Law Firm Structure Options In Colorado: Llc Viable?

In Colorado, law firms can be set up as limited liability companies (LLCs), which are a popular choice for business owners due to the personal liability protection they offer. However, there are specific rules and requirements that must be followed when forming an LLC for a law firm in Colorado. For example, the Colorado Rules of Professional Conduct require that law firms include the name of at least one shareholder in the company name. Additionally, all members of the LLC must be licensed to practice law in Colorado, and the LLC must continuously maintain a registered agent and office for service of process.

Law firm name requirements

The name of a law firm LLC in Colorado cannot be the same as or deceptively similar to the name of another corporation, limited partnership, or limited liability company. The name must contain "Limited Liability Company" or the abbreviation "LLC". If "LLC" is not used, "Limited" may be abbreviated to "Ltd." and "Company" to "Co.".

A law firm may include in its name the name of one or more deceased or retired members of the firm or predecessor firm in a continuing line of succession. The Colorado Secretary of State has published its opinion that the Colorado Rules of Professional Conduct require law firms to have at least one shareholder's name in the corporation's name.

To form an LLC in Colorado, you must file Articles of Organization with the state, which costs $75. The Articles of Organization must include the street address of the registered office and the name of the registered agent at that address. The registered agent may be a natural person or a Colorado or foreign corporation qualified to do business in Colorado. The Articles of Organization must also include one of the following statements:

> All members of the limited liability company shall be jointly and severally liable for all acts, errors and omissions of the employees of the corporation; or

>

> All members of the limited liability company shall be jointly and severally liable for all acts, errors and omissions of the employees of the corporation except during periods of time when the LLC shall maintain in good standing lawyers’ professional liability insurance which meets the minimum standards of Rule 265 C.R.C.R.

In addition, the Colorado Rules of Professional Conduct require that at least one lawyer's name must be included on any advertisement, and that lawyer will be held responsible for the content.

Compliance with Colorado Supreme Court rules

Firstly, it is imperative to consult the Colorado Supreme Court to ensure full compliance with its rules and requirements. This includes adhering to naming restrictions for LLCs. The name of an LLC must be unique and cannot be deceptively similar to an existing name on file with the Secretary of State. The LLC name should typically include "Limited Liability Company" or the abbreviation "LLC".

Secondly, the Colorado Rules of Professional Conduct, as opined by the Secretary of State, require law firms to include the name of at least one shareholder in the firm's name. This is a crucial aspect of compliance.

Additionally, the Articles of Organization for an LLC practising law must be filed with the Colorado Supreme Court. These articles must include specific statements regarding the liability of the LLC's members for the acts, errors, and omissions of the employees. The LLC must also continuously maintain a registered agent and office for service of process, with the registered agent being a natural person or a corporation qualified to do business in Colorado.

Furthermore, all members of the LLC must be licensed to practise law in Colorado. This is a fundamental requirement for any law firm operating as an LLC in the state.

It is also important to note that while an LLC offers personal liability protection to its members, there may be instances where a court can "pierce the veil" of the entity and hold members liable for the company's debts or actions. Therefore, a well-drafted operating agreement is essential to maintaining the liability protection afforded by the Colorado Limited Liability Company Act.

Lastly, the formation of a PLLC (Professional Limited Liability Company) may be necessary for licensed professionals in certain states. While PLLCs share similarities with LLCs, they are specifically designed for professionals such as lawyers, doctors, and accountants. In Colorado, the formation process for a PLLC will have additional requirements and tasks specific to the profession.

The Colorado Limited Liability Company Act

To form an LLC in Colorado, you must file Articles of Organization with the state. This can be done online, over the phone, via mail, or in person, and it costs $75. The Articles of Organization must include the street address of the registered office and the name of the registered agent at that address. The registered agent may be a natural person or a corporation qualified to do business in Colorado. The business address of the registered agent must be the same as the address of the registered office. The Articles of Organization must also state that there is at least one member of the LLC.

If a law firm wishes to operate as an LLC in Colorado, it must comply with additional requirements. The firm must include the name of at least one of the shareholders in the corporation's name. The Articles of Organization must include one of the following statements: "All members of the limited liability company shall be jointly and severally liable for all acts, errors, and omissions of the employees of the corporation"; or "All members of the limited liability company shall be jointly and severally liable for all acts, errors, and omissions of the employees of the corporation except during periods of time when the LLC shall maintain in good standing lawyers' professional liability insurance which meets the minimum standards of Rule 265 C.R.C.R.". Additionally, all members of the LLC must be licensed to practice law in Colorado.

Once the Articles of Organization are filed, the LLC is automatically deemed valid and enforceable throughout the United States. However, additional paperwork must be filed with the state, and quarterly returns must be filed with the IRS.

Benefits of forming an LLC

A limited liability company (LLC) is a popular choice for many business owners in Colorado. There are four ways to form an LLC in Colorado: online, over the phone, via mail, or in person. The process takes about 10 minutes and costs $75.

Limited Liability

LLCs provide limited liability, meaning that the individual assets of LLC members cannot be used to satisfy the LLC’s debts and obligations. A member’s risk of loss is limited to the amount that the member invested in the business.

Flexibility

LLCs offer flexibility in management and the distribution of profits. They are not required to distribute profits equally or according to ownership percentages. For example, two members with equal interests in an LLC may agree that one will receive a greater share of the profits because they contributed more money or labor during the startup phase. Additionally, LLCs do not have to hold annual meetings or maintain extensive records, minimizing corporate formalities.

Taxation

LLCs benefit from taxation advantages. They do not have their own federal tax classification but instead adopt the tax status of sole proprietorships, partnerships, S corporations, or C corporations. This allows them to avoid double taxation.

Formality

LLCs have minimal business registration paperwork and ongoing filing requirements. They are not required to maintain annual meeting minutes or make annual reports, reducing the burden of corporate formalities.

Legitimacy

Forming an LLC can demonstrate legitimacy and make banks and lenders feel more confident about offering financing. As a formal legal entity, an LLC may have easier access to financing and credit.

Steps to form an LLC

In Colorado, a law firm can be an LLC, but there are specific rules and requirements that must be followed. Here are the steps to form an LLC in Colorado:

Choose a unique name:

Select a name that isn't already registered by another LLC in Colorado. The name should typically end with "Limited Liability Company," "LLC," or an abbreviation like "Ltd." or "Co." Ensure the name isn't deceptively similar to an existing one.

Appoint a registered agent and office:

Designate a registered agent, which can be an individual or entity, and provide their physical address in Colorado. The registered agent's business address must match the registered office address.

File Articles of Organization:

Submit the Articles of Organization with the Colorado Secretary of State, either online, over the phone, via mail, or in person. This document should include basic information such as the LLC's name, address, and the registered agent's details. There is a filing fee, typically ranging from $35 to $500, but in Colorado, it is $75.

Register with the IRS:

Once the LLC is formed, register it with the IRS. Obtain an EIN if the LLC has employees or is required to file certain excise tax forms. Additionally, file quarterly returns with the IRS.

Operating Agreement (optional):

Although not required by all states, creating an operating agreement can be beneficial, especially for multi-owner LLCs. This document outlines the LLC's procedures, management structure, and operations guidelines.

Comply with State-specific requirements:

Ensure compliance with any additional Colorado-specific rules and regulations for LLCs, such as those outlined by the Colorado Supreme Court for law firms.

Frequently asked questions