LLC – Forming a Limited Liability Company

A Colorado LLC is the US Specific form of an individual limited liability company. It is a hybrid business structure that combines the pass-through taxation of an individual sole proprietorship or partnership with the limited liability of an entity. The concept is simple: when you are the sole owner of the limited liability company, you are personally liable for the debts of the LLC and only your assets will be protected. By contrast, when you are a member of an LLC, you are liable to the company but not to the individual. As an example, if you are a sole trader and have made sales of products to clients, the retailer is personally liable for the debts of the retailer’s LLC rather than the individual seller.

There are advantages to operating a limited liability company beyond the advantages associated with taxation. The major advantage of having such a structure is that it creates opportunities for small businesses to expand and meet the economic goals of the government. Taxation of corporations has been a major deterrent to small business expansion in the past because it is difficult to define what a corporation does. A small business can use a limited liability corporation (or LLC) as a vehicle to circumvent the corporate tax liability created by the corporation. This means that any profits made by the small business are subject to taxation according to the individual income tax rate of the individual.

An LLC operating agreement is therefore very important because it creates a roadmap for the business owners to follow in order to reduce their tax liabilities to the parent corporation. The owners are obliged under the terms of the operating agreement to divide their time and profits equally between the two bodies and they cannot increase their share of profits above the median limit established in the operating agreement. The limits established must comply with the IRS regulations on income and profit taxes. It is not enough for the owners to say they will divide their profits equally; the profits must be treated in line with the income of each owner. The regulations also state that if the corporation becomes bankrupt, the operating agreement of the LLC will continue to apply even though the other shareholders may no longer have any right to the shares of the LLC.

Limited Liability Company is also known as a “C” or “S” corporation and it is treated just like a “C” corporation. The only difference between the two is that a C corporation is allowed to carry on business in its domicile whereas a LLC cannot do so. The main reason why an LLC is often seen as a separate legal entity from the corporations it is associated with is because an LLC is treated as a pass-through entity meaning that an insignificant share of the ownership of the LLC is held by the members and no shares are paid or otherwise disposed of by the owners. An LLC is treated just like a sole proprietor, which means that it can only file federal and state reports with the IRS and enjoy limited liability.

Forming a Limited Liability Company is not difficult. The first step to begin this process is to select a qualified registered agent. In general, the candidates chosen are those who own the majority shares of the LLC and are considered the “active” members. Once you have chosen your registered agent, all LLCs must now obtain a government permit to operate. These permits are issued by the state’s department of revenue and can be obtained online at any number of websites.

The most important thing about starting up a limited liability companies is to register it with the state. This is done by completing and sending an Application for Operating Agreement or Operating Certificate to the department of revenue. A copy of this document should then be submitted to the LLC’s registered agent. Once this is completed, all other required paperwork should be sent to the office of the Secretary of State or the company’s attorney. Once this is complete, you can then file your articles of incorporation with the state and obtain your business structure certificate.

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