Initial Meeting is the Most Important Step in Forming a Colorado LLC
The initial meeting is the most important and often most over looked step in starting a Colorado LLC. Here’s why. In our practice, we often meet with founders after they’ve made the decision to start a business. Whether alone or with a few business partners, properly forming a Colorado Limited Liability Company is critical to the founders and the company itself. The most overlooked and most often skipped part of the LLC formation process is an initial meeting. What do I mean by “initial meeting”? Well, simply, sitting down with your partners (or by yourself) and sometimes an attorney to understand what you are trying to accomplish by forming a Colorado LLC and how you are going to do so. Here are three areas we see post LLC formation that could have (should have) been avoided with an initial meeting.
Capitalization. How will the Colorado LLC be funded? Cash? Loans? Sweat Equity? Outside Investment? Surprisingly, many LLC founders don’t know the answer to this question. Why is it important? Because, an LLC is owned by its members. If you invest in an LLC, you are a member and therefore an owner. So, that silent “investment” your grandmother is going to make in your new software company is going to make her a member of the LLC – most likely a voting member. These issues will be memorialized in your LLC’s Operating Agreement which will govern the company – so its important to get it right out of the gate.
Asset Protection. What assets are being protected by the formation of the LLC? The members’? The company’s? Who actually owns the assets being protected? Is the LLC being formed to protect the company’s assets – such as client lists, trademarks, patents, etc.? And/or is it being created to protect the members’ personal assets – such as homes, bank accounts, etc.? Most people assume (correctly) that a Colorado LLC is an asset protection vehicle. Yet, they do not understand what assets are actually being protected, how best to protect those assets or, to what extent those assets are protected. Single member LLCs, for example, offer less protection than multi-member LLCs. Does this mean you should make your toddler children 1% “owners” in your new granola company? No. A properly formed Colorado LLC can protect the assets of the LLC itself and the members personally.
Name. Ah, the Name. This is every founder’s baby. No matter what they tell you, don’t believe the founder who says of their proposed name: “Oh, I just came with that on the way over… it doesn’t mean that much to me.” FALSE. It means a lot to them. And they spent hours agonizing over it, saying it out loud, visualizing it on the business card they’re going to pretend to have only one of when you ask and it’s the name of the domain they bought on GoDaddy.com. So, what’s the issue? You may not be able to use the name … Yes, even if you registered it with the Colorado Secretary of State. It’s important understand the difference between trademarks, trade names, domain names and what it means to be registered with the Secretary of State. We spend a fair amount of time counseling clients to look for other names. This can be easily avoided during an initial meeting.
These are just a few of the most common avoidable issues we see in our daily practice. Of course, not all issues are avoidable and some need to be met head on. Understanding your goals and positioning you and your company to achieve those goals is what the initial meeting should be all about. Once off and running, your Colorado LLC should have regular meetings to keep its “house” in order.
Colorado LLC Lawyers of LaszloLaw
The Colorado LLC lawyers of LaszloLaw provide legal counsel to business startups and existing businesses on a wide range of legal needs. Contact our Colorado LLC lawyers today at 303-926-0410 to discuss your business needs.
This blog is offered for informational purposes only and not intended to give legal advice.