LLC Personal liability protection is somewhat reduced under Colorado LLC laws when compared to other states. In 2012, the Colorado Court of Appeals “pierced the corporate veil” by deciding that business owners or corporations and limited liability companies are liable for personally responsible for business debts. See Martin v. Freeman, 2012 COA 21 (Colo. Ct. App. 2012).
This is especially true when LLC owners transfer company assets to avoid paying debts of the enterprise. The Court used the “alter ego” analysis to make its decision.
Colorado limited liability company law substantially impacts personal liability and security by allowing creditors to get orders from a court to collect a judgment on the business member.
Under the Colorado Limited Liability Company Act, there is some level of personal protections from the company. To get the most personal protection, you want to have a thorough understanding of how to run the business.
- Get proper legal advice on how to handle the day-to-day business operations.
- Following the legal formalities is essential to getting any personal protection.
When it comes to LLC personal liability protection under Colorado LLC Laws, your creditor can seek legal remedies by foreclosing on the member’s LLC interest.
What Type of LLC Protection From Personal Liability Do You Get?
When you start and an LLC in Colorado, you may hope that you are avoiding personal liability for the debts of the business. When creating an LLC in Colorado, the business entity is liable for the debts and liabilities incurred by the business. In other words, you are not personally liable for the business debts. Keep in mind that you are not exempt from everything that occurs. This is where the help of an LLC attorney can be beneficial.
Part of your planing and LLC formation phase should include getting an understanding of how you must operate the day to day operations to get LLC protection from personal liability.
You may want to think unique liabilities that you can inherit as the business owner.
- personal liability for your LLC’s debts
- personal liability for actions by LLC co-owners or employees related to the business
- personal liability for your own actions related to the business, and
- LLC liability for other members’ personal debts.
Ways to Avoid Personal Liability Under Colorado LLC Laws
Other ways that you can become personally liable under Colorado LLC laws include:
- Commingling company funds.
- Not having good standing with the Colorado Secretary of State.
- Not maintaining a registered agent.
- Failure to follow statutory mandates for marketing and advertising.
- Not acting in the interest of the company.
- Breach of fiduciary duty.