Guide to Starting an LLC in Colorado
If you’re thinking of starting your own business, one important decision to make is what legal structure to use. A Limited Liability Company (LLC) is a common choice for small businesses because it offers some key benefits. In this guide, we’ll walk you through the process of setting up an LLC in Colorado. We’ll cover everything from choosing a name to filing paperwork with the state of Colorado. Let’s get started!
Steps to Form a Colorado LLC
Let’s break down the steps to complete the Colorado LLC formation process.
Total Time: 10 minutes
Step 1: Select the LLC Name
The first step in forming a Colorado Limited Liability Company is to make sure the name you want is available. A unique name has to be selected as no other LLCs in the state of Colorado can have the same name. Before finalizing a name, be sure to check on the availability of LLC names in Colorado in the state’s business database before registering.
Under Colorado state law, the legal name of a Colorado Limited Liability Company must include one of the following words or abbreviations at the end of the business name:
– Limited Liability Company
– Ltd. Liability Company
– Limited Liability Co.
– Ltd. Liability Co
Most LLCs will operate under the name they register with the state. If you want to operate multiple businesses under your LLC, a DBA or “Doing Business As” name will need to be registered too. This additional name can be registered at any time by filing a Statement of Trade Name of a Reporting Entity online and submitting a $20 state fee.
If you have an entity name selected but are not quite ready to start the LLC, you can reserve the name for up to 120 days by filing the Statement of Reservation of Name form. There is a filing fee of $25 for the name reservation.
It is also highly recommended to check the United States Patent and Trademark Office (USPTO) to see if this name is registered to someone else. The Colorado Secretary of State will not cross-check the federal trademark database.
Last, before selecting a business name, you may also want to see if a domain name is also available.
Step 2: Appoint a Colorado Registered Agent
The next step in forming an LLC in Colorado is that a Registered Agent must be identified.
To requirements to be a Colorado Registered Agent include: – Either be a Colorado resident or a company such as a registered agent service that accepts service of process. Service of process refers to receiving important legal documents, tax notices, summons, subpoenas, and other legal papers on behalf of the LLC.
– Have a “usual place of business” (commonly known as having a physical address.
– Be available during normal business hours) in the state.
Any individual meeting the above requirements can be the Registered Agent, however, the agent’s name and address become public record, and with that comes a loss of privacy. This is more important for some entrepreneurs, especially when they are doing business from home or still employed. Hiring a commercial Registered Agent service like Northwest Registered Agent will help keep the owner’s names from being publicly listed.
Learn more about the requirements for a Registered Agent in Colorado
Step 3: File the Colorado Articles of Organization
The paperwork to create an LLC in Colorado is called Articles of Organization. To file them, visit the Colorado Secretary of State’s website.
If you have questions, contact the Colorado Secretary of State.
Colorado Secretary of State
Upon submitting the Articles of Organization, the LLC will be approved instantly.
Estimated Cost: 50 USD
When filing the Articles of Organization, there are a few sections that may be unfamiliar. Let’s go over a few of those sections.
Principal Office Address
In this section, enter the street address, city, and zip cost of the initial principal office. This address can be the LLC’s physical address, or it can be the address where the business records are stored. You may not use a Post Office Box for the designated office.
If you prefer to use a different business address than the designated office for correspondence from the Secretary of State, enter that address in the mailing address field. A PO Box is acceptable in this section.
The Management section asks whether the management of the LLC is Manager-Managed or Member-Managed.
- Member-Managed LLCs have an active involvement in the day-to-day operations of the business.
- Manager-Managed LLCs refers to an LLC where the members hire somebody to run the company, similar to the position of CEO for a corporation.
Most LLCs are member-managed.
If you want the LLC to start on today’s date, choose Yes, otherwise select No, and enter a date less than 90 days in the future to start.
Some will delay the LLC start date if they aren’t ready to go but want the filing out of the way or if they are close to the end of a calendar year and want to delay until the following year so they won’t have to file business taxes.
IncAuthority and IncFile are currently running a special where you only pay state fees for your LLC formation and they do the rest!
What should you do after starting your Colorado LLC?
After the registration process is finalized, there are a few additional steps to take care of. Below is a list of the most common tasks.
Prepare a Colorado LLC Operating Agreement
The operating agreement is a document that governs the framework of an LLC. This document covers items like ownership rights, LLC member responsibilities, how profits and losses are distributed, and more.
Most states do not require an LLC to have an operating agreement, but it is still worth considering. Without an operating agreement:
- The LLC could be subject to generic state rules that may be detrimental in the event of a lawsuit.
- Member’s personal liability protection may be diminished.
- Members may not fully understand their roles and responsibilities, leading to costly disputes in the future.
Obtain an EIN
The EIN or Employer Identification Number (also called a Federal Employer Identification Number or FEIN) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Similar to a social security number for an individual, the EIN identifies business entities for tax purposes. The EIN will be needed to hire employees, open a bank account, register for business licenses and permits, file tax returns, and more.
