Every Colorado LLC owner should have an operating agreement in place to safeguard their company’s operations. While an operating agreement is not legally needed by the state, it will create clear norms and expectations for your LLC while also establishing your legitimacy as a legal company.
WHAT IS AN OPERATING AGREEMENT FOR A COLORADO LLC?
An operating agreement is a legal document that describes an LLC’s ownership structure and operational practises.
Whether you form a single-member or multi-member LLC, your operating agreement should include all of the following subjects. Some of these requirements will have little impact on the day-to-day operations of a single-member LLC, but they must be included for legal purposes.
Organization: When the LLC was created, who its members are, and how ownership is distributed. Multi-member LLCs may have an equal ownership structure or allocate different “units” of ownership to different members.
Management and Voting: Whether the LLC will be governed by its members or by an appointed manager, as well as how members will vote on business concerns. Each member typically has one vote, but you may want to give certain members greater voting power than others. Read our Member-Managed vs. Manager Managed guide for additional information on managing your LLC.
Capital Contributions: The amount of money invested in the firm by each member. This is also where you should plan how you can raise extra cash in the future.
Distributions: How revenues and losses are distributed among members. The most typical approach is to disperse earnings in an equal distribution. If you want them distributed differently, make that clear in your operating agreement. Read our Contributions and Distributions guide for additional information on the fundamentals of LLC ownership.
Membership Structure Changes: How positions and ownership will be transferred if a member departs the firm. The method for buying out and/or replacing a member must be outlined in the LLC’s governing agreement.
Dissolution: If all of the members of your LLC decide that you no longer want to do business, you should formally dissolve it. An essential component of your operating agreement is outlining the hypothetical process of dissolving your firm. Read our Colorado LLC Dissolution article to understand how to dissolve your Colorado LLC.
WHAT IS THE PURPOSE OF A COLORADO LLC OPERATING AGREEMENT?
An operating agreement is required regardless of the sort of Colorado LLC you establish. This is why:
The state has recommended it. Every Colorado LLC may establish an operating agreement to control the company’s running operations, according to CO Business Statutes Section 7-80-108.
It will keep your business partners from clashing. If you’re forming a multi-member LLC, having an operating agreement in place can help you avoid misunderstandings by outlining each partner’s position and obligations.
It contributes to the preservation of your limited liability status. If you are the only owner of a single-member LLC in Colorado, having an operating agreement in place will assist to guarantee that your limited liability status is supported by court authorities, as well as contribute to the overall legitimacy of your firm.
We collaborated with a company attorney to provide free operating agreement templates and a user-friendly Operating Agreement Tool. To get started, just create a free business centre account.
Template examples include:
Single-Member Operating Agreement: Used by LLCs created by a single person.
Multi-Member Operating Agreement (Member-Managed): For LLCs founded by numerous members who want to operate the business together.
Multi-Member Operating Agreement (Manager-Managed): For LLCs founded by numerous members who want to select one or more managers to conduct the company’s daily operations.
By completing a few basic questions, the Operating Agreement Tool makes it simple to establish a unique operating agreement for your organisation.
AFTER COMPLETING YOUR COLORADO LLC BUSINESS AGREEMENT,
You do not need to submit your operating agreement with your state after you have completed it. Keep a copy for yourself and distribute copies to the members of your LLC.
Following every significant corporate event, such as the addition or removal of a member, it is prudent to examine and consider amending the operating agreement. Depending on how your operating agreement is worded, an update to the contract may need the approval of some or all of the members.