Choosing the right legal entity for your Denver-area business startup

Colorado offers many types of legal entities to choose from for business startups.

The Denver business climate is recovering from the economic downturn at a healthy pace, which may signal to entrepreneurs who have been waiting for better times that 2015 could be the year to take the plunge and open new businesses.

Things are going in the right direction in the Denver metro, according to the January 2015 Mountain Monitor, a report produced by the Brookings Institution and the University of Nevada, Las Vegas, about quarterly economic performance and recession recovery in the 10 major metro areas of the Mountain West region.

The report analyzes data from the third quarter of 2014, concluding that the Mountain West region is economically healthier than the national picture. Calling Denver "one of the region's top economic performers during the third quarter," the Mountain Monitor says specifically about the Denver metro in Q3:

  • Denver had the swiftest "output growth" nationally with 1.5 percent growth in the total valuation of goods and services produced there.
  • Denver unemployment fell to 4.5 percent, compared to 5.9 percent nationally.
  • Denver was second in the region only to Las Vegas for housing price increases, which grew at 2.3 percent in Q3 alone.

For the Denver-area businessperson contemplating a startup this year, developing a relationship with an experienced business law attorney is important to make informed decisions necessary to get things off the ground right. The knowledgeable business startup lawyers at Kishinevsky & Raykin, Attorneys at Law, based in Aurora, stand ready to provide legal support to those undertaking new business development.

A key decision to make early on is which legal business entity is the smartest choice considering long-term goals and the particular circumstances of the owner or owners. In most instances, entrepreneurs are keenly interested in protecting themselves from personal liability. The choice of entity will largely determine whether an owner's personal assets (like his or her own money, real estate and more) could be vulnerable to satisfy debts and obligations generated by the business. Taxation issues are also a major consideration.

Legal entities are largely controlled by state law and Colorado allows many different types. Some of the more common include:

  • A sole proprietorship is formed when one person goes into business alone. The owner is personally liable for business obligations, including taxes.
  • The general partnership is formed by at least two people going into business together. Unless a partnership agreement provides otherwise, partners share equally (and personally) in management, profits, losses and liabilities.
  • In a limited partnership, general partners have management power and are liable for partnership debt, but limited partners are only financial participants without management power, liable only up to the amount of their financial investments.
  • The limited liability company, often called an LLC, is a popular, newer business entity in which owners, called members, are protected from personal liability and taxed directly. The management structure of an LLC is flexible and determined by terms of the articles of organization filed with the state.
  • A corporation is an entity set up by filing appropriate documents with the state. Corporate structure shields owners (shareholders who have bought company stock) from personal liability for corporate debt (except in rare instances of wrongdoing). Taxation issues depend on whether a C corporation or S corporation is created.
  • More entity options are available.

Any Coloradan considering a new business should seek informed legal representation to learn more about entity choice.

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