Those wishing to form a new entity in Colorado are faced with an alphabet soup of different entity types to choose from. The most commonly used entities are corporations, various types of partnerships and limited liability companies. While the differences in the entities are considerable and complex, a few general points can be kept in mind.

Corporations. A new corporation is formed by filing articles of incorporation with the Secretary of State. The owners are shareholders. Directors and officers manage the corporation. The primary governing document is the corporation’s bylaws. The common distinction made between different types of for profit corporations is between C and S corporations. C and S corporations are indentical under Colorado law but are treated differently by the Internal Revenue Service. C corporations pay income tax, S corporations generally do not with shareholders reporting their proportionate share of the corporations profit or loss. The Internal Revenue Code has a significant number of regulations, including rules on ownership and management, to determine whether a given corporation qualifies as an S corporation. As a general rule, shareholders, directors and officers are not personally liable for the actions and debts of the corporation.

General Partnerships ("GPs"), Limited Liability Partnerships ("LLPs") and Limited Liability Limited Partnerships ("LLLPS"). No formal action is needed to form a GP. LLPs and LLLPs must register with the Secretary of State. Partnerships are owned and managed by the partners themselves. The primary governing document for a partnership is the partnership agreement. As the names would suggest, a primary consideration in registering as either an LLP or an LLLP is limited liability. The LLP or the LLLP structure protects the partners from being held liable for the actions and debts of the partnership. In a traditional GP each partner is usually liable for the actions and debts of the partnership. The partnership is not subject to federal income tax.

Limited Liability Companies (LLCs). An LLC is formed by filing articles of organization with the Secretary of State. An LLC is owned by members and is managed by either the members or managers. The primary LLC governing document is the operating agreement. Unlike a partnership, which must have at least two partners, an LLC may have one member. If an LLC has only one member, the LLC is disregarded for income tax purposes and its income and expenses are reportable on the member’s individual tax return. Members and managers protected from liability for the actions and debts of the LLC.