An LLC is a fairly flexible legal business structure that can be used to run a wide variety of businesses. It’s also much less expensive than setting up an S corporation or C corporation.
Given all the advantages, it’s easy to see why so many business owners prefer LLCs over other structures. But how do you set one up?
Here are some steps you need to take to form an LLC in Colorado:
STEP 1: Name your Colorado LLC.
Your first task is to choose a name for your Colorado LLC. You can’t use a name that is already being used by another business entity in the state.
And you have to make sure that your name does not violate any trademarks, copyrights, or trade names.
It also has to be reasonably distinguishable from other LLCs’ names on file with the state of Colorado. If it isn’t, the secretary of state could reject your application, and you’ll have to pick out a new name before you can form an LLC in CO.
FAQ: Naming an LLC
Q. Can I use the name of another business entity to form my LLC in Colorado?
A. No, this isn’t allowed and could result in your application being rejected by the state.
Q. Can I pick any name for my LLC?
A. You can’t choose a name that is already in use or one that might violate somebody’s trade names, trademarks, or copyrights. There has to be some logical reason why you chose to form an LLC in CO under such circumstances.
Also, make sure that your desired name doesn’t contain the words “bank,” “trust,” “trustee,” “incorporated,” “inc.,” or any other terms suggesting that it’s a corporation or trust (unless it actually is). Your application will be rejected if you do.
STEP 2: Choose a Registered Agent in Colorado
If you want to form an LLC, you’ll have to find a registered agent in CO. This is done through the Colorado Secretary of State’s website.
You can also use LegalZoom’s registered agent service. Keep in mind that you must be able to receive legal papers at this address should they ever come your way.
FAQ: Nominating a Registered Agent
Q. Can I act as my own registered agent?
A. No, this is a job for a third party – don’t even think about doing it yourself. If you want to form an LLC in CO, you need to have a third party that’s willing to accept legal documents on your behalf at their address.
Q. How do I get legal papers if they ever come my way?
A. You can either give the recipient your physical address or that of your registered agent. For LegalZoom’s service, you’ll need to supply a PO Box number to use as the mailing address for any legal documents and correspondence.
STEP 3: File Your Colorado LLC Articles of Organization
Your next step is to file your Colorado LLC Articles of Organization. You need to download this document from the Secretary of State’s website, print it out, and fill in all your information on the form. Make sure every line is completed accurately, so nothing looks fishy later down the road.
You’ll also have to provide details about your LLC, like its name (which you chose earlier), address (of either its registered agent or physical location), date of formation, the names and addresses of at least two members (if there are any), whether it’s managed by a member(s) or manager(s), etc.
Once everything has been filled out correctly, you can either mail or fax your articles to the state of CO for processing.
FAQ: Filing LLC Documents
Q. How long will it take to form an LLC in Colorado?
A. It probably won’t be processed within 24 hours since there are several people involved in the formation of your company. If you’ve filed everything correctly, the state should get back to you within 5 business days.
Q. Is there a way for me to find out if my application has been received?
A. Yes, by calling 303-894-2200 or using the online status check. This service is only available between 8 AM and 6 PM Monday through Friday, though, so don’t try contacting them at any other time of day.
STEP 4: Create Your Colorado LLC Operating Agreement
Unless your LLC’s manager(s) will be moving forward without any guidance, you’ll need to create an operating agreement as part of the formation process. This is different from articles of organization, so don’t get them confused.
FAQ: Colorado LLC Operating Agreement
Q. What is an operating agreement?
A. It’s a document that puts forth the rules governing how an LLC does business and divides its profits between members/managers. Make sure it includes things like member capital contributions and withdrawal rights.
You should also specify what should happen if a member wants to withdraw or dies unexpectedly – should his share be sold or distributed to other members?
Q: Who needs to sign my Colorado LLC Operating Agreement?
A: At least two members/managers must sign the document and date it.
STEP 5: Get an EIN for Your Colorado LLC
Now that your LLC has been formed, you need to get a federal EIN for it. You can apply for this on the Internal Revenue Service (IRS) website.
FAQ: Getting a Colorado LLC EIN
Q. How long will it take to get a federal EIN for my LLC?
A. The IRS will assign you an Employer Identification Number (EIN) usually within 5 business days, even if they need to contact you for more information first.
