Why Your Small Business is Just the Right Size

Why Your Small Business is Just the Right Size

Many business owners, who start small, dream of huge success and growth. However, higher profits and expansion do no mean the end of your small business status or the control you have over the product/service you set out to provide. With a broad definition and many variables, a small business may be classified as a company with under $7 million in sales and up to 500 or more employees. Basically, there is plenty of room to grow while remaining a small business. Choosing the best business structure is critical to the success of your small business regardless of your future goals. A small business attorney will help you with every aspect of your business formation and transformation. This post will discuss the benefits of being labeled “small” and review the most common types of business structure for small businesses.

3 Small Business Benefits

As a Small Business Owner, You Are in Good Company

According to the U.S. Census Bureau, there are nearly 30 million small businesses in America. In Colorado, small businesses make up 97 percent of all businesses. A Wall Street Journal article says “small business is big business,” citing that small business employs about half of the people in the workforce and accounts for 86 percent of companies with 500 or more employees. Technology has streamlined everything from bookkeeping and payroll to staffing and marketing, making it possible for small business owners to operate like big corporations. While hefty competition is viewed as a deterrent to some, others see marketplace opportunity and a culture of collaboration.

You Can Find Your Niche

The limitation in scope and reach for some small businesses lends itself to niche marketing. Your small business enables you to focus on a portion of the market that other businesses overlook. This gives you opportunities for specialization and integration into your community. As Denver has experienced an influx of migrating millennials, niche products and services are in demand more than ever. This is a generation that monitors and shares via social media on a daily basis and, in turn, shapes and influences where people shop, eat, and buy.

You are Creating Your Legacy

Perhaps this is why you started your small business – to not only provide for your family, but to leave something for them, whether it be the actual business or the values it embodied. Staying “small” can also afford you more time with the people who matter most and opportunities to engage with the community where you live and work.

Start your Small Business Right – Business Entity Formation

Each of the three most common business structures has its own characteristics and limitations, affecting your liability, taxes, and income. As these have been covered in previous blog posts, here is a brief review.

Sole Proprietorship

One of the most prevalent and simple business forms, a sole proprietorship is an unincorporated business owned by one person. This is an inexpensive and informal way to conduct a small business. A freelance photographer or someone who handcrafts jewelry, for example, would be considered sole proprietors. The main drawback is that you assume full personal liability for your business.

Partnership

When there are two or more partners who own the business, it is a partnership. This can be a husband and wife who share everything equally (general partnership), or it can be you and a friend who only contributes and receives partial profit (limited partnership). As with sole proprietorships, there is more flexibility and control than in a corporation as partners are able to define their relationship and roles. Partnerships, however, have more ability to raise capital than a proprietorship.

Corporation

A corporation is a legal entity that is independent of its owners and has its own legal rights. There are different types of corporations (C corp, S corp, B corp), and even a sole proprietor can incorporate. In a corporate limited liability, shareholders are only at risk for the amount of money or other investment they make in the corporation. Investors are willing to invest in a corporation more than any other type of business organization because of the ability to protect personal assets from the creditors of a corporation. There are restrictions associated with the different corporations, and not all small businesses qualify for each type.

Your Denver-based small business attorney will help you select the right structure for your small business today and ensure it is still working for you in the future. If you need help with your business formation, contact me, Elizabeth Lewis, at the Law Office of E.C. Lewis, P.C., home of your Denver Small Business Attorney. Phone: 720-258-6647. Email: elizabeth.lewis@eclewis.com

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Law Office of E.C. Lewis, P.C.
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501 S. Cherry St., Suite 1100
Denver, CO 80264
720-258-6647
Elizabeth.Lewis@eclewis.com

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How to Start Your Business Off On the Right Foot

How to Start Your Business Off On the Right Foot

Before you decide on a location, design a logo, or pick out furnishings, it is crucial to choose the right business structure for your small business. This decision will greatly affect your daily operations, impacting everything from liability and taxes to the amount of paperwork and control you have over your own business. There are numerous forms, or structures, each with their own benefits and drawbacks and some with overlapping characteristics. An experienced business attorney will explain the pros and cons and help you determine which structure is the most appropriate for your Colorado business and financial goals. This post will explore four of the most common business structures. According to the Internal Revenue Service (IRS), these are Sole Proprietorship, General Partnership, Corporation, and Limited Liability Company (LLC).

