What is included in a Colorado LLC Operating Agreement?
According to Colorado Revised Statute § 7-80-102, your LLC’s operating agreement “need not be in writing.” But a verbal handshake agreement won’t hold up in court, so it’s always better to have a written operating agreement. It should include the following information:
- Activities of your LLC
- Transfer of membership interest
- Voting rights and decision-making powers
- Initial contributions
- Profits, losses, and distributions
- Management
- Compensation
- Bookkeeping procedures
- Dissolution
What information do I need for Northwest’s free Colorado LLC operating agreement?
Want to focus on your business and leave the legal hullabaloo to us? Our lawyers drafted a comprehensive operating agreement you can use for free. You can even fill it out on this page, save it in a free account for later, and download a completed draft to sign.
In order to fill out our free operating agreement template, you’ll need your:
This must be your business’ legal entity name, or the name you put on your LLC Articles of Organization.
Did an LLC member contribute $500? $5k? A storefront? Put that here.
You’ll just write in 16 here since our version has a set amount of pages.
Remember, this is an internal document, so you won’t have to submit these names to the state just because they’re on here. However, you might need to add these people to your BOI Report.
Include any initial contributions, even if it’s only a small percentage.
While we recommend having a business bank account, some banks like to actually see the operating agreement before you open the account. If that’s the case, you can leave this blank for now.
This is the place your business operates from.
You can add this in later if you aren’t sure when your meeting will be held.
There’s a few different spots in our template where you’ll need a signature of one or more members
Why should a Colorado LLC have an operating agreement?
A Colorado LLC should have an operating agreement because a company cannot act for itself. In order to operate, LLCs require real humans (and other entities) to conduct company operations.
In Colorado Revised Statute § 7-80-108, the state covers essential functions and restrictions of a Colorado LLC’s operating agreement, but never specifically says one is legally required. However, we suggest (and any good lawyer would recommend the same) that you decide on an operating agreement and put it in writing.
1. Your operating agreement proves you own your LLC.
In Colorado, you can opt out of listing LLC members’ names on the Articles of Organization. This is great if you’re concerned about protecting your privacy, but it could make it tricky for you to prove you actually own your business if the need arises. That makes it useful to have a written operating agreement listing all your members’ names and addresses.
2. An operating agreement can help reinforce your limited liability status.
To maintain limited liability, all LLCs need to be able to prove that they are legally separate entities from their owners. This requires LLCs to keep business and personal finances and interests separated. Another way to help demonstrate that your LLC is a distinct legal entity is by adhering to the rules and proceedings outlined in your operating agreement. If you’re ever served with a lawsuit, a strong operating agreement could be one of your best weapons for proving your LLC has limited liability status.
3. An operating agreement can help settle disputes between members.
Disagreements are likely to arise when you go into business with other people, but you don’t want a small clash to blow up into a legal dispute. Your operating agreement establishes how your LLC will handle a range of situations, so you can refer back to it when your members can’t agree.
4. An operating agreement can override Colorado’s default laws.
Anything you don’t change in your operating agreement will automatically be subject to Colorado’s default laws for LLCs. You might prefer to create your own rules for your business. That’s why it’s important to have a custom operating agreement that’s tailored to your LLC.
Colorado Case Law
We asked our lawyers for an example of how an operating agreement can make or break your LLC. Here’s what they said.*
“Consider the case of LaFond v Sweeney, where the failure to actually adopt and maintain an operating agreement led to disputes between the members when trying to dissolve the LLC resulting extensive and expensive litigation. Because the members failed to adopt an operating agreement, the courts were forced to look to the statutes for the default rules on how to resolve the members’ dispute. Such valuable resources could have been preserved had the members of the LLC taken the time to plan ahead, discuss potential pain points, and distill their collective understanding into a written operating agreement.”
FAQs
No. Colorado state law does not require you to create and maintain an operating agreement for your LLC. However, you’ll want to have an operating agreement for many aspects of running a business. Banks, landlords and investors will want to see proof of ownership when you deal with them.
No. Your operating agreement is an internal document that you keep on hand in your LLC’s records.
Believe it or not, yes! It may seem silly to write an agreement with yourself, but even single-member LLCs need an operating agreement to accomplish certain things, like opening a bank account or—perhaps most importantly—proving your limited liability status.
*This is informational commentary, not advice. This information is intended strictly for informational purposes and does not constitute legal advice or a substitute for legal counsel. This information is not intended to create, nor does your receipt, viewing, or use of it constitute, an attorney-client relationship. More information is available in our Terms of Service.