Denver listed as Forbes #2 city to launch a startup business! (What are you waiting for?)

It’s official! Forbes has tapped the best cities of 2014 to launch a startup business. And, my home town of Denver, CO stands strong at number 2 on that list. Forbes – The Best Places to Launch a Startup 2014.

So, what can the passionate entrepreneur do to start fashioning that great idea into reality? Well, that’s a difficult and tricky question with many different answers.  But likely high up on that list is the best way to structure your new business, not only for individual protection, but for tax advantages and management options.

I often get asked, “What is the best entity for a business?” It depends on so many different factors; the primary one being what business is the company engaged in? This is a brief description of the various business entities that are available to an entrepreneur.  With solid business and legal counselling, you can decide which business is right for your new business. By no means is this meant to be an exhaustive recitation of entities. Every entrepreneur should consult with an attorney before deciding what entity is best for him/her.

Sole Proprietorship

A sole proprietorship is an unincorporated business entity which is owned by one person. That individual is the sole proprietor, who is responsible for all debts and obligations of the business.

Advantages:

  • Full management authority
  • Minimal formalities
  • Easy to form
  • No double taxation
  • Easy to terminate

 

Disadvantages:

  • No limitations on personal liability
  • Very little business continuity
  • Management diversity is nonexistent
  • Difficult to attract high-caliber employees
  • Limited ability to raise capital

 

General Partnerships (GP)

A Partnership is an association of two or more persons who carry on as co-owners a business for profit.

Advantages:

  • Each and every partner is entitled to manage the partnership.
  • Management has significant flexibility.
  • Minimal formalities and regulatory and reporting requirements.
  • Can be inexpensive to organize.
  • No double taxation.
  • Expanded pool of capital resources.

 

Disadvantages:

  • Each partner has personal liability for partnership debts and obligations of the partnership.
  • Very little business continuity.
  • Transferring partnership interest is difficult.
  • Difficult to raise capital.
  • Significant legal and organizational expenses.

 

Limited Partnerships (LP)

A limited partnership is a partnership created by the statutes of a particular state.  It contains one or more general partners and one or more limited partners.

Advantages:

  • Limited partners have limited liability
  • Certain income tax benefits
  • Partnership interest is easily transferred
  • Business continuity
  • Varied capital resources available

 

Disadvantages:

  • General partners have unlimited liability
  • Prohibition on control of business
  • Significant formalities and regulatory and reporting requirements
  • Can be expensive to organize

 

Limited Liability Partnerships(LLP) / Limited Liability Limited Partnerships (LLLP)

A limited liability partnership and a limited liability limited partnership is a partnership, as defined above, where the partners have limited liability.

Advantages:

  • All partners have limited liability
  • Flow-through income tax benefits
  • Partnership interest can be transferred
  • Business continuity
  • Varied capital resources available

 

Disadvantages:

  • Certain obligations create personal liability
  • State Income Taxation in Some States
  • Significant formalities and Regulatory and Reporting Requirements
  • Can be expensive to organize

 

Limited Liability Company (LLC)

A limited liability company is an unincorporated entity that offers limited personal liability to its owners, who are referred to as members.

Advantages:

  • All owners have limited liability
  • Anyone can own
  • Easy to raise capital for the business
  • Beneficial tax treatment
  • Easy to manageme

 

Disadvantages:

  • Limitation on transferability of ownership
  • Possibility of piercing the LLC veil
  • LLC laws differ from state to state
  • Many formalities and reporting requirements

 

 

Corporations (C-Corp)

Corporations are an artificial entity created by law and exists separately from its owners or managers. The corporation has certain rights and powers, and it exercises those powers through its agents. A corporation can exist forever.

Advantages:

  • Limited personal liability for all shareholders, directors, and officers
  • Can exist forever
  • Easier to raise capital for the business
  • Management is centralized
  • Ownership interest is easily transferrable
  • Can choose tax year
  • Advantages in hiring employees

 

Disadvantages:

  • Significant corporate formalities and reporting requirements
  • Double taxation

 

S – Corporations (S-Corp)

S Corporations are corporations as defined above but have elected subchapter S status with the Internal Revenue Service (IRS) to be taxed as a partnership. An election to be treated as a Sub chapter S Corporation must be signed by all shareholders. There are restrictions on the number and identity of shareholders of Subchapter S Corporations.

With solid business and legal counseling, you can decide which business is right for your new business. By no means is this meant to be an exhaustive recitation of entities and their respective advantages and disadvantages. Every entrepreneur should consult with an attorney before deciding what entity is best -for him/her.

At Contiguglia / Fazzone, P.C., 837 Sherman Street, Suite 2D, Denver, CO 80203, (303) 780-7333, we do more than draft the documents to help you organize your new business. We pride ourselves on guiding you through your new business endeavor. We will utilize our skill while providing insight on your industry, and keep you from making mistakes. We will complement your organization and be approachable on multiple issues regarding the law, the industry and strategy.

 

 

 

 

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