Advance Payment, Indemnification, and the Single-Member LLC

The Colorado statues provide that an limited liability company (LLC) member is entitled to be reimbursed for expenses incurred for the company. LLCs can also provide their members, managers, officers, employees, agents, and so on with indemnification for liabilities they incur for the company. While there are limits to the indemnification that can be provided, because LLCs are contractual entities, the indemnification generally has to be granted within the Operating Agreement.

The first thing to keep in mind is that this […]

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Following Corporate and Entity Formalities—Summary

Guidance from Company Documentation

Because corporations and limited liability companies are separate entities, the formalities are the very thing that establishes that the entity is actually operating independently. Observing the formalities is important for the protection of the entity, and all of the people involved in the various roles and functions of the company. The articles of organization or incorporation, the bylaws and operating agreement, along with any resolutions, area the guide for how the persons in the company can comply […]

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Business Exit Planning for Small Business

Everyone will exit their business at one point or another.  Whether you shut the business down, sell your interests, or pass away, someday, you will no longer be in your business.  The same goes for your business partners.  One day, they will no longer be in the business. 

Some basic questions will help frame the issues:

If your business partner dies, do you want to be partners with their spouse or heirs?
If you die, will your own spouse or heirs want, […]

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Business Structures and Entities: Limited Liability Companies (LLCs)

A limited liability company (LLC) is an entity organized under the state’s limited liability company statute.  This is done by filing Articles of Organization with the Secretary of State where it is organized.  The owners of an LLC are called members. A limited liability company combines the organizational and structural features of a partnership with the liability limitations of a corporation.  However, this is a simplification.  LLCs are very flexible entity structure types.  LLCs can have one member or […]

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LLCs Taxed as S-Corporations, and Membership Restrictions

When an LLC elects to be taxed as an S-Corp, for tax purposes, the members of the LLC are treated as shareholders of an S-Corp.  Under Colorado statutes, the fact that an LLC member is treated as a shareholder does not alter their designation as a member or restrict how the LLC can operate.  However, there can be serious consequences and conflicts between how the LLC works under its Operating Agreement and the treatment of the members as S-Corp shareholders […]

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Update on LLC Operating Agreement Case Condo v. Conners

On July 7, 2010, I wrote a post entitled LLC Operating Agreement Controls Assignment of Membership Interest.  In the post I discussed the Condo v. Conners, No. 09CA1130 opinion in which the Colorado Court of Appeals agreed with the trial court that an assignment by a member to his ex-spouse of member distribution rights contrary to the Operating Agreement was void.

As I described before, in the case, one of the members of an LLC assigned his membership interest (in the […]

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