Both a corporation and a limited liability company provide personal liability protection.
Generally, LLCs are known as limited liability companies. An LLC is a type of business entity that is regulated by state law. They combine the benefits of a corporation with that of a sole proprietorship or partnership. They combine the best of both worlds. Both forming a corporation and a Colorado LLC offer personal liability protection. It provides a “wall of security” between your properties and your business assets.
If your company is sued, it prohibits you from using your personal assets to pay your business debts or liabilities. LLCs, sole proprietorships and partnerships enjoy another benefit, pass-through taxation. You avoid the pitfall that corporations face: double taxation by reflecting your business profits/losses on your tax return instead of paying taxes separately when starting a Colorado LLC. By doing this you will avoid double taxation. Essentially, double taxation occurs when you pay tax at both the corporate and individual levels.
Starting a Colorado LLC
Corporations are separate legal entities that can act on behalf of their owners, similar to LLCs. They can trade, earn money, build their personal and real wealth, etc. Unlike corporations, no separate legal entity is created. Owner runs a sole proprietorship. They are known as shareholders or stakeholders. By law, the owner is the business. A partnership is an unincorporated business run by more than one person.
Like sole proprietorships, they do not form a separate legal entity. Unlike a corporation, it does not cost much money to create and maintain an LLC. The Colorado Secretary of State charges a $50 one-time filing fee for LLCs and a $10 annual fee for periodic reports. In addition to being less expensive than maintaining a corporation, maintaining an LLC is also less expensive. A corporation’s profits are taxed twice because they are taxed at the corporate and shareholder levels.
An LLC is a pass-through entity, which means profits are taxed at the same rate as your income, rather than at the corporate level. LLCs do not file taxes with the IRS at the corporate level. No upside means that the corporation has no upside. Tech companies, startups and companies that need funding from outside investors are better off with this type of finance.
They are more complicated to maintain. As a result of an LLC, your assets are protected by your business assets. Your assets are safe and secure if your company is sued. Only your company’s assets can be used to pay off the company’s debts. A sole proprietorship does not provide this protection. If your business is being sued, you can use your assets because the law treats you and your business equally.