Colorado Choice of Form of Organization and Structure 2001
| Publication year | 2001 |
| Pages | 11 |
2001, October, Pg. 11. Colorado Choice Of Form Of Organization And Structure 2001
Vol. 30, No. 10, Pg. 11
The Colorado Lawyer
October 2001
Vol. 30, No. 10 [Page 11]
October 2001
Vol. 30, No. 10 [Page 11]
Choice of Entity 2001
Colorado Choice Of Form Of Organization And Structure
2001
by Robert R. Keatinge
by Robert R. Keatinge
The chart that follows constitutes the fourth tabular guide
to the differences among the various legal forms that may be
organized under Colorado statutes.1 In the pages that follow
two additional charts are presented, one dealing with choice
of entity in estate planning,2 and one dealing with filing
and notice provisions as they relate to different
organizational forms.3 It should prove useful for readers to
have all of this information in one place.4
Background
Between 1993 when the Colorado Business Corporation Act was
revised5 and 1997 when the Colorado Corporations and
Associations Act was adopted,6 every form of organization
except the limited partnership7 had been fully revised
During that same period, the federal income tax laws (and, as
a result, the Colorado income tax rules) have changed
dramatically. In addition, Colorado courts are starting to
interpret the new business entity legislation.8
As part of this change, the default rules (that is, the rules
that will apply to a form of organization in the absence of a
provision in its governing documents to the contrary) of the
various business forms have been updated to make them more
closely reflect modern commercial relationships. More
important, the statutes have generally been changed to expand
the ability of the owners to change the default rules in the
governing documents.9 The statutes provide flexibility
because, while the statutes are drafted to meet the
drafters' best expectations of what the owners of the
organization would want, business and other relationships are
by their nature unique. Each business has its own
idiosyncrasies. Therefore, the statutes are generally
designed to provide broad freedom of contract and then fill
in the gaps with reasonable default rules
The Current Perspective
In this environment, rather than entity, the choice is of
form of organization and, within the selected form, choice of
structure. In some cases, the statute governing a particular
form provides for statutory subchoices of structure, such as
the choice between member-managed and manager-managed limited
liability companies ("LLCs"), the choice between
partnerships organized for a specific term or undertaking and
those that are not, and the choice between a traditional
corporation and one that has elected to dispense with a board
of directors. In other cases, tax rules will provide for
different treatment of organizations of the same form; for
example, a corporation that has elected to be treated as an S
corporation, an LLC that has elected to be treated as a
corporation for tax purposes, and an LLC having only one
member. Although the chart below cannot discuss fully all of
these statutory alternative structures, it does address S
corporations separately, as well as some of the different
structures of LLCs.
The freedom to modify the structure of some forms,
particularly LLCs, is not limited by the statutory
alternatives. Thus, for example, it is possible in a
member-managed LLC to concentrate the ability to make
decisions in the hands of (1) fewer than all the members or
(2) an appointed or elected non-member. It is also possible
for a manager-managed LLC to grant very limited discretion to
the manager, reserving decisions on all matters to the
members. In each case, whether relying on the default rules
or the statutory or contractual variations in structure, it
is important that the organizer fully understand the
intentions of those forming the organization and carefully
document those desires in the governing documents. With the
sort of flexibility that the Colorado statutes provide comes
the responsibility of understanding the consequences of the
structure adopted. The Colorado courts have declined to
substitute their judgment for the judgment of the parties
organizing the business.
Conclusion
As noted above, Colorado organizational statutes will
continue to evolve for the indefinite future. When the chart...
To continue reading
Request your trial