Choosing the best form of business ownership
To properly structure their businesses, business owners should know the different types of business forms.
Businesses in Colorado take a number of different forms, from sole proprietorships to corporations. Those who are starting up a business must consider and choose which form is most suitable for meeting its goals. Likewise, current business owners can sometimes benefit from restructuring their businesses. Therefore, taking the time to carefully evaluate the different types of business structures available in Colorado can help owners, both current and prospective, realize their goals.
What are the different business forms?
There are several structures available to individuals forming a business in Colorado. The following list goes through the basics of the most common forms:
· A Sole Proprietorship is an unincorporated business that is owned and operated by a single individual who is personally liable for all of the business’ obligations and is solely entitled to its profits and losses. Therefore, a sole proprietorship is indistinguishable from its owner.
· A Partnership is “an association of two or more persons to carry on, as co-owners, a business for profit and includes, without limitation, a limited liability partnership.” C.R.S. § 7-60-106. Like a sole proprietorship and unless formed with limitations on liability as a limited partnership or a limited liability limited partnership, a partnership is indistinguishable from its owners (the “partners”). Partners are jointly and severally liable for the business’ obligations, and they often share the partnership’s tax liabilities, profits, losses, and assets in proportion with ownership percentages.
· A Corporation is a company formed pursuant to the “Colorado Corporations and Associations Act” and is owned by one or more shareholders. A corporation has a separate and distinct existence from its shareholders, who are not liable for the company’s obligations and debts. Generally, corporations pay taxes on their income and may subsequently distribute profits to shareholders in the form of dividends, which are considered taxable income for the recipients thereof. Certain small corporations may benefit from electing to be treated as “S-Corporations” pursuant to Subchapter S of Chapter 1 of the Internal Revenue Code. An “S-Corp” election can allow a corporation and its owners to be taxed in a manner which under some circumstances is more advantageous than taxation as either a typical corporation or as a partnership.
· A Limited Liability Company (LLC) is a company formed pursuant to C.R.S. § 7-80-101 et seq. LLCs are owned by one or more “members,” who may be individuals, other corporations, and other LLCs. LLCs share similarities with both partnerships and corporations. Like partnerships, profits and losses (including tax liabilities) of LLCs are often passed-through to the members in proportion to ownership percentages. However, and as with corporations, members have a separate and distinct existence from the LLC and therefore are not typically liable for obligations arising in the course of business as long as they maintain the important line of separation between the business entity and their personal dealings.
Determining which business structure to adopt involves taking an inventory of the unique risks associated with a business, assessing the likely ownership, and evaluating the suitable tax treatments. This process can be very complex, and anyone looking into starting, buying, selling, or restructuring their business in Colorado may benefit from consulting an experienced attorney.
Wick & Trautwein, LLC has been helping individuals and businesses in Northern Colorado and Southern Wyoming, from the Fort Collins/Loveland/Greeley/Windsor metro area to Cheyenne, make intelligent and successful business decisions for over four decades.