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

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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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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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3 Timely Colorado Business Formation Tips

There is a lot to think about when forming a new business, and some concerns need to be addressed right away or you may face problems down the road. Here are three time sensitive Colorado business formation tips and where to get help with them:

  1. What form will your business take?
  2. What taxes and licenses will your business be liable for?
  3. Who will review the contracts your business enters into?

What Form Will Your Business Take?

By form, I mean the legal structure your business will take. Will you form a corporation? If so, which type of corporate status is right for your business? Should you form a Limited Liability Company (LLC) instead? The form your Colorado business will take has a major impact on your tax liabilities, how much risk you expose yourself to personally, and even who is (and is not) a business partner. This question is perhaps the most timely of all the questions you will ask yourself when forming a new business because of the consequences should you run into trouble without a properly, legally formed business.

Perhaps the most important time for you to consult a small business attorney will be when you select the form your Colorado business will take. An experienced business attorney has the background needed to explain the pros and cons of the various forms your business can take and how the form you choose will impact you, including how your choices will affect dissolving a partnership or selling the business down the road. The Colorado SBDC has excellent resources for explaining the legal structures you can choose from, but in the end, you will want the advice of an attorney when drawing up the actual documents that form your new business in Colorado.

What Taxes and Licenses Will Your Business be Liable For?

This list seems to be getting longer every year, but the fact is, taxes and licenses are very time sensitive. You don’t want to find yourself in a situation where you have overlooked a tax your business owes, missed a payment deadline, or failed to obtain a required license or permit. Each of these mistakes can mean penalties or fines, some of them substantial. The Small Business Administration (SBA) has a fantastic and thorough list of Colorado resources for researching taxes and licenses, and the Colorado Secretary of State has a new business checklist that covers insurance and regulatory issues. There is a lot to know, and it is easy to overlook a requirement even with all of the resources offered. Making sure you have taken care of all required taxes and licenses is another good reason to consult a Colorado small business lawyer.

Who Will Review The Contracts Your Business Enters Into?

Contracts provide you with legal protections – if they are well constructed. Some of the contracts your small business may enter into include:

  • employment contracts
  • vendor contracts
  • purchase agreements
  • commercial and equipment leases
  • partnership agreements

Of all the frustrating legal entanglements I see small business owners struggle with, a poorly worded contract is typically the most expensive and demoralizing. Poorly worded contracts can make it difficult for you to end a relationship with a supplier, partner, or landlord, no matter the circumstances. An equipment lease that hasn’t been reviewed by your attorney can result in you owning equipment that doesn’t function properly but for which you are still required to pay every month. It is much less expensive to pay a small business attorney to look over a contract before you sign it than to engage one to help you get out of a bad contract.

There are other issues you will want to address as you think about your new Colorado small business, but these 3 timely Colorado business formation tips will help you right at the get go. If you need small business start-up advice, 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 Things to Know Before Starting an Online Business

It seems simple – no lease to sign, no building to maintain or insure, fewer employees to manage. Online is easy, and starting up a new business is as simple as building a website! Only, it’s not. More often than not, I end up helping small business owners with issues they could have avoided if they had sought advice before starting an online business.

Based on the issues I am most often asked to address after the fact, there are three things I would advise a new online startup to understand before jumping in:

  1. What type of business form is correct for my situation?
  2. What type of control am I giving to my web developer?
  3. How will I terminate an advertising and promotions contract?

The Correct Form for an Online Business

The rules governing your information technology company, information services company, or online business are different than a traditional brick-and-mortar business. There are the typical business formation questions; should you form your business as a corporation or LLC, for example. But it is also important to understand the legal implications of having a brick-and-mortar store with an online presence, or even transitioning your brick-and-mortar store to being solely online. And while it may look more affordable to ditch the brick-and-mortar storefront for a website, your agreement with the company that creates and maintains a website for you is in many ways similar to a lease. Signing a contract with a questionable company can cause you just as much grief as bad landlord.

Controlling Your Online Assets

With the growth of the internet and information technologies, more and more businesses are based completely online. An online business can include online advertising, a social media presence, and online sales of physical products, all of which come with their own set of legal ramifications. Whether your business is an information technology business, IT services business, supplements its income with an online store, or is completely online, you will probably be signing contracts with web development firms who will help you build and maintain your website. It is crucial that you understand what you are agreeing to when you allow someone to build a website for you. I hear stories all the time from developers such as:

I was being asked to build a third website for her, after two previous contractors failed to deliver a finished product, or failed to deliver a quality product. When I attempted to set up her new site, I found the previous developer had moved her domain, which she had owned and had control of for many years. She had given them permission to do so, but she didn’t understand that she was giving up control of her URL when she did. In addition, the company she contracted with to build her previous site had been controlling and filtering her email. She spent days on the phone trying to end the contract and get her domain and email back, and she lost much of her email history, and all of her website content in the process.

Unfortunately, this is a typical and frustrating scenario I hear from newcomers to online businesses. Another stumbling block I see small business owners encounter as they enter the online world involves contracts with companies that offer to help with advertising and promotion.

Promoting Your Online Business

Promoting your online business comes with it’s own set of concerns, whether you do it yourself or hire someone to help you. Some contracts tie you to a service regardless of whether or not it performs well for you – in this case, what you don’t know about social media, advertising, and promoting a business online can really hurt you. Again, a trusted advisor who understands internet technologies, and online business promotion can really help here. Until you have some experience and know what works for you, ask someone who does to recommend a company that can do it for you, or train you to do it yourself.

Even if you are an experienced entrepreneur, you will face challenges as you enter the online world and perhaps encounter unscrupulous actors offering to help you launch an online business. An attorney can help you make sure that important assets, such as your domain name, remain in your control. It is also very important that a clear means for you to retain the contents and coding for your website exists, even if you choose to end the relationship with the contractor or company that builds it for you. These, and other concerns can be avoided just by getting a good referral to a reputable firm. An attorney with a strong background in IT and online business practice can guide you to reputable firms, and make sure the contracts you sign are fair.

If you need guidance concerning the formation of your online business, or help reviewing a contract with a web developer or firm offering to promote your business online, 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

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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