One of the earliest decisions you will make during your business formation efforts is choosing its legal structure. While it may sound like a relatively simple step, the structure you choose now will influence your business activities going forward. Making an informed decision about your structure early on will save you from problems later.
Many Colorado entrepreneurs choose to structure their business as a limited liability company (LLC). This structure does offer many advantages such as protection from liability and tax benefits. However, corporations also offer valuable benefits.
- Attract investors and employees: Corporations can issue stock, which attracts those interested in investing in a business. Offering stock options to staff members can also attract quality employees.
- Established management: Since corporations have an established management system, they often operate more smoothly than other legal structures.
- Liability protection: Like an LLC, a corporation protects business owners from legal liability to a limited degree.
As with most things, choosing to establish your business as a corporation also comes with a few disadvantages. It is critical to learn about these downsides during your earliest business formation efforts.
- More formalities: Corporations must conduct their business in compliance with the law, which means observing several mandatory formalities. Examples include holding regular meetings and keeping careful records.
- More money and time: It will typically take longer to set up a corporation than an LLC, for example. Owners must prepare and file many documents during the process. It also costs more to incorporate as owners must pay filing and other fees.
- More taxes: Owners of a corporation must usually pay more taxes than they would with a different structure. The corporation itself pays taxes and the individual stockholders are also taxed for the profits they earn.
It may help to seek legal guidance when considering which structure to choose. An added benefit of getting the help of an experienced attorney is establishing a partnership that can protect you and your company once you are up and running.