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Pros and cons of forming an LLC in Colorado

As you set up your business, one decision you need to make is its formal organization. Colorado small businesses generally opt to register as corporations, general partnerships, limited partnerships or as a Limited Liability Company; businesses providing certain types of professional services may instead form a professional corporation, or a PLLC.

Either type of business organization presents its own unique advantages and disadvantages. Knowing the basics can give you a start in evaluating which best suits your circumstances and business goals.

Benefits

The LLC structure offers a great deal of flexibility in terms of structuring. With some careful planning, you can come up with an operating agreement tailored to your needs and those of other members. This way, you can fine-tune the distribution of profits and losses and specify the functions of each member. You can also make provisions for what happens if a member passes away, becomes incapacitated or simply wishes to leave the business.

Liability

Generally, the members of an LLC do not bear individual legal responsibility for the actions of the business. To reap the benefit of this rule, it is important to set up the LLC's operations so that they do not overlap or mingle with individual members' finances and activities. For example, having separate bank accounts and credit cards for the business is a basic tenet; consulting your attorney can help you become aware of other, more nuanced potential issues. When a proper structure is in place, the law typically insulates members from the company's liabilities unless there is evidence of fraud or members explicitly accept liability.

Potential drawbacks

Operating as an LLC may mean you need to pay taxes in the same way as someone who is self-employed. Further, LLCs may lack some of the tax and other benefits corporations may enjoy. It is wise to discuss likely tax liabilities with a professional deeply familiar with local business taxation issues. 

 

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Law Offices of Karen Brady, P.C.
5400 Ward Road, Building 5-170
Arvada, CO 80002

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