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Commentary and Analysis Regarding Colorado Law

Corporation vs. LLC: Which Form of Entity Makes Sense for Your Business?

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One of the most critical decisions for business owners is how to organize or incorporate their business. It’s a decision that should be made after detailed conversations with a CPA and a lawyer. Two of the most common and most useful business entity forms are the corporation and the limited liability company. Depending on how business owners foresee the future of the business and its particular needs, either can be a fine choice. Corporations and associations are guided by the Colorado Revised Statutes Title 7.

Limited Liability Companies (LLCs). The limited liability company (“LLC”) is the most popular form of entity for small business owners for two main reasons. First, the legal requirements of running an LLC are much more flexible, while laws governing corporations are extensive and require a number of formalities to be observed. Some of these formalities include required annual meetings, required assigned officer positions that must be filled by individuals (e.g. President or Secretary), and required disclosures to be made on shares or shareholders. The laws governing LLCs give much more leeway to a business owner to run the business as the business owner sees fit. Second, LLCs are often attractive to small business owners because they are pass-through entities for tax purposes, meaning that the LLC itself does not pay any tax whatsoever. Instead, the profits and losses of the company are passed through to the members. As a result, most small businesses without numerous individual owners prefer the LLC form. To apply for a LLC in Colorado, use the Colorado Secretary of State website to apply. Name requirements have been set by the Colorado Revised Statutes.

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