1. Sole Proprietorship

The most basic of business structures, sole proprietorship is used by more than 70 percent of businesses in the U.S. according to the Small Business Administration. With this structure, you are responsible for all of your business’s profits and debts. You are also personally liable for everything that the “business” does as you are the business.

2. General Partnership

Two or more individuals own the business in a general partnership. Most times, partnerships are general partnership in which everything is shared based on the ownership of each partner. Partnerships may also be set up as limited partnerships, limited liability partnership, or a limited liability limited partnership. With general partnerships, all partners have personal liability for what the partnership does.

3. Corporation

A corporation is an entity that is separate from its owners, meaning it has limited liability. It is independent with its own legal rights (e.g. ability to sue, be sued, own and sell property and stocks, etc.). Most household names, like Coca-Cola, Microsoft, and Google, are corporations. There are two ways that corporations can be taxed (C corporations and S corporations) so many people will refer to their corporation by its tax structure rather than just a corporation.

4. Limited Liability Company (LLC)

LLCs have been seen as a hybrid of partnerships and corporations. Their owners are called “members”. They can be taxed multiple ways leading to being loved by CPAS. LLCs protect members from personal liability for the debts of the business most of the time, provided they have not conducted activities in an illegal, unethical, negligent, or irresponsible manner.

A Closer Look at Business Structure
Choosing the best structure to insulate your business from the beginning is one of the most important decisions you will make. It is easy to become swept up in the commotion of getting your business started, but you have to think about your needs now as well as in the future. Consider what your business might look like once it is well established, if something happens and you are unable to run your business, or if you decide to expand or sell. Although it can be difficult to switch to a different business structure because of strict tax code regulations, you may need to reassess yours down the road.

A sole proprietorship is the simplest business structure to set up, but it can be harder to secure outside funding than it is for a corporation. Corporations have the least amount of personal liability, and partnerships share liability as defined by the type of partnership. For sole proprietors, all profit is personal income and taxed accordingly. The LLC structure prevents double taxation, meaning you are not taxed as a company and as an individual. There are many more distinctions among the various business structures related to taxes, liability, control, funding, licenses, permits, and regulations. You can find more information on choosing your business structure on the Colorado Secretary of State website.

Your small business attorney will explain the distinctions, advantages, and eligibility requirements among the different business structures. After you have selected the right business structure, your attorney can assist you with the following: filing paperwork, keeping records, hiring employee and professional support, determining services and location, maintaining appropriate insurance coverage, and more.

If you need help with your business formation, contact me, Elizabeth Lewis, at the Law Office of E.C. Lewis, P.C., home of your Denver Business Attorney. Phone: 720-258-6647. Email: elizabeth.lewis@eclewis.com

Contact Us Today

Law Office of E.C. Lewis, P.C.
Your Denver Business Attorney
501 S. Cherry St., Suite 1100
Denver, CO 80264
720-258-6647
Elizabeth.Lewis@eclewis.com

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Future Expectations and Your Small Business Structure

Future Expectations and Your Small Business Structure

You have had your brilliant idea for you new business – whether it’s software development or a boutique bakery – and now you need to know how to make it come to life. One of the most important things you will do for your new business will happen at the very beginning and concerns your future expectations and your small business structure.

