How to Form a LLP in Colorado

A limited liability partnership (LLP) is a structure for a business entity that allows the partners of the LLP to file personal income taxes for their share of the income of the LLP. The LLP does not have to pay income taxes on its income, as a corporation must.

One important feature of the LLP structure in Colorado and other states is the protection it offers to the partners from liability for the negligent acts of the other partners. These benefits, in addition to others, make the LLP structure the preferred business model for professional partnerships of doctors, lawyers, engineers, and other professionals.

For the purpose of forming an LLP in Colorado, a business must have at least 2 partners. Generally, to register as an LLP in Colorado, the partners of the LLP must complete a “Statement of Registration,” which requires the LLP to provide such information as the following:

• The name of the LLP;
• The LLP’s main office address;
• The name and address of the LLP’s registered agent.

More information about the form is provided below. In Colorado, LLP filing requirements are fairly minimal as compared to other legal business structures. However, it is important that these filings are properly done, as failing to do so could lead to the loss of the LLP liability protections.

What Paperwork Do I Need to Form a LLP?

All of the required paperwork can be filed with the Colorado Secretary of State. The partners would first create a partnership. Then, as noted above, the Statement of Registration form for the LLP should be filed and should include the following information:

• The name of the LLP: The unique name of an LLP must contain the phrase “ limited liability partnership” or an abbreviation of it, e.g., “Ltd.,” “L.L.P.,” “LLP,” “RLLP,” “R.L.L.P;”
• The true name of the general partnership: The name that has been the true name of the general partnership prior to its registration as an LLP must be provided;
• The principal office street address: The street address of the main office of the LLP must be a physical address and not a post office box. The street name and number, including any suite, unit, or apartment number, must be given. The city, state, and ZIP code must also be given.
  • If the address is outside of the U.S., the address must include the country and province, if there is one;
• The mailing address of the principal office: A mailing address is optional. However, if the mailing address is different from the street address, or if mail cannot be delivered to the street address, then the mailing address must be given, including the city, state, and ZIP code to which mail can be delivered.
  • Again, if the address is outside of the United States must include the country and name of the province if there is one;
• Name and street address of the agent for service of process: Provide the name and address of the registered agent for service of process. All of the same requirements for the address apply as apply to the addresses for the LLP itself. The registered agent must consent to serve as the registered agent.
  • There is a box on the form to indicate the agent’s agreement.

Once an LLP or LLLP has been registered with the Colorado Secretary of State, no other business using the same name as an existing LLP or LLLP may register with the Colorado Secretary of State. If a person has any questions or concerns about when or how to file paperwork on behalf of an LLP, then they would want to consult an experienced Colorado business lawyer for assistance.

In addition to filing all of the necessary forms with the Colorado Secretary of State, the partners would want to get a federal tax identification number from the federal Internal Revenue Service. They would want to get a state tax identification number from the Colorado Department of Revenue.

The partners would be well advised to have a qualified Colorado business lawyer draft a partnership agreement for them.

The partnership agreement is important because it addresses such issues as the following:

• Who the partners are;
• What the purpose of the partnership is;
• What capital contribution each partner makes at the inception of the partnership;
• Who are the general partners and the limited partners;
• What each partner owns in terms of the percentage of the partnership;
• How the profits of the partnership are to be distributed;
• What is the exact nature of the authority of the general partners in terms of decision-making;
• What process will the partners use to settle any disputes that arise, e.g., courts or alternative dispute resolution processes;
• How and under what circumstances the partnership can be dissolved or transferred;
• How the partnership would bring on new partners;
• How partners can exit the partnership;
• Any additional guidelines or processes that the partners have established to handle crucial matters or make significant judgments.

If a partnership does not have its own partnership agreement, issues such as those listed above would be decided by the general default laws for partnerships in Colorado. The partnership default laws of Colorado might not bring the results that the partners would prefer. That is why it is important for partners going into a partnership to have a partnership agreement drafted that can provide the results the partners prefer.

What Benefits Does Colorado Give to a LLP?

Colorado LLP laws confer several advantages to the LLP business model. First, partners to the LLP are not personally liable for the negligent acts of other partners. Also, the partners have a limited level of personal liability for the partnership’s financial obligations. Each partner can be liable only for the value of any assets that they contributed to the partnership.

One or more of the partners must serve as the general partner, and the general partners assume personal liability for the business debts of the partnership.

The income of the LLP is taxed only once as the income of the individual partners. However, a Colorado LLP or LLLP can elect to be taxed in the same way that a corporation is taxed.

This can offer partners more personal and financial security when entering a new venture. Instead of having personal assets at risk, a partner who is not a general partner can create a new business without putting their personal savings or assets at risk for the obligations of the business.

What Are the Disadvantages of a Colorado LLP?

While partners are generally not personally liable for the negligent acts of other partners, the partners are liable for the normal debts and obligations of the LLP. For example, the partners of the LLP would be liable for any contractual obligations of the LLP.

But, say the liability arose from the professional negligence of another partner. In that case, the other partners’ assets cannot be reached to satisfy any debt related to the professional liability of the other partner.

Should I Hire a Lawyer?

If you are thinking of forming a business of any kind in Colorado, including an LLP, you want to consult an experienced Colorado corporate lawyer today to discuss your rights and obligations as a partner in an LLP. Your lawyer will be familiar with all of the formalities of setting up a general partnership and then registering it as an LLP. Your lawyer can also draft a partnership agreement that best fits the wishes of you and your partners.