There are many reasons that people may want to form a limited liability company in Colorado, but most commonly, it is done for liability protection or tax purposes. The state has only a few requirements to form your company, which are very simple to meet.
With extensive research and expertise in Colorado business regulations, our team has thoroughly examined the legal requirements and procedures for forming an LLC.
This article saves you time and effort by providing a comprehensive and easy-to-follow approach to how to start an LLC in Colorado.
We’ll also provide the necessary information to smoothly navigate the formation process, whether you're a beginner or an existing business owner looking to establish a presence in Colorado.
Quick Summary
- To open an LLC in Colorado, choose a unique business name, hire your own registered agent, file Articles of Organization, obtain an EIN, and understand taxes
- LLCs offer personal liability protection, flexible management through the registered agent, and potential tax advantages
- Some key considerations for an LLC include filing fees and annual reporting fees, and the need for legal guidance
Steps to Setting Up an LLC in Colorado
There are several steps every business owner should take when setting up an LLC in Colorado.
Keep in mind that professional advice is always best when setting up any business, especially for those new to this process or without experience with it.
1. Choose a Business Name
You need to find a suitable business name before you can form an LLC. The business name should be unique and meet all requirements, including the length.
The business name must also end with an 'LLC' abbreviation for Limited Liability Company, 'LLC,' 'LLC Ltd, or 'LC.' This will ensure legal protection and allow you to obtain the necessary business licenses required for your business registration in Colorado.
You can find the detailed requirements for an LLC name and name availability at the Colorado Secretary of State (SOS) [1].
If the LLC name is available, file the Statement of Reservation of Name. The reservation will allow you to reserve a business name for 120 days while you finalize the business formation documents. The LLC name reservation filing fee is $25.
See our article about changing an LLC name in Colorado.
2. Hire a Registered Agent
Colorado law requires that any individual or business entity must hire a registered agent service to accept important legal documents on its behalf and provide legal advice when needed.
Your registered agent should:
- Operate within the state
- Have a registered office
- Be available at their street address to sign for these notices during regular business hours
LLC's registered agent services in Colorado start around $50 a year, but this cost can go up depending on the company structure and the individual needs of your business.
Additionally, in most cases, filing your LLC without a registered agent or using just an address service (PO Box) that forwards mail to you is impossible.
3. File LLC Articles of Organization
The next step is to file the LLC Articles of Organization to start an LLC in Colorado.
Articles of organization represent a document that formally creates the company in Colorado. Any business owner, member, or manager must file it with the Colorado Secretary of State.
Once this procedure is completed, you'll receive official Articles of Organization forms. This document provides essential information about your business, including its:
- Name
- Address
- Registered Agent information
- Company structure
- Purpose
- Members/managers
- LLC's street address on record as the principal office location
The Articles of Organization for your LLC can only be filed online through the Colorado Secretary of State website. To file Articles of Organization, you need to pay a $50 filing fee.
Learn more about the costs to create an LLC in Colorado by checking our guide.
4. Make Your LLC Operating Agreement
An LLC operating agreement in Colorado is a legal document that contains specifications about the rights, duties, and responsibilities of LLC members.
The operating agreement also defines procedures for resolving issues within the company, managing major financial decisions, or changing membership status.
Operating agreements are not required by Colorado business law, but they're highly recommended because:
- It's a great way to ensure all business owners have a clear understanding of their roles and how the business works;
- Operating agreements can help hold you accountable as a manager or member since breaking the rules set out in your operating agreement may be grounds for expulsion from the LLC;
- They create legally binding contracts between each owner/manager, which protects all parties involved. If an issue arises where it needs to go before a judge, the LLCs operating agreement offers a clear interpretation of how the company should operate.
You can draft your operating agreement yourself or seek assistance from an attorney to ensure it aligns with Colorado state laws and meets your business needs.
5. Obtaining an EIN
To open a business bank account or hire employees, your LLC will need an Employer Identification Number (EIN).
A tax ID number is created to be used for tax filing purposes and can be obtained by applying through an online form with the IRS [2]. The procedure usually takes no more than 15 minutes and is free of charge.
Employer Identification Number helps you to maintain a corporate veil and protect your personal assets from tax liabilities and other legal claims.
6. Opening a Business Bank Account
Once you have successfully registered your LLC, opening a business bank account is important.
The business bank account will separate your personal finances from your business finances. The separation is essential for legal and tax purposes or when planning to take out loans or other types of financing in the future.
To open a business bank account for your LLC, you must provide your LLC formation documents, EIN, and identification documents.
Research different banks and their account options to find the one best suits your business.
Once you have chosen a bank, schedule an appointment or visit their website to begin the account opening process.
7. Obtaining a Business License
Business license requirements for an LLC could be obtained on the federal, state, and local levels, although you might not be required to have them all.
To check the federal license requirements, make sure to visit the U.S. Small Business Administration website and obtain information about business licenses [3].
State licenses are mandatory for LLCs to be able to start sales and pay taxes.
Businesses that supply services, manufacture products, or sell items might also need a sales tax license from state agencies. You can inquire about state licenses by contacting Colorado's Department of Regulatory Agencies [4].