Choosing your business structure has important implications for your future taxes, who owns your company, and who is responsible for any losses. Your business structure can mean the difference between paying employment taxes on everything you make and being able to take part of your business’s income as non-employment taxable dividends. Without the correct business structure and operations, you may fail to have limited liability and be personally liable for any damages caused by your business, you, or your workers. A Colorado attorney will help you choose the best business structure for your individual needs. Here is a brief summary of the most common small business types:

Sole Proprietorships

Sole Proprietorships are the most basic business type. If you are a freelancer, you probably are already a sole proprietor. There is little paperwork to be filed or forms to fill out, as it is the default status for running a business in the U.S. While simple, this business type comes with a lot of risk as there is no delineation between you as a person and you as a business. You are the only person responsible for the profits, and also for the loses. “This risk extends to any liabilities incurred because of employee actions” (SBA.gov).

Partnerships

If you are part of dynamic duo (or trio, or beyond), and you want that to continue into your business, a Partnership may appeal to you. The IRS sets the expectations of a Partnership as “Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business.” There are different types of business structures housed under the umbrella of Partnership, each with different expectations for the length of the collaboration between parties, and the amount of liability and input for each party. The Small Business Administration has a helpful list of things you should discuss with your potential business partners before filling your paperwork. However, like a sole proprietor, partners typically have personal liability so careful consideration of this business structure should be had with an attorney before entering into it.

Limited Liability Company (LLC)

Limited Liability Companies (LLCs) is a business structure that does just that – limits your liability. It is a relatively new business structure – the first one was created in 1977. LLC laws are determined at the state level, so the state you form your LLC in matters. Due to the variation between states, LLCs can get a bit complicated, but Attorney Elizabeth Lewis is experienced in business formation and will help you navigate the formation of your LLC correctly. A few types of businesses generally cannot be LLCs, such as banks and insurance companies.

C-Corporations Taxes as C-Corporations

“From a legal standpoint, a corporation is a different person than the person or people who created it, and is therefore able to own property of its own, accrue its own profits, and be responsible for its own debts and civil liabilities.” (Upwork.com)
Most large businesses are Corporations, and a lot of legislation regarding Corporations has these large businesses in mind. A corporation taxed as a c-corporation may not be a good fit for your small business, as owning one tends to place a large burden on owners. Additionally, you may be taxed twice, since your corporation is a separate entity from yourself if you are a c-corp. It is a better a company type than the previously listed ones, however, if you plan on taking your company public.

Corporations and LLCs Taxed as S-Corporations

You can only have s-corporations if you have an LLC or corporation formed under state law. Many small businesses use them since they do not cause the double taxation problem. Not all companies can become S-Corporations however. From the IRS:

“To qualify for S corporation status, the corporation must meet the following requirements:

  • Have only allowable shareholders
  • May be individuals, certain trusts, and estates and
  • May not have owners that are partnerships, corporations or non-resident alien shareholders
  • Have no more than 100 shareholders
  • Have only one class of stock
  • Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations)”

The way you structure your business will have long lasting implications for your earnings, liability, and taxes. Improperly done filings can cost hundreds of thousands of dollars, and create stress year after year. It is best to consult an attorney before creating your business.

If you need help evaluating your future expectations or deciding on your small business structure, contact me, Elizabeth Lewis, at the Law Office of E.C. Lewis, P.C., home of your Denver Business Attorney. Phone: 720-258-6647. Email: elizabeth.lewis@eclewis.com

Contact Us Today

Law Office of E.C. Lewis, P.C.
Your Denver Business Attorney
501 S. Cherry St., Suite 1100
Denver, CO 80264
720-258-6647
Elizabeth.Lewis@eclewis.com

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What’s in a Name for Your Home Business?

What’s in a Name for Your Home Business?

