Colorado LLC Advantages and Disadvantages

Colorado LLC Advantages and Disadvantages

LLCs are similar to Chapter S corporations, except they can exist for a defined period of time. Owners receive the tax advantages of a partnership, while also receiving the protection of a corporation.

Limited liability companies may be formed for most businesses, except some professional businesses that require licensing for protection of the public. Generally, doctors, lawyers, accountants and other professionals. There are some other businesses that are exempt, but as far as real estate investing, you’ve found the jackpot.

Another reason to set up a company is that some states and other government agencies require either a U.S. social security number or a federal tax I.D. number to invest in foreclosed properties. With an LLC, even non-U.S. citizens can apply for a federal tax I.D. number.

Colorado LLC Advantages and Disadvantages

Advantages of Limited Liability Company

  • Limited Liability: Owners of a LLC have the limited liability protection of a corporation.

  • Flexible Profit Distribution: Limited liability companies can select varying forms of distribution of profits. Unlike a common partnership where the split is 50-50, LLC have much more flexibility.

  • No Minutes: Corporations are required to keep formal minutes, have meetings, and record resolutions. The LLC business structure requires no corporate minutes or resolutions and is easier to operate.

  • Flow Through Taxation: All your business losses, profits, and expenses flow through the company to the individual members. You avoid the double taxation of paying corporate tax and individual tax. Usually, this will be a tax advantage, but circumstances can favor a corporate tax structure.

Colorado LLC Advantages and Disadvantages

Disadvantages of Limited Liability Company

  • Limited Life: Corporations can live forever, whereas a LLC is dissolved when a member dies or undergoes bankruptcy.

  • Going Public: Business owners with plans to take their company public, or issuing employee shares in the future, may be best served by choosing a corporate business structure.

  • Added Complexity: Running a sole-proprietorship or partnership will have less paperwork and complexity. A LLC may federally be classified as a sole-proprietorship, partnership, or corporation for tax purposes. Classification can be selected or a default may apply.

By Colorado and other state law in order to proceed with forming a llc, you need to prepare a written abstract detailing your llc purpose, the names of your initial Colorado LLC members, the name and address of your Colorado registered agent, the details of which will be introduced into the body of your LLC operating agreement and related Colorado LLC formation documents assembled for application to the state of Colorado.

Summary of LLC benefits for Colorado:

  • Allows for partnerships with limited liability.

  • Protects personal assets of owners or members.

  • One owner/member allowed in all states, except Massachusetts.

  • Does not require annual shareholder meetings, like Chapter C and S corporations.

  • Favorable tax status – can be set up and taxed at owner’s tax rate (default) or as a company (requires filing other paperwork).

Colorado LLC Advantages and Disadvantages

Colorado’s 2009 Business Tax Climate Ranks 13th

Colorado ranks 13th in the Nation's State Business Tax Climate Index. The Index compares the states in five areas of taxation that impact business: corporate taxes; individual income taxes; sales taxes; unemployment insurance taxes; and taxes on property, including residential and commercial property. The ranks of neighboring states were as follows: Arizona (22nd), Utah (11th), Wyoming (1st), Nebraska (42nd), Kansas (31st), Oklahoma (18th) and New Mexico (26th).

Colorado’s Individual Income Tax System

Colorado's personal income tax system consists of a flat tax of 4.63% on the entirety of an individual's taxable federal income. That top rate ranks 37th highest among states levying an individual income tax. In 2006 Colorado's individual income tax collections were $902 per person, which ranked 19th highest nationally. Since most small businesses are either S Corporations or partnerships or sole proprietorships, they pay their business taxes at the rates for individuals. The state's low income tax rate makes the tax environment for small businesses in Colorado competitive compared to other states.

Colorado’s Corporate Income Tax System

Colorado's corporate tax structure consists of a flat rate of 4.63% on all corporate income. Among states levying corporate income taxes, Colorado's rate ranks 45th highest nationally. In 2007, state-level corporate tax collections (excluding local taxes) were $100 per capita, which ranked 42nd highest nationally among states that tax corporate income.

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