How To Form An LLC

The purpose of forming an LLC or any other similar entity is to have limited liability. This means that if something goes wrong in your company, a creditor generally can only go after the company's assets rather than your personal assets.

Many people think that all they have to do is file LLC articles of organization with the Colorado Secretary of State to enjoy the protection of limited liability. The reality is that a lot of formalities should be observed. Otherwise, you run a risk that a creditor will be able to "pierce the corporate veil" of your LLC and go after your persona assets.

The primary formalities you will need to observe are as follows:

  1. Operating agreement: this agreement is the most essential document of your LLC. It lays out, among other things, who owns what, how your company will run basic operations, how profits and losses will be distributed, etc. This is a complex document, and a boilerplate form often will not work.
  2. Articles of organization: these must be filed with the Colorado Secretary of State. It's also a good idea to file annual reports with the Secretary. http://www.sos.state.co.us/pubs/business/forms_main.html#LLC
  3. Organizational meetings and minutes: if there is more than one member, it's a good practice to hold at least one meeting a year and keep basic minutes of the meeting.
  4. Obtain a Federal Employee Identification number: you can do so using this link - http://www.irs.gov/businesses/small/article/0,,id=102767,00.html . Moreover, if you're a single-member LLC, you should reference the LLC on Schedule C of your tax return. If there is more than one member of your LLC, an income tax return must be filed for it.
  5. Open a company checking account: remember that when you form an LLC, you and the LLC are NOT one and the same. Rather, the LLC is actually a separate entity. It is, for all intents and purposes, a separate person. It must be treated as such.
  6. Signing on behalf of the LLC: when you sign on behalf of the LLC, it's a good practice to list the name of the LLC, write "by" and then sign your name, print your name, and then list what your title is.
  7. Design business cards, stationery, billing invoices and other paperwork to show the LLC's name, rather than yours. Also, include the "LLC" suffix in all paperwork.
  8. Inform all suppliers of goods and services that you use that they're working with your LLC, rather than with you directly.
  9. Buy a corporate kit that includes your membership certificates and allows you to keep all of your primary LLC documents in one place. This is one affordable place: http://www.corporatekit.com/