Few people run successful businesses without some kind of incorporation. Incorporating a business is how you guard your personal assets from lawsuits and limit your range of professional liability. Protecting your assets is one reason why incorporation is widely used in Colorado.
The basic terms of incorporation
Incorporation is the creation of a new business or nonprofit organization. An incorporated company or organization gives you better control over your taxes. In the U.S., certain companies have cheaper taxation rates than individuals.
Incorporation protects your personal finances from the expensive costs of lawsuits and debts. As a member of a corporation, you are not solely responsible for personal or business loans, accounts payable or lawsuits. You share liability with your coworkers and shareholders for the company’s long-term expenses and business sales and purchases. Limited liability allows the owners and investors to separate their personal assets from the business’s assets and cash flows.
Types of incorporation
There are major types of incorporation that include sole proprietorships, limited liability companies (LLCs), S corporations (S- corps) and C corporations (C-corps). Selecting the right type of business depends on the types of activities and preferences for taxes and liability. Individuals are encouraged to choose sole proprietorships or partnerships. A large company that prefers a team of leaders to help make decisions should select a corporation.
Understanding your options
Incorporating a business is necessary to create a formal identity and purpose for your products and services. There are various tax and legal benefits that come with every type of incorporation. The specific procedures and documentation required for incorporation vary in each state.