This month’s blog series has been focusing on preparing for the upcoming New Year. The first week of December, we talked about business planning and last two weeks we have talked about real estate and equipment leases. For that last post in this series, we are going to talk about changing your company’s legal structure.
When we talk legal structure, we are talking about the way that your company is treated under the eyes of the law. There are four main legal structures in Colorado that companies are organized under: sole proprietorships, partnerships, LLCs, and corporations. There are several others but those are typically less common for companies (for example, non-profits and co-ops) so we aren’t to discuss those today.
Sole proprietorships are set up by default when someone goes into business by him or herself and doesn’t set up an LLC or corporation. In some cases, people set up sole proprietorships intentionally for a variety of reasons including ease of setup and small liability issues. Standard partnerships usually are setup for similar reasons – by default because two people start working in a business. Both entity types can be appropriate for some situations. However, the situations are few and far between so if you are set up this year as a sole proprietorship or partnership, you really should be speaking to a business attorney to see if this is the appropriate structure for your business.
The next two types of business structures are by far the most common: LLCs and corporations. If you are set up as an LLC, you may want to speak with you business lawyer and your business CPA to determine if this structure is correct – especially as many times LLCs are taxed as either sole proprietorships or partnerships. If it is determined that you should move to s-corporation or c-corporation or depending on if your business has changed since it was organized, your business attorney may advise that moving to a corporation is a good thing.
In most cases, if you are a corporation, you will not be thinking about changing entity types. However, with some of the new regulations under ObamaCare and depending on what happens with the tax changes and the fiscal cliff, you may want to have a discussion with your business lawyer and business CPA to see if for tax reasons an s-corp or c-corp is still appropriate.
As always, if you have any questions about your small business or need help with determining if you business structure is correct, please call me, your Denver small business lawyer, today at 720-258-6647.