Does It Matter If Your Colorado LLC has a Written Operating Agreement?
We are often asked if it really matters whether a Colorado LLC has a written Operating Agreement. Let’s run through a quick hypothetical. Let’s say Lenny wants to start a business in Broomfield, Colorado: Briscoe’s Restaurant. Lenny plans to self fund his Broomfield restaurant and just wants a Colorado LLC to protect his assets. This is understandable thinking. Lenny files his Articles of Organization with the Colorado Secretary of State and in the Articles, checks the box that states his Broomfield LLC will be “manager managed” – because his is a single member LLC, and he will be the manager. Lenny decides to skip drafting an Operating Agreement because after all, its just him. Lenny may run his Broomfield business for years without incident.
But let’s now say Lenny brings on a partner, his long time restaurant manager, Rey. Lenny and Rey decide to be 50/50 partners moving forward. Instead of hiring a Broomfield business lawyer, they go online, find “good looking” Colorado LLC Operating Agreement – change some details and sign it. In the Operating Agreement, they list Rey as the Manager of the LLC as he has been the manager of the restaurant for years. Lenny and Rey don’t pay much attention to the rest of the Operating Agreement.
What are the problems here? Well, depending on the Operating Agreement a few big ones:
1) Lenny may have just given Rey substantial (if not total) control of the Broomfield business and the business decisions.
2) Rey may have unknowingly agreed to certain obligations (specifically fiduciary duties) owed to Lenny, while Lenny may owe nothing to Rey.
3) The operating agreement may not contain a buy sell agreement, or just as bad, contain one that does not work for Lenny and Rey’s situation.
This may not seem like a big deal – UNTIL something goes wrong. Both Lenny and Rey (and/or their spouses) will find themselves in positions that did not bargain for, or even understand and could stand to loose their business and large amounts of time and money. The Operating Agreement they found for free on Google may costs them both dearly.
The key is to understand HOW operating agreements work, and WHY the LLC’s members are making the decision to be member managed or manager managed – it is best to do this with an experienced Broomfield business lawyer.
As a side — If Briscoe’s Restaurant had a Broomfield Liquor License, when Lenny brings in Rey as a partner, they will have to notify the Broomfield Liquor Licensing Authority of the change in ownership. Many businesses overlook this critical liquor licensing step.
Broomfield Business Lawyers
The Broomfield Business lawyers of LaszloLaw have over 30 years of experience representing established businesses and startups on a variety of legal needs, including business formation, risk management, product liability and litigation matters. Contact our Broomfield LLC lawyers today at 303-926-0410 or online to discuss your business needs.
Our Colorado business lawyers practice in the Greater Denver area including: Broomfield, Aurora, Denver, Louisville, Boulder, Golden, Lafayette, Erie, Frederick, Westminster, Thornton, Longmont, Loveland, Fort Collins.