Small Business Resources

When you start your business, you must decide what legal structure to use. Some of these structures include: 

(All definitions from The Colorado Business Resource Guide).

• Sole Proprietorship- A Sole Proprietorship is a business owned and operated by a single individual. There are few legal requirements to meet to establish a sole proprietorship. If you're operating your business under a name other than your own legal name, you must register a trade name. Sole Proprietor is the most common form of legal structure for new small businesses.

• General Partnership- A General Partnership is a business owned by two or more individuals or other business entities. Although it is not required, it is strongly recommended that a general partnership prepare a written partnership agreement that outlines the business' structure and each partner's responsibilities. If the partnership owns real property, the partnership agreement should be filed in the county where the property is located. The agreement should be filed with the county office that keeps real estate records. Otherwise, there is no requirement to file the agreement with any state or federal agency. If the partners are operating the business under a name other than their own legal names, the business name must be registered as a trade name with the Colorado Secretary of State

• Limited Liability Company- An LLC combines the concepts of partnerships for tax purposes and corporations for liability purposes. LLCs are created by filing "Articles of Organization" with the Secretary of State. While similar, LLCs are NOT corporations. In an LLC, the owners are called members. The members may elect or hire a manager(s) to run the business. As in a corporation, the owner(s)/member(s) may elect themselves to be the manager(s).

• Corporation- A corporation is a legal entity that exists separately from the people who create it. A corporation is owned by its shareholders and run by a board of directors elected by the shareholders. In a large corporation, the directors hire corporate officers to manage the day-to-day operations of the business. In a small corporation, the directors and the corporate officers are usually the same individual(s). Corporations are created by filing "Articles of Incorporation" with the Secretary of State and by adopting bylaws. There are certain formalities a corporation must adhere to, including:
  • Procedures for annual shareholder meetings
  • The election of the board of directors
  • Maintenance of corporate records
  • Adoption of bylaws
  • Complete separation of personal and business finances
  • Proper filings with the Secretary of State

• Registered Limited Liability Partnership- Limit a partner’s personal liability in the business to their personal investment in the business, except in areas related to their personal professional conduct. LLPs and LLLPs will usually be taxed as partnerships but may elect to be taxed as corporations. Both entities are created by filing a “Registration Statement” with the Colorado Secretary of State. The partners in LLPs and LLLPs are directly considered the operators of the business. There is usually no election of officers or managers as in corporations or LLCs.

• Limited Partnership Association- The main difference between a limited partnership association and a partnership or limited liability partnership is that the association has an indefinite life. Its existence terminates upon the affirmative vote of all of its members or as otherwise provided in the bylaws and by filing articles of dissolution with the Colorado Secretary of State. The association’s existence does not terminate upon the disassociation, death or bankruptcy of a partner. LLCs may convert to LPAs in the same fashion that they could convert to partnerships or limited partnerships under the Limited Liability Company Act

The most common forms of businesses are sole proprietorship, general partnership, corporation and limited liability companies (LLC). The other forms are limited partnerships, registered limited liability partnership, registered limited liability limited partnerships and limited partnership associations. 

• The type of business entity you choose will depend on liability, taxation and record keeping. It is best to first analyze and research your options and choose a structure that will meet your long term needs. This will avoid duplication of legal expenses, licensing and paperwork by choosing the structure that your business can grow with. 

What should you consider? 

1. Does the business require any special skills? What types of training programs are available? At what cost? For how long?

2. How will you finance the business? What are your current assets? What type of loans will you be eligible for?

3. What type of assistance will you receive from the franchisor? At what cost? For how long? What types of ongoing fees or royalties are involved?

4. What are the total costs of the franchise? These may include opening costs for inventory and fixtures, franchise fees, licensing fees, working capital, on-site expenses for the lease and construction and any service charges.

5. Is it affordable? Are there any hidden costs that might not be spelled out in the franchise agreement?

6. What are the costs of purchasing the necessary equipment? Are competitive rates available? What type of warranty and maintenance services are available? If the equipment becomes outdated, what must you do to update it?

If you are a sole proprietor or general partnership and will be doing business under a name other than your own legal name(s), you must register your trade name(s) with the Colorado Secretary of State. 

•  Registration of the trade name does not grant exclusive rights to the use of the name. Sole proprietors and general partnerships gain exclusive rights to their name through the use of the name over a period of time or by filing a trademark in addition to registering with the Secretary of State.
• If you want to find out if a name is already being used, visit the Secretary of State’s website, click “Businesses, trademarks, trade names” then “Search business database.” By searching this database, you can find out whether or not a name is currently in use.