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Colorado Limited Liability Company: One Pitfall to Be Aware Of
The primary purpose of forming a Colorado limited liability company is to protect your personal assets against any liabilities that could be awarded to due to a suit brought by a business with whom you deal. The LLC protection can fail you though in certain circumstances.
More than one of the standard ways LLC owners find themselves directly responsible in a lawsuit are explained in this Article.
A Colorado LLC owner lost a court battle in 1997 and was held personally responsible for what was a LLC business liability.
The personal liability stemmed from the fact that although he was working for the LLC, he did not state this fact at any time during his business dealings with the other company. That company assumed he was a sole proprietor.
The Colorado court held him liable stating that he did not properly disclose that his business entity was an LLC. This is very important to know because often in the business of growing a business, you may not focus on this requirement.
In Colorado, the LLC laws provide this protection but only if the business obligation was truly one of the LLC entity and not your personally. You must always fully disclose that it is the Colorado limited liability company and not you personally that is engaging in business. You are merely the agent of the legal entity.
First, make sure you always enter into legal contracts with your LLC as the contracting party. Second, make sure your signs, business cards and letterhead all contain the full LLC business name showing the legal entity designation.
When participating in meetings or discussions with representatives of other companies or customers, always introduce yourself as a representative of your LLC.
Colorado courts have interpreted to LLC laws of the state to mean that if the other party had the impression that they were dealing with you as an individual on your business matters, the courts may decide that their impression holds sway over your organizational setup. The burden falls on the LLC representative to make the customer aware.