Your home-based business may be something you have been dreaming about for a long time, or it may be the result of a lay-off or need to supplement your existing income. Being your own boss, making your own hours, and having endless possibilities for growth are just some of the many perks. Whether you are a designer making custom jewelry or a freelance programmer looking to expand your business, you will need to consider all of the legal, technical, creative, and minute details of starting, protecting, and broadening your home business. Small Business Attorney Elizabeth Lewis will not only help keep your business legally upright, but she will also help with the things you may not have considered. This post will cover three often overlooked areas of home business planning:

  1. Choosing a Name
  2. Choosing a Legal Structure
  3. Choosing an Address

1. Choosing A Name For Your Home Business

Coming up with a name can be the easiest and most fun start to your home business. Testing out names on your family and friends and drafting logos are an exciting part of the creative process, but there are important steps to take before you settle on a name or establish a brand. Your name should identify your products/services, be memorable, and stand out. If it is too generic – Denver Jewelry – it may be difficult to register or trademark. If it is too narrow – Carla’s Breakfast Cupcakes – it may inhibit or restrict the growth of the business. The name should match the spirit and purpose of your business and inspire your logo and marketing. But first… make sure it is available. Before you do a national trademark search, check with the Colorado Secretary of State’s Office. You can register or reserve your trade name online on the Secretary of State’s website. The Denver Public Library also has resources, like trade name searches, for small business. It is also important to secure a domain name for your website. Your small business attorney will help with both the legal aspects of your home business name as well as your online marketing presence and, if needed, refer you to a trademark attorney to help secure your name.

2. Choosing A Legal Structure For Your Home Business

The structure of your business impacts many other decisions, affecting your liability, taxes, permits, and licenses. You might start doing business as a sole practitioner, but later decide to become a limited liability corporation (LLC) or an a corporation. Operating as a corporation can give you legitimacy that you may not have as “some guy who works out of his house.” With an LLC or Corp, you may be able to protect your personal assets from creditors, avoid paying both personal and corporate taxes, and deduct pre-tax expenses (e.g. travel, computers, phone bills, advertising, and health care premiums). Here are some pros and cons for LLC versus a corp.

Pro LLC

  • easy to set up
  • inexpensive to start
  • less red tape than forming an S corp

Con LLC

  • required to pay self-employment tax on income generated in the LLC
  • must operate the LLC distinctly and separately from personal affairs

Pro Corp

  • profits after payroll expenses, federal taxes, and FICA can be distributed to owner and are taxed at a lower rate than income if s-corp status is chosen

Con Corp

  • stricter tax code guidelines than LLCs
  • costs more to form a Corp
  • can have additional state taxes

Make sure you know the difference between the tax status and legal status of your entity though. For example, a LLC or a corporation can be an “s-corporation” as s-corporation just means you have elected to be taxed under subchapter s of the internal revenue code. If you are an LLC taxed as an s-corp, you may have many of the restrictions (and costs) of a corporation.

Because each state has its own rules, a small business attorney will help you choose both the best legal and tax structure for your home business and, with the help of a CPA, make sure you remain compliant with Colorado’s tax, licensing, and permit laws.

3.

Choosing An Address That Isn’t Your Home Address (And Why It Matters)

There are so many wonderful benefits of working from home – having clients or customers know where you live might not be one of them. For LLCs or Corps, a registered agent’s address can be substituted for your own. However, if you are not incorporating, you can get a P.O. Box or use a “Doing Business As (DBA)” mailing address. These are options if you would like your personal residence to remain private or if you live somewhere, like an apartment complex, you fear will come off as unprofessional. There are home address alternatives. A mail-receiving service can provide a street address and a suite number rather than your actual address or a P.O. Box. These mail service companies will also pack, ship, and track your packages. An email account will further reduce the volume of mail and phone calls you receive. Whichever address you choose for your home business, remember to respond to all inquiries promptly and establish an efficient system. This will keep your operations running smoothly and your customers satisfied.

Another issue relevant to your home address and your home business is how your address appears to listing services such as Google My Business. If you don’t want you home address with a map to your front door being displayed, make sure you double check and correct how your listing is shown.

