Know the Basic Contents of Your Colorado Limited Liability Company Partnership Agreement
Although there may be other items that you want to include in a Colorado limited liability company LLC partnership agreement, there are some important things that you may wish to consider before finalizing an executed operating agreement.
It is always better to spend the time understand the contents up front instead of going to costly litigation. In comparison to a general partnership, at a minimum, the contract should contain the following:
- The name of your partnership. If you have not done so already, perhaps one of the first things that you and your partners need to sit down and agree on is the name of the limited liability partnership. You can also choose the option of making a fictitious business name. You must register the business partnership name with the Colorado Secretary of State. However, if you do decide to use a fictitious business name, you must make sure that the name is available for use and has not already been taken.
- The respective contributions of the partners. When a limited liability company partnership agreement is written, it is important that all the partners get together and agree on who will be making what contributions to the partnership, and what ownership percentage each partner will be entitled to.
- How the profits, losses, and draws will be allocated. Your limited liability company operating agreement should set out how the profits and losses will be allocated in the limited liability company. One of the most popular methods for allocated profits and losses creating a partnership is to go by ownership percentage.
- Another question that should be answered is whether every partner will be able to take a regular “draw,” withdrawal from his or her allocated profits, each year, or whether the limited partners can take their entire allocated profits. If you and your limited partners have different financial needs, there may be disagreements over this part of the business .
- The authority of the partners. Without an LLC partnership agreement that is contrary, any decision of a partner can be binding on the entire partnership, even without getting the other partners to agree. If you want to make sure that no one business partner can in-debt the entire partnership without the agreement of all the other partners, you need to be sure to include this in your .
- Business decision-making powers. As the power to make decisions about debt, it is important that you decide among all the limited liability partners how important business decisions will be handled. If you do not want one partner to be able to make important business decisions without consent, then you need to make sure to spell out the business making powers in your partnership contract.
- One popular method is to require a unanimous vote of all the partners for all important business decisions but still allowing individual partners to make minor business decisions without a formal vote. However, if you decide to take such an approach, you need to be sure to spell out what constitutes an “important” business decision and what constitutes “minor” business decisions in your limited liability company bpartnership agreement. Learn more about the differences between a limited liability corporation vs. limited liability company.
Management Decisions Under Your Colorado LLC Partnership Agreement
- Although it is probably not a great idea to spell out every detail of management in a limited liability company partnership agreement (meaning you do not have to dictate who will be making the weekly employee schedules), it would probably be a good idea to assign important management duties, such as who will be keeping the books for the business.
- How to bring in new partners. There may come a time in your business when you want to bring in new partners. If you can agree on this process at the outset, it will probably be much easier when the time rolls around. Always include the section when creating a partnership.
- How to deal with the withdrawal or death of a partner. Many partnerships have fallen apart when on partner decides to leave, becomes disabled or dies. You should be sure to have a buyout agreement included in your Limited Partnership agreement that deals with such situations.
- How to resolve disputes. As it often happens, there will probably be disputes between the partners in an LLC. However, if you spell out how you will deal with deadlocked conflicts at the outset, you can save a lot of money in future litigation. For example, instead of allowing the partners to go to court, you could require that arbitration or mediation is used first.
Read more about Personal Liability Protection Under Colorado LLC Laws and LLC vs. Corporation. Always be aware of drafting an LLC partnership agreement or other business agreements on your own. Sometimes important clauses go missing.
For help drafting your Colorado LLC partnership agreement, or need help with a general partnership, call our Business Partnership lawyers at 1-866-601-5518.