Business Formation Attorneys
in Nederland & Broomfield, CO

As of 2020, there are 653,639 registered small businesses in Colorado, “small businesses” being defined as companies with fewer than 500 employees. This represents 99.5% of all businesses in the state. Prior to the pandemic, Colorado small businesses maintained 1,140,757 employees on their payrolls — or 48.1% of all people working in the state.

As the nation and the state continue to emerge from lockdowns and other pandemic measures, business is returning to normal throughout Colorado, and entrepreneurs are itching to launch new businesses.

One major decision facing anyone seeking to launch a business is what form it should take — sole proprietorship, limited liability company (LLC), partnership, or corporation.

If you’re considering forming a business and you’re in or around Nederland or Broomfield, Colorado, or throughout the Front Range area or the Peak-to-Peak region, contact us at The Law Offices of Daniel T. Goodwin. Our business formation attorneys can advise you of your options and help you prepare the legal documents to get started on your new venture.

Types of Business Entities

The entity you choose for your new enterprise will largely impact your personal liability, your ability to raise cash, and your tax obligations. Here are your basic options:

Sole Proprietorship

You’re the owner and the boss with full liability for everything that transpires. If you default on a loan, the lender will come after you and your possessions. If you’re sued, you’ll have to deal with that and the consequences. You’ll also be responsible for all taxes. If you need to raise cash, banks may be reluctant to offer a loan unless you can provide personal collateral. A sole proprietor will often have to rely on equity in their home, money in their savings account, or withdrawals from their retirement funds to finance their business start-up.

Partnership

Partnerships are the simplest structure for two or more persons to own a business jointly. For added protection, they can be formed as a limited partnership (LP) or as a limited liability partnership (LLP). The difference is that an LP has one general partner who assumes full liability, while the other partners have limited liability (and often limited say in the operations). An LLP bestows limited liability on all partners alike. Profits pass to the partners, who will be responsible for personally paying all taxes due. Raising funds may still be challenging, but you can always add a new partner for a cash infusion.

Limited Liability Company (LLC)

This is much like a partnership but with the liability shield of a corporation (although an LLC can have just one owner). The LLC is liable for all claims against it and not the members, who stand to lose only the initial investment they made in the enterprise. Their personal assets are generally safe. Though LLCs cannot issue stock like a corporation, they can issue a bond to raise money.

C Corporations & S Corporations

A traditional corporation becomes a legal entity on its own, managed by a board of directors and by appointed officers of the company. The corporation can issue shares to raise funds, but shareholders then become part owners. The founders and shareholders cannot generally be held personally liable, and the corporation itself must pay all taxes. If a corporation chooses “S” status under the Internal Revenue Code, income then passes to the founders, who must pay the taxes. An S corporation, however, is limited to 100 shareholders, and they all must be U.S. citizens.

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Legal Documents Required

If you’re establishing a sole proprietorship, there are no legal documents necessary to file with the Secretary of State (SOS). However, if you use a name for your business other than your personal name, Colorado requires you to file a statement of trade name with the SOS.

A partnership requires a partnership agreement, the terms of which will vary depending on whether you’re establishing a general partnership, a limited partnership, or a limited liability partnership. Though the agreement is not required by law, it will serve to prevent and resolve disputes, if crafted carefully. You can also optionally file a Statement of Partnership Authority with the SOS.

To create an LLC, you must file articles of organization with the Secretary of State, and you are also required to appoint a registered agent for service of process. You should also consider drafting and signing an operating agreement much like a partnership agreement to forestall disputes and disruptions.

For a corporation, you must file articles of incorporation with the state and appoint a registered agent. You should also publish bylaws to establish your corporation’s internal operating procedures. If you wish to obtain S status for tax liability purposes, you must file for that with the IRS.

Why You Need an Attorney

Note that all these documents take the form of contracts, binding all parties who agree to them. It is important that these be composed and implemented in a legal and binding way. You don’t want to just jot down some notes and shake hands, though some partners do exactly that. Protect your future and your personal liability by involving an experienced business formation attorney in creating these documents.

You may also want to consider binding documents for intellectual property/trade secret protection, non-compete and non-disclosure agreements, and manager, employee, and independent contractor agreements.

Employment Identification
Number & State Licensing

Regardless of the type of business you’re opening, you must apply for an Employer Identification Number (EIN) from the IRS if you are going to have employees. Even without employees, you should probably obtain one anyway, as banks will often require an EIN to open a business banking account. You must also register with the Colorado Department of Revenue for sales and withholding taxes.

Depending on your industry or type of business endeavor, you will no doubt also be required to obtain various licenses and permits. The Colorado Department of Regulatory Agencies can help with identifying which licenses and permits that your business may need to acquire.

Put a Skilled Legal Team In Your Corner

Though there are certainly significant enterprises that started out in someone’s garage, and the people involved had only joint inspiration and aspirations — no documents in hand, which is not the preferred or safest route.

Businesses might still grow from garages, but the best route is to put in place the business format and legal agreements that will survive the test of time, not lead to endless disputes and possible dissolution of the entire enterprise before it gets a chance to succeed.

On top of that, if you want the full protection of the law when it comes to liability, you need to form your business according to accepted legal standards and requirements.

Business Formation Attorneys
in Nederland & Broomfield, CO

If you’re looking to start a business in or around Nederland or Broomfield, Colorado, or in the surrounding Front Range area and Peak-to-Peak region, contact our business formation attorneys at The Law Offices of Daniel T. Goodwin. We’ve helped countless others just like you and stand ready to get you up and running with every requirement met and liability protected.