If you need help setting up or keeping up your home business,
contact me, Elizabeth Lewis, at the Law Office of E.C. Lewis, P.C., home of your Denver Business Lawyer. Phone: 720-258-6647. Email: elizabeth.lewis@eclewis.com

Contact Us Today

Law Office of E.C. Lewis, P.C.
Your Denver Business Attorney
501 S. Cherry St., Suite 1100
Denver, CO 80264
720-258-6647
Elizabeth.Lewis@eclewis.com

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5 Crucial Areas of Commercial Real Estate Law for Colorado Businesses

Real estate law is a broad and complicated legal area. Colorado is no exception with a tangled mass of statutes on everything from discloser and zoning laws to insurance and contract laws. Whether you lease or own your business location, you will likely encounter a property law issue at some point. Attorney Elizabeth Lewis, MS, JD can help guide you through real estate law at every level before it affects your business. The following post will discuss five crucial areas of commercial real estate law for Colorado businesses.

  • Landlord/Tennant Laws
  • Disclosure Laws
  • Zoning and Land Use Laws
  • Contract Law
  • Insurance Laws

Landlord/Tennant Laws

Whether you own or rent your business space, landlord/tenant laws are designed to protect the rights of both sides who have entered into a rental or leasing agreement. There are numerous areas within these laws, including taxation, right of privacy, payment of rental fees, disclosures, duration of agreements, and right to terminate agreements. As a Colorado business owner, it is essential to comply with state laws in order to prevent violations. It’s a good idea to hire a Colorado-based attorney to advise you on all of your real estate and leasing issues from initial set up to lease/contract review to protecting your assets.

Disclosure Laws

Before you buy or rent a business space, you want to know everything you are getting into. Are there any toxic substances, like asbestos or lead paint? Does the building have energy use restrictions or accessibility inspections? You may have found the perfect location, nestled in the bustling heart of downtown Denver, but it is important to know what you may not readily see. Like other real estate laws, discloser laws vary from state to state and deal with the location, condition, and restrictions of the property. Furthermore, a commercial lease and residential lease differ greatly and are subject to different laws. A small business attorney will review and advise you on existing or potential factors before you are ready to lease or buy a retail space.

Zoning and Land Use Laws

Your real estate choice, whether you operate out of a home office or huge warehouse, will affect your business. Commercial real estate can be divided into several categories, including office buildings, industrial, retail, restaurant, multifamily, undeveloped land, and more. Each of these properties are subject to Colorado state zoning and land use regulations.

Besides determining taxation, these laws define and enforce how a property is used. As a business owner, you already have a checklist a mile long when it comes to choosing your location – rent or buy, physical space, length of lease, affordability, renovations, maintenance, competitors, specifications for signs, accessibility, and much more. Learning that you must apply for rezoning to the local board is not something you want to add your list, and it does not guarantee that your application will be accepted. With the expert advice of an attorney, you can navigate through these real estate laws in order to select the perfect location.

Contract Law

After you have decided whether to buy or rent, reviewed the terms of disclosure, and confirmed zoning, you will enter into a contractual agreement. Specifically worded and structured, these legally binding documents are meant to stand up to any challenges by a landlord, tenant, or outside entity. Many savvy business owners have agreed to the terms of a contract only to fall victim to some unforeseen loophole or unintentional breach that leads to litigation. In this event, an attorney will represent you and help protect your business.

Insurance Laws

Based on the space you occupy and the business you operate, you are required to have certain insurance. This is to protect your investment and cover any property loss or liability issues. The type(s) of insurance you purchase depends on your status as lessor or lessee, the number of employees you have, as well as any building ordinance or state laws. In the unfortunate event of an accident, burglary, fire, or other disaster, additional insurance can help to cover the aftermath of damage to your business. A small business attorney can help you decide what coverage is right for you.

