What is a Colorado LLC Operating Agreement?
An operating agreement is an agreement between the members of a limited liability company (LLC) that outlines the rights and responsibilities of each member, as well as the management and operation of the LLC. The operating agreement is an important document for any LLC, as it can help to prevent disputes among members and protect the LLC’s legal status.
Why is an operating agreement important?
There are a number of reasons why the operating agreement is important for an LLC in Colorado. A few of which include:
– In the event of a legal dispute, an LLC without an operating agreement may have to follow generic state rules which may not negatively impact the member’s personal asset protection.
– The roles, responsibilities, and expectations of the members are in writing which will reduce future conflicts.
– As a single-member LLC, having an operating agreement may help to better protect the entity’s limited liability status.
– When applying for financing, a lender will often want to see one before opening a business bank account to ensure the members have the authority to borrow on behalf of the entity.
– Potential investors and partners will request one when evaluating a business.
Is an operating agreement required in Colorado?
Colorado Statute § 7-80-108 states that every Colorado LLC may adopt an operating agreement, but it isn’t required by the Secretary of State. Despite it not being required, there are several reasons it is recommended to have one.
Currently, only six states require an operating agreement – California, Delaware, Maine, Missouri, Nebraska, and New York.
Related – When does an LLC need an Operating Agreement?
Can I write my own operating agreement?
While using an attorney is the safest option as they will customize the document to fit the specific needs of your business, the free operating agreements from the providers above will be better than trying to create one from scratch.
What should be included in an operating agreement?
An operating agreement can be as structured or unstructured as the members deem necessary. Some elements to consider putting in an operating agreement include:
– Business information such as the LLC’s name, principal office address, the purpose of the business, duration of the LLC, etc.
– Ownership structure
– Name and address of the Colorado registered agent
– Amount of each member’s share of capital contribution and the percentage of their ownership interest
– Management – member-managed vs member-managed
– Scope of the manager’s authority
– Fiscal year of the LLC
– Bank account information for the LLC
– Employer Identification Number (EIN) of the LLC
– Entity tax election
– Roles of the members (including financial authority, signing contracts, etc.)
– Names and addresses of the LLC members
– When and how members receive compensation and distributions
– Meeting information and voting rights
– Procedures for adding a new member, removing a current member, and the resignation of a member
– Process for the amendment of the operating agreement
– Process regarding the dissolution or bankruptcy of the LLC
– How any remaining assets will be divided after the liquidation of the LLC
Where is an operating agreement filed?
The operating agreement isn’t filed with the state of Colorado. A signed copy should be kept where the company records are stored in addition to each LLC member having one as well.
Does an operating agreement need to be notarized
An operating agreement doesn’t have to be notarized in Colorado to be legally binding, however, having the operating agreement notarized can be helpful as it proves the document existed on a certain date.
Instead of notarization, it is generally recommended that all members sign and date the operating agreement. This will help to acknowledge the agreement has been received and reviewed by the LLC member.
Is the Operating Agreement the same as the Articles of Organization?
No. The Articles of Organization are a formation document that is used to create the business entity with the Colorado Secretary of State. The operating agreement is an internal document that outlines the governing structure and operating guidelines of the entity along with the responsibilities of the members.
Related: How to form an LLC in Colorado
Colorado LLC Operating Agreement Template
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