The Colorado LLC is now the entity of choice among Colorado business owners.
While it has only been around since 1990 when the Colorado Limited Liability Company Act was passed, there are almost 4 times more LLCs formed each year versus the longer existing corporation in Co. And this spread only increases with each year.
The number one reason business owners form this kind of legal entity is for limited liability protection. This Article explains exactly what the Colorado LLC Laws state which give this benefit of asset and liability protection to LLC owners.
The Colorado LLC Protection Provision
This provision can be found in Section 7-80-705 of the Act and it basically that’s that members and managers of limited liability companies are not liable under a judgment, decree or order of court or in any other manner for a debt, obligation, or liability of the limited liability company.
Without this protection, a business owner, operating as a sole proprietor would be completely liable for the liabilities of his business activity. Given the rising number of lawsuits against small business in Colorado, this protection is so important.
Colorado lawmakers intentionally included specific protection provisions to help facilitate entrepreneurship in Colorado.
Other Colorado LLC Protection Provisions
Most other states end with the protection provision, but the Colorado Limited Liability Company Act goes even further to protect LLC owners with provisions included in Section 7-80-107.
This section states that the failure of the LLC to observe the formalities or requirements relating to the management of its business and affairs is not in itself a ground for imposing personal liability on the members for liabilities of the limited liability company.
This provision provides double comfort for an owner of a Colorado limited liability company because it limits the grounds upon which a litigant may try to pierce the protection veil of a business.
Other states will allow the protection layer to be pierced and will hold owners personally liable despite an LLC if formalities are not adhered to.
While it is not recommended that any LLC business not follow minimal formalities and maintain paperwork for maintenance of the limited liability company, this provision should give comfort that any neglect in this area will not cause personal liability.
As you can see, the Colorado LLC provides solid protection which shields the personal assets of a business owner. However, in order to ensure this protection is preserved, it is important that the legal entity is properly and completely organized at the state level.