Business Formation
Forming a business entity in Colorado is inexpensive and fast; the filing itself can be done online with the Secretary of State in a few minutes. What takes thought is everything the filing does not cover: which type of entity fits the business, how the owners will make decisions, and what happens when an owner wants to leave, dies or stops contributing.
Choosing an Entity
Most small businesses in the Estes Valley are formed as limited liability companies (LLCs). An LLC protects its owners (called “members”) from personal liability for the company’s debts, provided the company is properly maintained, and it offers flexibility in how the company is managed and taxed. A corporation may suit a business which expects to bring in investors or issue stock to employees, and some businesses elect to be taxed as an S corporation, which is a tax election and not a separate type of entity. Partnerships, by contrast, can be formed without any filing at all, simply by two people carrying on a business together, which is one reason partners are often surprised by their personal exposure. We discuss tax elections with you and your CPA; this office does not provide tax advice.
The Formation Process
-
Name and registered agent. We confirm that the name is available and appoint a registered agent with a Colorado street address to receive legal papers.
-
Filing. We file the Articles of Organization (for an LLC) or Articles of Incorporation (for a corporation) with the Colorado Secretary of State.
-
Governing document. We draft the operating agreement (for an LLC) or bylaws and shareholder agreement (for a corporation).
-
Follow-up. You obtain an employer identification number (EIN) from the IRS and open a business bank account in the company’s name, and we give you a short list of ongoing obligations, including the periodic report which must be filed with the state each year to keep the company in good standing.
Why the Operating Agreement Matters
Colorado does not require a written operating agreement, and many single-owner LLCs operate without one. For a company with more than one owner, however, the operating agreement is the document that decides how disputes are resolved, how profits are distributed, and how an owner’s interest is valued and bought out on death, disability, divorce or departure. Without such an agreement, those questions are answered by statute, often in a way none of the owners intended. An owner’s interest in the company should also be coordinated with that owner’s Will or Trust.
For an LLC formed to hold a family property, see Family Cabin LLC. When the time comes to sell or close the business, see Business Sale or Purchase and Business Dissolution.
Back to Business Formation and Planning · All Practice Areas