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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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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Legal Due Diligence

Continuing as part of our series on Due Diligence, we have already outlined Financial Due Diligence, and this time we will take a look at due diligence regarding issues that are more legal in nature.

As part of the due diligence process, it is important that you have the legal documents of the business reviewed, just like you would the business’ financial statements. This can help identify irregularities or potential problems with the acquisition. In addition to documents to review, it may also be a good idea to interview the owners and employees of the company to see if what happens in practice with the business lines up with its legal documentation.

Some of the documents to review include:

  • Articles of Incorporation/Organization, Bylaws/Operating Agreement, or any other equivalent document (like a Partnership Agreement)
  • Minutes of meetings as well as any stock or other buy-sell agreements between owners regarding their ownership interests
  • Documents showing capitalization of the company (meaning who are the stock or ownership interest holders)
  • Major contracts the company has with its suppliers, distributors, etc.
    • This can also include employment contracts
  • Insurance policies benefiting the company
  • Any intellectual property rights, licenses, trade secret information etc.
  • Documents relating to any lawsuits against the company

These documents will indicate how the company has been formed, as well as who all of the owners are, what types of restrictions have been placed on the company or its owners, and other key legal issues. This can help determine if there will be any complications regarding the transaction, as well as if the business has been run properly and in accordance with the legal documents. Additionally, having this type of documentation reviewed can help understand the business better, which can also help in determining a good valuation of the company. Finally, having these legal documents reviewed can also provide insight into existing or potential liabilities the business is exposed to, so you can understand what you are getting yourself into by purchasing the business.

If you need assistance with legal help and/or document drafting for your business sale, please contact the Law Office of E.C. Lewis, P.C., home of your Denver Business Attorney, Elizabeth Lewis, at 720-258-6647 or email her at elizabeth.lewis@eclewis.com.

New Business Growth in Colorado

New businesses and entrepreneurship are on the rise in the Centennial State. The Quarterly Business and Economic Indicators Report from the Secretary of State’s office, covering the second quarter of this year, has shown that new business entity filings have increased 4 percent compared to second quarter of 2013. This also represents a 4.8 percent increase overall for the past 12 months, when compared to the previous 12 month period.

Other positive trends for the second quarter include higher employment levels in Colorado and nationwide, as well as an increased rate of renewal filings of existing entities. Renewal filings increased 3.9 percent in the second quarter from the first quarter of this year. These and other economic indicators led to the predictions within the report for continued employment and economic growth for the next two quarters of this year thanks to new jobs from startups and growing businesses.

The report specifically projected more increases in filings over the third quarter of this year as well. While these filings are projected to slow down some during the fourth quarter of the year, as they typically do, they are nevertheless expected to be higher this year than last year’s final quarter.

Business Insider also recently ranked all 50 state economies growth rate by comparing them across eight economic indicators like unemployment, gross domestic product, average wages, and size of the working age population. Colorado earned the top spot on their list at #1 due to being within the top fifteen states in all eight of their metrics, as well as having a highly diversified economy. This further signals a growing economy for Colorado.

On June 9th, the Secretary of State announced a filing fee holiday for new business entity filings, which reduces the fees from $50 to $1. The holiday was prompted by budgetary surpluses with the Secretary of State’s Office and it will continue through the rest of the summer. After the summer, the fee will be reevaluated on a monthly basis. This holiday, when combined with the already positive economic trends that are being forecasted for the state, may help spark additional business formation and growth here in Colorado.

Now is a great time to consider starting or expanding your own business with the positive outlook of Colorado’s economy behind you, as well as reduced new business filing fees. In order to get started, be sure to reach out to the Law Office of E.C. Lewis PC, home of your Denver Business Lawyer, Elizabeth Lewis, 720-258-6647 or email her at Elizabeth.Lewis@eclewis.com.