A limited liability company, or LLC, can offer your organization several tax and asset protection opportunities. In many ways, LLCs act as a hybrid of a partnership and a corporation, taking benefits from both entity types. For example, an LLC would generally pay lower taxes than a corporation would thanks to its default IRS classification. The IRS classifies LLCs the same as sole proprietorships and partnerships, which allow for pass-through taxation. Additionally, an LLC offers its members limited liability protection, just as a corporation does its members. All of these same benefits are available to LLCs formed in the state of Colorado.
If you want to form a Colorado LLC, you must first file articles of organization with the Secretary of State. Your articles should list the name and address of your LLC, as well as the name and address of your members and managers. In Colorado, LLC members are required to mention if they will be managing the organization themselves or appointing managers without financial ownership in the LLC to do so. Additionally, members of your LLC must all be 18 years of age or older. Finally, your Colorado LLC must designate a registered agent and provide that agent’s name and address. The registered agent role can be fulfilled by an individual or registered business. The duties of the registered agent are to accept important documents and legal notices on behalf of your LLC. In Colorado, your registered agent must be at least 18 years old and reside in the state.
There are no requirements for LLC membership. An LLC can be formed by a single person or with multiple members. In the event there are several members, each typically makes a capital contribution to the LLC. This contribution could be a monetary one or in the form of services for the LLC. Often times, initial capital contribution may dictate that member’s share of profits and voting rights as LLC members must decide these matters on their own. Members may choose to run their organization on their own in the way a partnership would be run, or they may choose to appoint an outside manager without ownership share in the organization to manage the day-to-day operations.
The IRS has not designated a unique tax classification for limited liability companies. For this reason, LLCs are assigned a default classification and taxed as a sole proprietorship or partnership would be. Pass-through taxation allows for the organization’s profits and losses to be treated as the individual’s own and therefore not subject to the double taxation that corporations experience. Corporate taxation, on the other hand, requires that members file a separate return from that of the company, which amounts to paying taxes twice on the same profits. With your Colorado LLC, be sure to select the same tax classification for the Department of Revenue that you have selected with the IRS.
LLCs are considered separate legal entities and therefore offer their members limited liability protection. Legally separating the entity from its members means that for any debts incurred by the company, member assets cannot be sought for restitution. In the event that a judgment is won against your LLC, it is only the LLC assets at risk, not those of the members. However, this limited liability protection does not extend to other behavior. If a member engages in fraudulent behavior or other criminal behavior, they can be held personally responsible.
A Colorado LLC can offer your business several opportunities from pass-through taxation to limited liability protection and more. If you are interested in forming a Colorado LLC, consider using our LLC formation service. Our expertise and experience can ensure your LLC is formed correctly and in accordance with all Colorado state law and regulation.