The LLC (limited liability company) is a fairly new type of business entity. Wyoming was the first state to create an LLC legislative act. Presently, all 50 US states have LLC laws.

In spite of the LLC's novelty, business owners, accountants and attorneys today believe the LLC is the presumptive choice of entity for entrepreneurs starting a business.

The LLC statutes were especially formed to supply new commercial enterprises with an entity that has the same benefits of other possible legal entity options but does not have the same disadvantages of other entities.

This article breaks down the primary benefits limited liability companies in Colorado have over other entity types.

Limitation of Liability

All Colorado LLC owners are sheltered from personal liability for the duties, debts, and lawsuits the LLC might face. This protection essentially says that a member is not automatically liable simply because he or she is a member or owner of the limited liability company. There are some important principles and guidelines that all LLCs in Colorado must understand and follow to be certain the limited liability protect does not become lost.*

Status of the Entity

A limited liability company is a separate entity in its own right. Therefore, the LLC is considered a separate legal person, apart from its members and owners. This is vital when considered from a perspective of business continuity. If a key member, manager or employee leaves the company or dies, the business can still continue.

Options for Management Structure

Limited liability companies in Colorado and the remaining states can decide between two basic structures of management; they can be managed by members or managers. The LLC statutes give members a good deal of flexibility in choosing how they would like the LLC to be run and what rules they wish to impose on the LLC in connection with management and governance.

Procedures for Informal Decision Making

The limited liability company statutes purposely impose few formalities for LLC decision-making among managers and members.
 

Ownership Structure Flexibility

The laws governing the LLC are based upon contractual flexibility. The statutes let the Members decide for themselves how the ownership will be structured, voting rights, right to profits, and other aspects of member relationships between the LLC and its members.

Flexibility in Tax Choices

The Internal Revenue Service enacted laws in 1997, which added a great benefit to LLC ownership. The rules are known as the Check the Box regulations. They let the LLC members decide how they would like the LLC to be taxed under federal income tax returns.

An individual who owns and LLC and is a sole member can benefit from being taxes as a sole proprietor under federal income taxation, but will not have the personal liabilities sole proprietorships create. If the single member limited liability company is owned by another entity, the tax options simplify tax returns, avoiding complex consolidated tax return rules.

For the LLC with multiple members, limited liability company laws let partnership pass through taxation but do not require the LLC to obey the same complicated regulations forced on a corporation that prefers pass through taxation. In addition, both single member and multiple-member limited liability companies can opt for taxation as a corporation.