What Is a Colorado LLC Operating Agreement?
A Colorado LLC operating agreement is a legal document that explains how a limited liability company operates. It outlines the business structure, member roles, and internal rules that guide daily operations and major decisions (CO Rev Stat § 7-80-102).
An LLC operating agreement helps you set clear expectations for all members. It can help clarify the following:
- Who owns the company
- How decisions are made
- How profits and losses are shared
In Colorado, an LLC operating agreement does not need to be filed with the state and therefore, does not have a recording fee. You can simply keep it on file and follow the rules to keep your business running smoothly (CO Rev Stat Title 7, Article 80).
This document is used for limited liability companies. Corporations use a different document called corporate bylaws to outline similar internal rules.
Is an LLC Operating Agreement Required in Colorado?
Even though Colorado does not require an operating agreement, having one helps show that the LLC is a separate legal entity, which can support liability protection and make the business easier to manage. It can also help prevent disputes by clearly defining the roles, rights, and responsibilities of all members.
An LLC operating agreement can also be helpful when opening a business bank account, as many banks and financial institutions may ask for one. If you do not have an operating agreement in place, the default rules for LLCs under Colorado law will apply to your business.
Disputes between LLC members can become costly if roles and ownership are unclear. In LaFond v. Sweeney, a Colorado business dispute highlighted the importance of clearly defining member rights and responsibilities.
Colorado LLC Operating Agreement Legal Considerations
Colorado law sets default rules for LLCs. These rules apply if your operating agreement does not address a specific issue, so it is important to understand them when drafting your agreement.
- Fiduciary Duties: Members and managers in an LLC must act in good faith and in the best interest of the LLC. This includes duties of loyalty and care. The duties may be adjusted in the operating agreement, within legal limits (CO Rev Stat § 7-80-108).
- Member Withdrawal: Members may withdraw from the LLC in accordance with the operating agreement or as permitted by state law (CO Rev Stat § 7-80-606). Clear withdrawal terms can help avoid disputes and protect your business.
- Dissolution: An operating agreement can define when and how the LLC will dissolve. If it does not, Colorado’s default rules apply for ending the business and winding up affairs (CO Rev Stat § 7-80-801).
If you are starting a corporation instead of an LLC, you will typically need to file articles of incorporation to legally form the business.
Sample Colorado LLC Operating Agreement
Take a look at the sample Colorado LLC operating agreement template below to understand how you can define rules for your business. Once you’re ready, use our step-by-step questionnaire to fill out your agreement and download it as a PDF or Word file.