There is no cost for the EIN when registering through the IRS. The number is available immediately when applying through the IRS website; however, you can also register by phone, fax, or mailing IRS Form SS-4.
Related: How to Apply for an EIN
Elect the LLC’s Form of Federal Income Taxation
One of the major benefits of the Limited Liability Company is the tax flexibility it provides. When applying for the Employer Identification Number, you will choose the classification of how the business entity will be taxed for federal income tax purposes. While there are some limitations, an LLC may be classified for federal income tax purposes as a:
- Sole proprietorship
While this may sound confusing, this refers to how the LLC is taxed, not the legal structure.
Related: How can an LLC be taxed?
By default, LLCs are pass-through entities. Instead of the LLC paying taxes on profits, the profits or losses flow through to the members.
Single-member LLCs will, by default, be taxed as a sole proprietorship. The members can elect to be taxed as a C-corporation or an S-corporation.
Multi-member LLCs will be default be taxed as a partnership. The members can elect to be taxed as a C-corporation or an S-corporation.
In general, the difference between being taxed as a corporation and being taxed as a sole proprietorship or partnership the profits and losses are passed to the member’s federal income tax returns based on their percentage of ownership. As a result, the owner will pay income tax and self-employment taxes on all business profits. As an alternative, electing to be taxed as a corporation allows the members to take a reasonable salary and then pay payroll taxes. Any remaining profits are distributed and aren’t subject to payroll taxes, resulting in potential tax savings.
Before electing how your LLC will be taxed, be sure to talk with an accountant to assess which one will be best for you.
Open an LLC Bank Account
Opening a bank account for your LLC is important for liability protection as the account separates the business’s funds from the member’s personal funds.
Several documents will be needed to open a business bank account, such as:
- A banking resolution is a document that authorizes the members to open a business bank account on behalf of the LLC.
- Copies of the original formation paperwork from the state showing the creation of the LLC.
- Driver’s licenses of the members.
- Depending on the LLC’s age, a Colorado Certificate of Good Standing may be needed to prove the LLC is active and in good standing with the state.
Apply for Business Licenses and Permits
Depending on what your business does and where it is located, there will likely be various business licenses and permits to register before starting. Some common registrations include:
- Business License – Some cities require businesses to obtain licensing before they can start.
- Professional License – Certain services such as barbershops, accountants, salons, and others must be licensed.
- Sales Tax License – To sell products and certain services, registration with the Colorado Department of Revenue will be necessary.
- Wage Withholding Account – Businesses hiring employees will need to register with the Colorado Department of Revenue.
File Annual Reports
LLCs must file annual reports (referred to as a periodic report) with the Colorado Secretary of State. The annual filing fee is $10 and is used to update ownership information and other details of the business.
Periodic reports are due during the three-month period beginning with the first day of the anniversary month of your LLC’s formation. For example, if the LLC were formed on January 12, the report would be due each subsequent year between January 1 and March 31.
Common Questions To Starting an LLC in Colorado
How much does an LLC cost to start in Colorado?
The initial filing fee to start an LLC in Colorado is $50.
Is there a yearly fee for an LLC in Colorado?
A $10 Periodic Report (sometimes called an annual report) will need to be filed each year.
How long does it take to form an LLC in Colorado?
The LLC is approved instantly after submitting the Articles of Organization to the Colorado Secretary of State.
Can you be your own Registered Agent in Colorado?
Anyone can act as a registered agent, provided they are at least 18 years old, reside in the state, and are generally available to receive documents during normal business hours.
What is the difference between a sole proprietorship and LLC in Colorado?
If you are researching starting a business in Colorado, you may wonder what the difference is between a sole proprietorship and an LLC.
Unlike a sole proprietorship or partnership where the small business owner can be held personally liable for lawsuits against the business, the LLC is a separate legal structure, protecting the business owner’s personal assets.
Besides the liability protection, the Limited Liability Company provides several other benefits over the sole proprietorship, partnership, and corporation because of the multiple tax options, ease of administration, and management flexibility.
If I have an LLC, is a business license required?
It’s sometimes thought that the LLC and business license are the same, but they aren’t. An LLC is referred to as the business entity, which is how the business is organized to conduct business. A business license is approval from a government entity to legally operate.
What is a Foreign Limited Liability Company?
A Colorado Foreign Limited Liability Company, officially referred to as a foreign entity authority, is an LLC formed in another state but wants to physically operate in Colorado. Physically operating means having a presence, such as having an office or hiring an employee.
What is a Professional Limited Liability Company?
Businesses that require state licensing can form a Professional Limited Liability Company (sometimes referred to as a Professional LLC or PLLC) instead of an LLC. Some business types, such as dentists, are required to form a PLLC, while others, such as attorneys, physical therapists, and others, have the option of forming a PLLC. Filing for a PLLC is very similar to that of an LLC.