Failure to Grasp the Basics Of Forming a Single Member Can Leave Exposed to Personal Liability and Creditors
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There are various types of business entities under the various state laws. In the case of a single member LLC under LLC Colorado laws, this business entity only has one member. If you are reading this article, you probably already know that having a sole proprietorship is one of the riskiest business strategies to use.
Unless the business owner chooses to become a disregarded company for tax purposes, the IRS will treat your business as a corporation. The process and filing requirements are no different from the traditional LLC.
Knowing how to start an LLC in Colorado means more than simply filing with Secretary of State. About 28% of business owners find themselves personally liable for business actions because they don’t understand the rules of . You have to avoid this peril at all cost.
A limited liability company (LLC) in Colorado is driven by Colorado LLC laws. If you are considering registering a single owner LLC in Colorado or not, it is important to know that the IRS looks at the LLC formation based on the number of members. The business will either be treated as a corporation or business partnership.
If you are registering a Colorado LLC with the Colorado Secretary of State that has more than two members, the IRS would look at the corporate entity as a business organization unless you file a Form 8832. Failure to file an 8832 form would cause the IRS to treat the LLC as a corporation. Worse tax benefits may apply.
What is a Single Member LLC?
If you elect to register a single member Limited Liability Company in Colorado as a disregarded business entity with no employees, then an EIC may not be necessary. You should register an LLC in Colorado and open up a new business account. Colorado LLC laws will dictate whether you need a Federal EIN Number.
As a general practice, all LLC companies should have a separate bank account and follow all Colorado LLC laws to maintain personal liability protection. See information about limited liability company operating agreement.
Your company is eligible to get potential tax benefits. However, when registering a single member LLC in Colorado, you should always seek legal advice about the applicable Colorado LLC laws. If you elect to form an LLC, you can choose for the IRS to treat your company as a sole proprietor or a corporation.
Single Member LLC Colorado Filing Requirements & Benefits
Registering as a Colorado entity , you can maintain the level of control needed to operate the company. The LLC owner also avoids personal liability so long as they follow the letter of Colorado LLC laws.
The filing requirements for a single member Colorado LLC is the same as for a non-single member LLC. Regardless of the type of filings, business owners must comply with the LLC statute or run the risk of personal liability.
Flow-through taxation is always a benefit to becoming a single member owner LLC limited liability company. This means that the business tax benefits also flow through to your personal taxes.
Get a Single Member LLC Operating Agreement
As a Colorado single member LLC, you are not technically required to have an operating agreement. Nevertheless, you want to make sure that you have one between yourself and company. Remember, the LLC is a separate legal entity. Just because you happen to be the only person managing the company does not give you a “pass” when something goes wrong. Courts will always look at the operating agreement.
See information about LLC vs Corporation – What Does LLC Stand for in Business?
Why You Need an Operating Agreement
Colorado does not require that you have operating agreements for single member LLC’s. The question is why do you need one. At the end of the day, when a dispute occurs of someone challenges your authority or actions, courts will not look favorable on you if you do not have a single member LLC operating agreement.
By drafting your LLC operating agreement, you are outlining your own legal authority for acting on behalf of the business. Now you can:
- Make plans or make certain commitments for the company
- Sign contracts on behalf of the entity,
- Hire employees for the company and make critical business decisions.
For help with single member LLCs Colorado filing requirements, CColorado business lawyers at 720-941-7200 for a FREE Initial Consultation. protecting your personal assets and help with forming an LLC in Colorado call our Denver,