As a new business owner, when forming a new company, you want to know what type of legal entity best suits your business goals. People are aware that a limited liability company is one of the easiest to form.
However, depending upon the business’ goals and structure, there could be some pros and cons when you set up an LLC in Colorado.
Understanding the limited liability company advantages and disadvantages is a critical step to take before starting a business.
There are many limited liability company advantages and disadvantages when you set up an LLC in Colorado. Some advantages include (a) Flexibility (b) Exposure limitations and (c) No Corporate Taxes.
Flexibility: Forming an LLC in Colorado is the most flexible form of business entity – more than corporations, general partnerships, and limited partnerships. See information about LLC vs Corporation. Each entity should have a limited liability company operating agreement in place in order to enjoy legal freedom and flexibility.
- Tax Flexibility: Without getting bogged down in the details, as a rule of thumb, LLC advantages allow for the creative structuring of profits, losses, allocations, and distributions.
- Member Flexibility: When comparing the various LLC advantages and disadvantages, you will find that they do not have a residency requirement. Because owners do not need to be U.S. citizens or permanent residents, it allows companies of diverse residency/citizenship to obtain the benefits of a legally flexible and organized structure. Colorado corporations can be members of an LLC business that help to offset some of the downsides of the fact that LLCs traditionally lack fringe benefits (as discussed further below).
Limited Exposure: An important point when considering LLC advantages and disadvantagesis that the company’s members in Colorado do not have personal liability for the company’s liability, debts, or obligations, subject to certain exceptions (such as when an LLC does not follow proper formalities (which a lawyer can advise of), in the case of fraud, or when members agree to be held personally liable. Read more about Personal Liability Protection Under Colorado LLC Laws.
No Corporate Taxes: Another look at limited liability company advantages and disadvantages will show that LLC’s have pass-through taxation, which means that when you set up an LLC an owner reports profit and loss on his/her personal tax returns, similar to the tax reporting for a sole proprietorship or general partnership.
Among the limited liability company advantages and disadvantages or forming a new limited partnership, business owners consider the fact that:
- Self-employment tax does apply. You always want to get the proper advice from a CPA when forming an LLC in Colorado. There are additional self-employment tax liabilities that you should be aware of.
- There are no “fringe” benefits and
- There is uncertainty as to litigation. When it comes to litigation, there are various issues that can arise. For example, creditors may seek to file a lawsuit that imposes personal liability for the LLC’s debts. This type of litigation is very fact specific. Getting the help from an experienced Colorado LLC lawyer could be helpful. See information about Articles of Incorporation. Also, there can be litigation alleging breach of fiduciary duty to the LLC. You should consider getting more information about LLC advantages and disadvantages from a local business lawyer.
Learn more about the differences between a limited liability corporation vs LLC under Colorado LLC laws
Read information about setting up and forming a limited liability partnership in Colorado.
To reach an experienced attorney about limited liability company advantages and disadvantages in Colorado, call our Colorado LLC lawyers at 1-866-601-5518.