Understanding Your Business Structure Options

One of the most important choices you’ll make is deciding your business structure. This decision impacts your taxes, liability, and how you operate.

Let’s break down some common business structures and what makes each one unique — so you can start the conversation with your tax or legal professional and find the best fit for your goals.

Business Structures We Support and What They Mean

Sole Proprietorship

The simplest and most common structure. You and your business are one and the same — which makes setup easy and keeps costs low. However, you don’t get liability protection, so your personal assets could be at risk if your business faces challenges.

Limited Liability Company (LLC)

An LLC offers the best of both worlds: protection from personal liability and flexible tax options. It separates your personal assets from your business, so your personal finances are safer. Many small business owners prefer this structure for its balance of simplicity and protection.

Corporation

Corporations are more formal business entities that offer strong liability protection. You’ll find two main types:

• C-Corporation: Taxed separately from owners, which can mean double taxation but offers the ability to raise capital through stock sales.

• S-Corporation: Allows profits and losses to pass directly to owners’ personal tax returns, avoiding double taxation. However, there are limits on shareholders.

Nonprofit

Designed for organizations operating for charitable, educational, or social causes. Nonprofits can qualify for tax-exempt status but must meet specific requirements and follow strict rules about how money is used.

Club Account

A specialized account type that supports groups or clubs that want to manage funds collectively. Ideal for social, recreational, or special interest groups that don’t necessarily fall under formal business categories.

General Partnership

Two or more people share ownership and responsibilities equally. It’s relatively simple to form, but partners share personal liability for business debts and obligations.

Limited Partnership

A variation of partnership where there are general partners with full liability and limited partners whose liability is limited to their investment. Limited partners usually do not participate in day-to-day management.

How to Move Forward with Confidence

Choosing a business structure is a foundational step, but it’s not one you have to figure out alone. Each structure has tax and legal implications that can affect your business success. That’s why we encourage you to work with a tax or legal professional who can help you:

• Understand the tax benefits and responsibilities of each structure

• Evaluate liability and risk based on your personal and business goals

• Navigate the setup and compliance requirements smoothly

• Plan for your business’s future growth and changes

Questions to Ask Your Tax Professional

When you meet with your tax advisor, consider asking:

• How does each business structure affect my taxes?

• What level of personal liability protection do I get?

• What are the setup and ongoing compliance requirements?

• Can I change my business structure later if needed?

• Are there cost differences among these structures?

• How do Colorado state laws impact these options?

• What documentation or registrations will I need?

You Can Do Money — Let Us Help You Do It

At Westerra Credit Union, we are here to support your business journey with the right accounts and financial services tailored to your needs. Whether you are a sole proprietor or part of a corporation, our team is ready to help you manage your money confidently.

Westerra Credit Union does not provide tax or legal advice. Please consult with your tax or legal professional.