However, depending upon the business’ goals and structure, there could be some pros and cons when you are creating an LLC in Colorado. Understanding LLC advantages and disadvantages is a critical step to take before starting a business.
Limited Liability Company LLC Advantages
There are many LLC advantages and disadvantages of a Limited Liability Company Operations 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 in the steps to forming an LLC in Colorado, 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 limited liability company advantages and disadvantages is 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 business formation 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.
Disadvantages of Limited Liability Companies
Among the Limited Liability Company advantages and disadvantages when 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 Advantages and Disadvantages of Limited Liability Company from a local business lawyer.
The first thing you should do is to make sure that your type of business does not fall outside of the scope of what businesses can form an LLC. Next, you should make sure that the LLC laws mirror the type of business operations that you intend to operate. Once you have accomplished these tasks you should look into doing the following:
- Understand the advertising law and how a violation could cost you your personal assets.
- Assess how many partners you will have and decide what issues you value the most if there is a dispute
- Jot down your main concerns and provide to your lawyer when you schedule your initial consultation
- Speak with an experience CPA about your projected business operations and what tax implications you should be aware of ( not all attorneys are CPAs. Do not expect your attorney to be able to answer all LLC tax questions.)
- Itemize what type of business contracts you anticipate executing and what law should apply.
- Lastly, get the help of an LLC attorney near you. You should not wait until there is a dispute in the LLC to then retain a lawyer.
Learn more about the differences between a limited liability corporation vs LLC under Colorado LLC laws.
Read information about the steps forming an LLC in Colorado and forming a limited liability partnership in Colorado.
To speak with an experienced attorney about the limited liability company LLC advantages and disadvantages and at 1-866-601-5518.