In recent decades, Colorado has seen an explosion in entrepreneurship. According to the Kauffman Index, which measures entrepreneurial trends in the U.S., Colorado is ranked the fifth best state to start a business. While starting a business can be an exciting endeavor, there are several critical considerations to explore when launching a new enterprise. The dedicated and knowledgeable business law attorneys at the Law Offices of Clifton Black, PC, are happy to answer your questions about business formation and provide you with the information you need to give your new endeavor the stable and secure foundation it needs to grow and thrive. Reach out to our office today to learn more about how we can help you launch a new business with confidence.
The first task on your checklist for starting a business should be to retain legal counsel. A business attorney can explain the business formation process and guide you through each step. The Law Offices of Clifton Black, PC, can assist you with any number of business needs, including formation, preparing operating agreements, bylaws, business purchase agreements, and more.
Establishing Corporate Bylaws
Bylaws are an integral part of forming a corporation. These rules act as the laws of a corporation and govern how it should be run. Most states require bylaws when starting a corporation, but Colorado does not. However, even though bylaws are not required in Colorado, you should still consider drafting these guidelines to set your enterprise up for success.
One of the first tasks of the board of directors of a new corporation should be drafting bylaws. There is crucial information that you should include in these “laws,” such as:
- Identify information about the corporation (i.e., name, address, whether the corporation will be private or public, etc.)
- Information about the board of directors (i.e., number of members, their powers and duties, number of directors needed for a quorum, etc.)
- Procedures detailing how to maintain, store, prepare and inspect corporate records
- Procedures for amending bylaws and other business formation documents
Please note that bylaws are only necessary for corporations. These are complex documents that an experienced business attorney should review. Although partnerships and LLCs have similar rules, they use partnerships and operating agreements instead of bylaws.
Understanding Different Types of Partnerships
In business terms, a partnership is composed of two or more people. There are various partnerships offered in Colorado, each with its own set of pros and cons. Below is a brief explanation of a few different types of partnerships you may consider, depending on your needs and goals.
- General Partnership: In this partnership, owners will work together to run the business. The partners in a general partnership may be trusts, individuals, corporations, or other partnerships. Unless otherwise stated in a partnership agreement, partners equally share the profits and losses. Each partner is also liable for the partnership’s liabilities.
- Limited Partnership: Limited partnerships include one general partner and other limited members. The general partner is responsible for managing the business and is solely liable for the obligations of the business. The other limited partners have no liability in the company nor any acting roles in management. The allocation of gains and losses is not divided equally. Instead, they are based on the contribution of each partner.
- Joint Venture: A joint venture refers to a business endeavor undertaken by two or more people who engage in a single project. Joint ventures are more limited in scope and duration than general partnerships. Each partner is responsible for the losses, profit, and costs associated with the venture. However, the venture is considered its own entity and separate from the participants’ other business interests.
Tax Implications for Your New Business
Taxation is a common concern when starting a new business. Each structure carries slightly different tax implications, so it’s helpful to discuss your specific needs with one of our knowledgeable attorneys to determine the most appropriate choice. Here are just a few of the business structures and their potential tax implications:
- C Corporations: A C Corporation is a legal entity under the law and therefore pays income taxes based on the returns of the business. The biggest drawback of a C corporation is the entity is taxed on its profits, and the stockholders are taxed on dividends. This business entity must also pay local, state, and federal taxes.
- S Corporations: All the profits and losses of an S corporation pass through the stockholders individual taxes. The profits of this business entity are not taxed, but employee earnings are taxed at a higher rate than dividends.
- Partnerships: Partnerships do not pay income taxes. Instead, the business passes any losses or profits to its partners. Partners then include their share of the business’ losses or income on their personal tax returns.
- Sole Proprietorships: Income from this business entity is not taxed on the business level. The income is considered the income of the individual, and the individual is responsible for paying income taxes. A sole proprietorship can also deduct business-related expenses.
Reach Out Today to Explore Your Business Formation Options
Whether you need help forming a business or drafting a contract, the Law Offices of Clifton Black, PC, is here to answer your questions and explore your options. We have experience assisting clients with business matters such as forming a corporation, negotiating lease agreements, and other contracts. Get in touch with our office today to get started.