Description of a Limited Liability Company: A Limited Liability Company, in Colorado, is owned by its owners, which are referred to as members. A Limited Liability Company in Colorado can consist of 1 or more members. Members can consist of individual people, other Limited Liability Companies, and/or corporations. Limited Liability Companies provide much flexibility. A Limited Liability Company can easily add and remove members as the company changes ownership structure.
Formation of a Limited Liability Company: In Colorado, a Limited Liability Company, often referred to as an LLC, is simple and inexpensive to create. In Colorado, the person creating the Limited Liability Company can do so on-line at the Colorado Secretary of State website. On this website, a person can do a name search to see if the desired name is available. Even if the desired name is available, it is a good idea to look for similar names. The members should consider not using a name that is too similar to other company names to avoid any confusion or inherit a negative reputation that another LLC has. The Colorado Secretary of State provides a fill in the blank form called the Articles of Organization, which is the form used to incorporate and establish the Limited Liability Company. The form asks some basic questions like name of the Limited Liability Company, mailing address, physical location, person who is forming the LLC, and who the registered agent is. After filling in the form and submitting it to the Colorado Secretary of State with payment, the LLC is created.
Operating Agreement for a Limited Liability Company: The Operating Agreement is, perhaps, the most important document for the Limited Liability Company. The Operating Agreement is basically the rules and regulations by which the members and Limited Liability Company will follow. It should cover the individual members, voting, how ordinary and extraordinary transactions may occur (for example, you may want a higher vote percentage requirement for extraordinary transactions). It is also wise to indicate how members will receive revenues. This could consist of hourly rates, salary, profit sharing, etc., or some combination. More detailed Operating Agreements will have provisions dealing with the transfer of membership (ownership) interest, whether other members have first right of refusal to purchase those shares, covenants against competition, or what happens if a member becomes prohibited as an owner in a certain industry.
Limited Liability Taxes: Limited Liability Companies are generally not federally taxed on the profits at the corporate or business level. The federal income profits flow (pass through) to the individual owners who then pay taxes based on the individuals’ tax rates.