You should also contact the State Licensing Board if your LLC plans to provide professional services, such as dentistry, architecture, engineering, etc. In these instances, all or some members of the else need to be licensed.
If you plan on starting your LLC in a certain town/city in Colorado, make sure they have general business license requirements before moving forward with the establishment process.
Contacting your county clerk is the best way to obtain information regarding local permits and licenses.
What Are the Benefits of Colorado LLCs?
The benefits of starting an LLC in Colorado include the following:
- The LLC itself is not taxed; taxation falls upon its members (LLC owners) instead
- Easy to set up and maintain, requires minimal ongoing filings with state/federal agencies
- Personal liability protection for all LLC members (owners)
- LLCs are considered separate legal entities, meaning that you cannot use personal assets to pay off business debts if the company goes bankrupt or is ever sued
- It provides an excellent way to protect your personal wealth and future financial stability should something happen at your Colorado business location that requires legal action against it by another party claiming damages/injuries resulting from negligence, etc.
What Are the Cons of Creating an LLC in Colorado?
Although running a Colorado LLC has its irrefutable perks, there are some potential downsides to consider.
Here are 4 cons you might expect:
- LLCs in Colorado require filing fees and annual reporting fees, which can add to the overall expenses of maintaining the business entity. You can opt to choose the cheapest registered agent services.
- Although forming an LLC is relatively straightforward, it still involves some paperwork and legal processes that may be burdensome for some individuals. You can use a quality Colorado LLC formation service to help you smoothen the process.
- Certain types of businesses, such as retail or food service, may face higher taxes in Colorado due to specific tax laws and regulations. Thoroughly understanding the tax laws applicable to your industry and getting a good tax advisor can help minimize tax liabilities and ensure compliance.
- LLCs have complex membership structures, making managing and structuring ownership more challenging. Seeking legal guidance and professional assistance can help navigate the complexities and ensure compliance with state regulations.
LLC Taxes
A limited liability company is considered a "pass-through" entity, meaning your company's profits are passed directly onto you and taxed as ordinary income.
Determining whether LLC is the right business structure for your business involves understanding the state tax requirements. LLCs need to pay federal taxes and continue collecting sales tax.
This is beneficial compared to setting up an S-Corp or C-Corp if you want to avoid being taxed double (where the business pays taxes on its earnings, and so do you).
A single-member LLC is not taxed as its entity but rather through his/her personal federal return via Schedule C (similar to a sole proprietorship).
An LLC that chooses to be taxed as a corporation needs to file Form 2553 with Internal Revenue Service [5]. In this case, the LLC files a separate tax return. You can download this form from the IRS website. The corporate income tax rate in Colorado is 4.63% [6].
Small businesses in Colorado with employees must withhold and pay business income taxes to the Department of Revenue to avoid penalties.
Read more about filing LLC Taxes in Colorado.
Colorado LLC FAQs
Does Colorado Require a Periodic Report?
Colorado requires a periodic report from LLCs. This report provides updated information about the company's management and ensures compliance with state regulations.
LLC owners in Colorado need to fulfill this reporting requirement to maintain their legal standing. The periodic report fee is $10.
Can I Domesticate an LLC in Colorado?
You can domesticate an LLC in Colorado by following the state's specific guidelines and requirements. It entails filing the Combined Statement of Information with the Colorado Secretary of State.
This document must contain the LLC's formation documents. After you complete this step, the LLC dissolves in the mother state.
What is a Colorado LLC?
A Colorado LLC refers to a limited liability company formed under the laws of the state of Colorado. It provides personal liability protection to its members while offering flexibility in management and taxation.
What’s the Difference Between a Domestic Colorado LLC and a Foreign LLC?
A domestic Colorado LLC is formed within the state, while a foreign LLC is established elsewhere but operates in Colorado. Domestic LLCs require a Colorado LLC operating agreement, while foreign LLCs need registration and compliance with local laws.
Do You Need a Business Insurance for Your LLC in Colorado?
It's not legally required to have business insurance for a Colorado LLC, however, we do recommend it. Business insurance can protect your Colorado LLC from various risks, such as liability claims, property damage, or legal expenses.
Do I Need to Hire a Registered Agent Service for My Colorado LLC?
While not required to hire a registered agent service for your Colorado LLC, it is mandatory to designate a person as a registered agent. The registered agent ensures proper handling of legal and official documents, ensuring compliance with state regulations on behalf of your Colorado LLC.
Can I Start a Colorado LLC on My Own?
Forming an LLC in Colorado is a straightforward process that can be done on your own. The state has detailed instructions for filing the necessary paperwork and creating bylaws, so you should have no problem getting started without outside assistance.
Suppose you need more information or want to save time with the tedious work of filling out forms, or you don't want anything overlooked.
In that case, it's always a good idea to consult with your attorney or seek professional help from ZenBusiness, which offers quality LLC formation services in Colorado and other states.
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References
- https://www.sos.state.co.us/pubs/business/businessChecklist.html
- https://www.irs.gov/individuals/international-taxpayers/taxpayer-identification-numbers-tin
- https://www.sba.gov/
- https://dora.colorado.gov/consumer-protection-licensing
- https://www.irs.gov/forms-pubs/about-form-2553
- https://coloradollcattorney.com/Register-a-Business-in-Colorado/Taxes