If you are a landlord or a tenant who needs help with Colorado commercial real estate, contact me, Elizabeth Lewis, at the Law Office of E.C. Lewis, P.C., home of your Denver Small Business Lawyer. Phone: 720-258-6647. Email: elizabeth.lewis@eclewis.com

Contact Us Today

Law Office of E.C. Lewis, P.C.
Your Denver Business Attorney
501 S. Cherry St., Suite 1100
Denver, CO 80264
720-258-6647
Elizabeth.Lewis@eclewis.com

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3 Important Tax Rules for Relocating Your Small Business

There are a lot of questions you want to ask (and probably have an attorney answer) before you relocate your small business from one State to another. This blog will alert you to three important tax rules for relocating your small business:

  1. the six potential F Reorganization requirements
  2. the relocation rules for your specific form of business
  3. the need (or not) to obtain a new Employer Identification Number (EIN)

Understand the Six Requirements for F Reorganization

Warning – the six requirements are not written in plain English and can be a little daunting. Of all the rules you need to understand, making sure you understand the six requirements for an F reorganization and have met the criteria may be the most important. Why? Because in the case of F Reorganization, the “F” stands for free, as in tax free. Your move may subject you to unnecessary tax burdens if it doesn’t meet the six requirements. I am supplying portions of the IRS code describing each of the requirements below – if you don’t enjoy reading legalese, skip these bullets and go on to the next section.

  • Immediately after the Potential F Reorganization, all the stock of the Resulting Corporation must have been distributed (or deemed distributed) in exchange for stock of the Transferor Corporation in the Potential F Reorganization.
  • Subject to certain exceptions, the same person or persons own all the stock of the Transferor Corporation at the beginning of the Potential F Reorganization and all of the stock of the Resulting Corporation at the end of the Potential F Reorganization, in identical proportions.
  • The assets and attributes of the Resulting Corporation [must be limited] immediately before the transaction)
  • The Transferor Corporation [must be liquidated]

The final two requirements are in place to make sure the resulting reorganization qualifies as a “Mere Change” – simply put, your move really is about moving the business and not about a clever means of evading actual tax obligations.

  • Immediately after the Potential F Reorganization, no corporation other than the Resulting Corporation may hold property that was held by the Transferor Corporation immediately before the Potential F Reorganization, if such other corporation would, as a result, succeed to and take into account the items of the transferor corporation described in section 381(c).
  • Immediately after the Potential F Reorganization, the Resulting Corporation may not hold property acquired from a corporation other than the Transferor Corporation if the Resulting Corporation would, as a result, succeed to and take into account the items of such other corporation described in section 381(c).

Know the Rules for Moving Your Particular Business Form

When you are ready to move your business, you need to know the rules for moving your particular business form to a new state – these rules will vary depending on the form your business operates under, and some are more straight forward than others. The SBA gives a good overview of the rules, but advises, as do I, to talk over your move with an attorney, and to understand clearly the steps you will be expected to take as an LLC, Corporation, sole proprietor, or partnership.

It is likely that you chose your form of business for the tax advantages it offers. If you haven’t had an attorney review your current form of business to make sure you are getting the best tax advantage and legal protections, consider doing so before you make your move. Tax law changes over time. Understand what changes you may want to make before moving your business to a new State with a less than optimal business form.

Obtain a New Employer Identification Number (EIN) – Perhaps

This is another one of those cases where the answer on whether or not you need to obtain a new employer identification number (EIN) is, perhaps. Once again, the need to obtain a new EIN is controlled by your form of business. Gratefully, these rules are a little easier to understand, but they are far from crystal clear. For example, the SBA explains that corporations will not be required to obtain a new EIN if “conversion at the state level with business structure remain[s] unchanged.” If you’re not sure what is meant by conversion, you might not realize that you can keep your EIN.

If you aren’t sure whether or not you need a new EIN after a move, or want want help understanding these 3 important tax rules for relocating your small business, contact me, Elizabeth Lewis, at the Law Office of E.C. Lewis, P.C., home of your Denver Small Business Lawyer. Phone: 720-258-6647. Email: elizabeth.lewis@eclewis.com

Contact Us Today

Law Office of E.C. Lewis, P.C.
Your Denver Business Attorney
501 S. Cherry St., Suite 1100
Denver, CO 80264
720-258-6647
Elizabeth.Lewis@eclewis.com

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