The Colorado Limited Liability Company is a legal entity that you can form in Colorado to operate a small business.
The only reason it exists is because Colorado lawmakers enacted a law back in 1990 called the Colorado LLC Act.
There are two major issues that every Colorado LLC owner should be aware of to ensure that the personal liability protection is preserved.
ONE: IT MUST BE EVIDENCE THAT THE COLORADO LEGAL ENTITY IS OPERATING THE BUSINESS
In Colorado, there have been court cases where a member was held personally liable for a business obligation despite having a properly formed Colorado LLC in good standing with the state.
The reason for this is because when working on behalf of the business, he did not make clear to the parties he was doing business with that it was the Colorado legal entity that was the business party.
So, there is a risk in Colorado that by not properly disclosing that the business party is an LLC, you run the risk of being found personally liable. This is very important to know because often in the business of growing a business, you may not focus on this requirement.
Always ensure that you disclose and make clear to any third party, whether it be a customer, partner, supplier or service professional, that you are doing business as an agent of an underlying Colorado business entity and not personally as a sole proprietor.
TWO: PROPER COLORADO LIMITED LIABILITY COMPANY FORMATION
The only reason that owners of a Colorado LLC business have limited liability protection is because the Colorado laws include a specific provision which grants this protect. This provision can be found in Section 7-80-75 of the Act.
However, in order for that Colorado law provision to apply, there must first be a valid legal business entity formed in the state.
Accordingly, it is important that you strictly comply with the Colorado LLC legal requirements when submitting a formation filing for your legal entity. These requirements can be found in Section 7-80-204 of the Colorado laws.