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Things To Consider When Starting A Small Business

Starting a small business entails more than just placing an "Open for Business" sign on your company's front door or on your website's landing page--a lot more. In fact, many people venturing into the world of small business ownership often fail simply because they did not realize how complex the legal implications are when starting a small business.

What Kind of Business--Sole Proprietorship or Limited LIability Company?

The majority of small businesses operating in the U.S. are "sole proprietorship" businesses, meaning the person who owns the business is thought of as a single entity for tax liability and tax purposes. Because sole proprietorships are not registered in the state in which they operate as a corporation or as limited liability company, the person running the business can report income from the business on their individual tax return. Essentially, a sole proprietorship is inseparable from the individual operating the business, especially in the eyes of the IRS.

A limited liability company, or LLC, combines tax advantages provided by sole proprietorships with the benefits of certain corporation features associated with an LLC. For example, an LLC can choose to pass profits and losses to members of the company or tax itself like a corporation. However, LLCs do not have to adhere to corporate formalities nor do LLCs have stock to offer its members. LLCs are often referred to as a "hybrid entity" because it was developed to give business owners the advantages of liability protection without being doubly taxed that corporations enjoy.

Considering a Partnership?
Businesses owned by two or three individuals are either limited partnerships or general partnerships.  General partnership agreements involves owners managing the business and assuming responsiblity for their partner's obligations and debts. Alternately, limited partnerships consist of limited and general "partners". People who invest in the business are called "limited" partners while the "general" partners are liable for all business doings.
Involving administrative complexities and extreme amounts of paperwork, limited partnerships are not recommended for new, small businesses, unless the business is lucky enough to have numerous passive investors available to finance the start-up. However, the greatest benefit afforded by a partnership is the ability for owners to forego paying taxes on revenue. Instead, profits and losses are passed through individual owners.

Business Licenses

Depending on the type of business you plan to operate, Colorado may require that you obtain a business license or permit before you can start running your business. Examples of businesses that need licenses to operate legally include but are not limited to landscape architects, stockbrokers, manicurists and certified nursing aids. For a complete list of businesses that must be licensed in Colorado, visit http://www.dora.state.co.us/licensing.html.

Non-Disclosure Agreements (NDA)

An NDA is a formal agreement between two parties that allows one party to provide confidential information about its products or business operations to another party without worrying about the other party sharing this confidential information with other entities. Non-disclosure agreements are also used for many other reasons and come in a variety of wordings and intentions. Initiating an NDA with another individual or entity typically requires the assistance of a business attorney who understands the implications of NDAs that are not property worded.

Zoning Laws

"Brick and mortar" businesses are subject to local zoning laws that permit the business to operate in a specific location. Zoning laws differ greatly among cities and counties in Colorado, with some locales requiring businesses acquire special licenses before operating in and around locales containing schools, churches or other extraordinary entities.

Before starting a small business, take several months to research and investigate all aspects of operating a small business. In addition, seek legal counsel to avoid making mistakes that could lead to stressful situations in the future involving your business, state laws, the IRS or potentially unscrupulous entities associated with the operation of your business.

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Miller & Law P.C. Attorneys at Law
1900 West Littleton Blvd. Littleton, Colorado 80120
Phone: 303-722-6500 Fax: 303-722-9270
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