Colorado LLC Operating Agreement: Everything You Need to Know
If you want to draft your Colorado LLC operating agreement, you will want to ensure that all important business and decision-making processes are included in this agreement. 3 min read
2. How to Draft an Operating Agreement
3. Additional Steps After Drafting the Operating Agreement
Updated November 24, 2020:
Colorado LLC Operating Agreement
If you want to draft your Colorado LLC operating agreement, you will want to ensure that all important business and decision-making processes are included in this agreement. Therefore, if you plan on forming a Colorado LLC, you will want to first find a good business idea. Then, you’ll have to choose an appropriate business name, particularly one that is available for use in the state of Colorado. Most states, including Colorado, have specific rules in place for choosing a business name.
Thereafter, you will obtain a registered agent and register your Colorado LLC by filing the Articles of Organization. Once you have filed the articles of organization, you should draft the operating agreement.
How to Draft an Operating Agreement
While the state of Colorado doesn’t require that an operating agreement is drafted, it is very beneficial to do so. If you choose to draft an operating agreement for your Colorado LLC, keep in mind that this document is legally binding for all members, and it will govern the LLC. That’s why it is very important and beneficial to include all information regarding decision-making, distribution of profits/losses, voting power, etc. in the agreement. The agreement should also include the duties and responsibilities of the members, particularly for LLCs operating with multiple members.
While the operating agreement is more important for multi-member LLCs, it is still recommended for single-member LLCs. For example, a single-member LLC operating agreement can prove that the LLC’s structure is separate and apart from the individual member, which can be used in the event of legal proceedings against the LLC. While members are generally protected from liability regarding the business’s debts and obligations, the operating agreement can further prove that the entity is separate from the member, to reduce any likelihood of potential personal liability.
Certain general business documentation will need to be included in the operating agreement, including the business name, member names and addresses, the principal office location, and the date on which the company was formed. Additional information regarding each member’s capital contribution will be included.
Other information that should be included in the operating agreement:
• How often distributions will be made to the members.
• How the company will be managed, and what role each member will have in the daily operations of the business.
• How the company can be dissolved.
• Financial lending and how such decisions will take place, where to obtain lending and who will be the responsible party in charge of entering into such loan agreements.
• Similar to financial lending, is the lending of funds from the LLC to members for business-related purchases, i.e. improvements, business supplies, etc.
• Meeting requirements, i.e. how often meetings will be held, if meeting minutes will be taken (not required for LLCs).
• What happens if a certain event occurs, whether it be the death, insolvency, or disability of a member.
• What happens if an LLC member wants to sell his or her interest in the company, i.e. if the LLC member must sell the interest to other current LLC members or if the member can sell his or her interest in the company to a third party.
• Additional liability and indemnification provisions should also be included in the operating agreement.
Additional Steps After Drafting the Operating Agreement
In addition to drafting an operating agreement, you will need to obtain applicable business licenses and permits, register for state taxes, and open a business bank account/credit card.
Furthermore, if you plan on hiring employees, you will need to obtain workers' compensation along with general liability insurance. While this is not required in all states, it is highly recommended. When hiring employees, there are additional items to keep in mind, including the following:
• You must be sure that employees are eligible to work in the U.S.
• You must report new employees to the Secretary of State’s Office in Colorado
• You are required to withhold income taxes
• You must print employee-related compliance posters and place such signage in various areas throughout the office
If you want to obtain additional information regarding the Colorado Department of Labor laws, you can visit their website.
If you need help filing a Colorado LLC operating agreement, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5-percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law, and average 14 years of legal experience, including work with, or on behalf of companies like Google, Menlo Ventures, and Airbnb.