There are a few types of commonly used business formations in Colorado. It’s helpful to understand their structure and the benefits and disadvantages of each type.
A sole proprietorship is a business owned and operated by an individual. It is the most common type of business formation for small businesses.
One of the advantages of this type of structure is that all decision making is controlled by the owner. However, this also means that the owner is responsible for all business debts and liabilities.
A general partnership is owned by two or more individuals or other entities. It’s helpful for partners to create a written partnership agreement, but it is not required.
The profits and losses of the business can be divided however the partners decide to do so. The personal assets of each partner can be attached to pay for any debts, no matter which partner took on the financial responsibilities for the business.
A limited partnership is owned by two or more individuals or other entities, but one of the partners has limited liability protection and at least one partner is personally responsible for all of the partnership’s liabilities.
A corporation is owned by shareholders and run by a board of directors elected by the shareholders. Corporations have a complete separation of personal and business finances.
Limited Liability Companies
A limited liability company is different than a corporation. In Colorado, these entities can elect to be treated as a partnership or a corporation. Individuals can also form this type of entity and in that case, they are treated as sole proprietorships.
An attorney can determine which business formation may be the best to use, explain filing requirements, trade name registrations and the applicable responsibilities for each business structure.