2021 Colorado Code
Title 7 - Corporations and Associations
Article 80 - Limited Liability Companies
Part 1 - Definition and Application
§ 7-80-107. Application of Corporation Case Law to Set Aside Limited Liability

1. In any case in which a party seeks to hold the members of a limited liability company personally responsible for the alleged improper actions of the limited liability company, the court shall apply the case law which interprets the conditions and circumstances under which the corporate veil of a corporation may be pierced under Colorado law.
2. For purposes of this section, the failure of a limited liability company to observe the formalities or requirements relating to the management of its business and affairs is not in itself a ground for imposing personal liability on the members for liabilities of the limited liability company.
3. A limited liability company's status for federal tax purposes does not affect its status as a distinct entity organized and existing under this article.

History. Source: L. 90: Entire article added, p. 416, § 1, effective April 18. L. 94: Entire section amended, p. 710, § 4, effective July 1. L. 2016: (3) added,(HB 16-1329), ch. 242, p. 988, § 2, effective August 10.

This section is the only part of the Colorado Limited Liability Company Act that addresses applying the common law principle of piercing the corporate veil in the limited liability company (LLC) context. Sheffield Servs. Co. v. Trowbridge, 211 P.3d 714 (Colo. App. 2009).

The plain language of subsection (1) does not prohibit a court from applying the equitable common law doctrine of piercing the corporate veil to hold a manager of an LLC personally liable for the LLC's alleged improper actions. Sheffield Servs. Co. v. Trowbridge, 211 P.3d 714 (Colo. App. 2009), overruled in Weinstein v. Colborne Foodbotics, LLC, 2013 CO 33, 302 P.3d 263.

It is presumed that, in adopting subsection (1), the general assembly did not intend to create a safe harbor for LLC managers to perpetrate fraud and deceit. To construe subsection (1) as precluding application of the common law doctrine of piercing the corporate veil to LLC managers would open the door to fraud. Sheffield Servs. Co. v. Trowbridge, 211 P.3d 714 (Colo. App. 2009), overruled in Weinstein v. Colborne Foodbotics, LLC, 2013 CO 33, 302 P.3d 263.

A court determining whether to pierce the corporate veil of an LLC must tread carefully in light of subsection (2), particularly where the company in question is a single-member LLC and where management of the LLC is provided under contract by a management company. Sedgwick Props. Dev. Corp. v. Hinds, 2019 COA 102 , 456 P.3d 64.

Absent a statutory restriction, the common law piercing doctrine applies to LLC managers. Because allowing a manager of an LLC to hide behind the LLC's cloak of limited liability would promote injustice, protect fraud, or defeat legitimate creditors' claims, the equitable common law doctrine of piercing the corporate veil may be applied to hold an LLC manager personally liable for the LLC's improper actions. Sheffield Servs. Co. v. Trowbridge, 211 P.3d 714 (Colo. App. 2009), overruled in Weinstein v. Colborne Foodbotics, LLC, 2013 CO 33, 302 P.3d 263.

Absent statutory authority, the manager of an insolvent LLC does not owe the LLC's creditors the same fiduciary duty that an insolvent corporation's directors owe the corporation's creditors. Since the LLC act does not extend corporation common law to an LLC in any instance except a veil-piercing claim, creditors of an LLC may not assert a claim of breach of fiduciary duty against managers of an LLC. Weinstein v. Colborne Foodbotics, LLC, 2013 CO 33, 302 P.3d 263 (overruling Sheffield Servs. Co. v. Trowbridge, 211 P.3d 714 (Colo. App. 2009)).