific laws applicable only to LLCs. For example, LLCs in Colorado must file annual reports with the Secretary of State pursuant to C.R.S. 7-90-501. Consult with an attorney for specifics.

General tips on running the LLC

 In general, you should always maintain enough funds in your LLC to cover your debts. You want to avoid being perpetually underfunded. If you are a solo-member LLC, consider opening up a separate bank account in the LLC’s name and depositing some startup funds. For all intensive purposes, members should treat the LLC like it is a separate entity apart from themselves. They should maintain separate bank accounts, tax records, accounting statements, minutes, and so on. An individual looking at the LLC from the outside should be able to see a clear line of separation between the individual member and LLC. Members of an LLC should be aware that the protections offered by an LLC are not absolute. Poor management and operation of the LLC can lead to disastrous consequences.

Conclusion:

If you would like to learn more about starting a business in Colorado, reach out to Larranaga Law today for your free 30-minute consultation. Michael Larranaga is a licensed Colorado attorney practicing in various areas including Business Law. Colorado LLC Laws and properly drafted Articles of Organization and Operating Agreements can help to settle many concerns a new business owner may have. Starting a business is a big investment. Consult with an attorney today.