Limited Liability Companies in Colorado | Boulder Small Business Lawyer
As a Colorado business attorney James Newell routinely help clients organize limited liability companies. Before organizing a business, it is important to have a solid understanding of the characteristics, benefits and drawbacks of using any given type of entity. Unlike a sole proprietorship, which is simply a formal legal characterization of a person doing business without the protection of an entity, limited liability companies (LLCs) are entities, which are organized under and subject to the laws of the states in which they are formed. Depending on the circumstances an LLC can help protect the personal assets of an owner from the business’s creditors.
LLCs are relatively new creations. They first appeared in Wyoming in 1977 and, following widespread adoption of limited liability company acts in states across the country, reached near ubiquity by 1996. At this point the LLC has undoubtedly surpassed the corporation as the most commonly selected form of business entity in Colorado and throughout the country, and for good reason. In two important respects the LLC offers the best of both worlds: it combines the limited liability traditionally found only in corporations with the oft-preferred pass-through taxation of sole proprietorships and partnerships. The analysis of whether pass-through taxation is appropriate has been become somewhat more complex since the passage and implementation of the TCJA of 2017.
LLCs are also very flexible entities given that elections can be made with the IRS to treat an LLC as an S Corporation or C Corporation. These elections are made through the so-called “check the box” rules. LLCs normally require fewer formalities than corporations, which means they are easier for the average person to operate in such a way as to not lose the limited liability protection afforded by the “corporate veil,” which is a common law term that describes the legal separation between a company’s business dealings and the owners’ personal assets.
Like a corporation, a Colorado LLC can operate in perpetuity, assuming the requirements of the organizational documents and state law are met. But unlike corporations, which are governed by relatively rigid laws as to what can and cannot be agreed to among shareholders and officers, LLCs are particularly well suited for businesses that require unique provisions related to profit sharing, management arrangements or any other special considerations that the member(s) and manager(s) believe are appropriate under the circumstances. According to the Colorado courts, LLCs are “creatures of contract” and because of this contractual liberty the parties are expected to be very precise regarding the terms of their agreements. With few exceptions, Colorado courts will enforce nearly anything members and managers agree to in an operating agreement so they should carefully negotiate and review the terms of any operating agreement before they sign.
If you are organizing a limited liability company in Colorado or you already have a business organized as an LLC and are looking for a Boulder Business Attorney with a results-oriented approach tailored to your matter’s specific needs, contact Newell Law. We have the expertise and knowledge to ensure your limited liability company is organized correctly and the operating agreement is drafted with precision.