Business entities come in so many types in Colorado that business owners can easily get confused. Here’s a quick guide that will hopefully shed a little light on business entities for you.
Sole Proprietorship: A business owned and controlled by one person. The designation provides no protection from business liabilities. It is taxed on the person’s personal tax returns on schedule “C”.
“C” Corporation: A corporation whose shares are held by shareholders. The entity stands apart from the shareholders for legal and tax purposes. The shares of the corporation may be “taken public” and traded on stock markets. Google is an example of a publicly traded “C” corporation.
Foreign Corporation: A corporation doing business in a jurisdiction beyond where it was formed. Microsoft is a Washington corporation. When it does business in Colorado, it is considered a “foreign corporation.”
General Partnership: A business effort involving two or more people, known as partners. Each partner is liable for all partnership debts and obligations regardless of participation and contribution amounts. Put another way, a general partnership provides no protection against lawsuits.
“LLC” – Limited Liability Company: A creation of Colorado state law in which one or more individuals form an entity providing the liability protection of a corporation, but the tax benefits of a partnership (if there are two or more members; if only one member, it generally reports as a schedule C on the member’s personal return).
Limited Partnership: A partnership in which the business is managed by a general partner with limited partners supplying capital investment. The limited partners are prohibited from actively participating in the management of the partnership. In exchange, the limited partner’s liability is limited to the amount of their investment. In pursuing this business entity, the general partner is almost always a corporation.
Limited Liability Limited Partnership or “LLLP”: Unique entity in Colorado which is a limited partnership with the general partner having no personal liability.
“S” Corporation: Similar to a “C” corporation, this entity provides solid asset protection for shareholders from business liabilities and debts. The primary difference is the entity can be taxed as a pass-through entity and is limited to 75 shareholders.
Each of the above entities provides certain advantages to a business owner. If you are unsure which is right for you, we can schedule a phone or in-person meeting to discuss.