It’s also possible that your application will be put on hold if there’s already been another company with the same name in the past – you’ll need to add the suffix “(d/b/a)” at the end of your new company’s name before applying.
Q. Are there any benefits to getting an EIN for my Colorado LLC?
A. Yes, it allows you to open up a business bank account without having “Doing Business As” attached to your company’s name. As long as the bank account is under the proper EIN and name, you can use it without the worry of breaking any rules or regulations.
Advantages and Disadvantages of an LLC
- Limited Liability – Being a limited liability company means that members are only responsible for their personal funds should something go wrong with the business. This can be your member’s, manager’s, or even your own money that you used to contribute to the LLC. It makes it harder for other entities/people to take legal action against you in order to get reimbursed due to being unable to touch any of the company’s assets without first going through an extensive process.
- Only Two Member Requirements – Unlike corporations, there aren’t many requirements when it comes down to forming an LLC. All you need is one person who contributes at least $500 and someone else who’ll act as a manager and take care of any day-to-day transactions.
- Less Paperwork – For the most part, LLCs only need to file yearly reports with the state as opposed to corporations that need shareholders’ meetings, minutes from those meetings, and other documents as well as an annual and periodic report as well. Although this may not seem like much upfront work, it can be time-consuming later on if you want to make changes in leadership or share allocation.
- Lower Probability of Creditors Filing Lawsuits – It’s easier for creditors and debtors to recover money owed by trying to collect from your company rather than going after each member directly. This means your personal assets aren’t at risk of being seized unless you’ve used the LLC’s corporate property as security for your own debt.
- Tax Treatment – Depending on which state you reside in, the income and losses of an LLC are passed directly onto members rather than the company itself. This lowers the possibility of double taxation down to just one level unless members decide to file jointly with their spouses. It also allows them to more easily reduce taxable income by deducting things like health insurance premiums or compensating family employees.
- Loss of Personal Liability – After forming an LLC, you could theoretically be held personally liable if something goes wrong with the business operations. This is especially true if you took out any loans or provided guarantees on behalf of your company without making them extensions of your personal guarantees. If, for example, a worker is hurt at the LLC’s location and it causes a lawsuit against them or an accident that causes damage to someone else or their property, any member may have to pay up personally.
- Extra Paperwork – When you’re dealing with hiring employees, having multiple memberships can be extra work, especially when it comes down to filing federal tax forms such as W-4s and W-9s for both the IRS and state unemployment benefits. There’s usually also additional paperwork needed when it comes down to payroll taxes as well as quarterly reports for each quarter of the year.
- Expenses May Be Higher than Corporations – One major drawback of forming an LLC is that you’re limited in the number of members. This means that your business may have higher expenses should other members decide to back out or want to take on a passive role. You could end up spending more than you should need to if not for this limitation.
How much does it cost to form an LLC?
To file your articles of organization with the Secretary of State, you’ll generally have to pay around $100.
If you want a legal opinion to make sure everything is done correctly and legally binding, expect to pay anywhere from $500-1,000.
Paying professionals like attorneys or accountants may cost more depending on what they’re doing for you.
Considering Using an LLC Formation Service?
There are a number of inexpensive LLC services out there that can help you get started. As part of their service, they’ll submit your paperwork and manage the entire process for you.
Because forming an LLC can be complex and confusing, especially if this isn’t something you’re used to doing (or helping people who might not be familiar with the legal system), these types of companies make it easier for those with little resources to take advantage of what they have to offer
Separate Your Personal and Business Assets
Your LLC can be separate from yourself and any members you have. However, it’s important to keep in mind that your personal property is not safe from being seized if there are unpaid debts or legal fees.
- Opening a business checking account: Having a separate business checking account is important for many reasons. You can use it to track your finances and pay Colorado LLC taxes.
- Getting a business credit card: You may need to get business credit cards so you can keep track of expenses. It’s best to use separate accounts for everything.
- Hiring a business accountant: Your business may have to file taxes, so you should hire a professional who can help you every step of the way.
Get Business Insurance For Your Colorado LLC
Colorado LLCs are required to have a minimum amount of liability insurance.
It doesn’t necessarily have to be specific to the business, but it should cover things like bodily injury or property damage resulting from your company’s operations.
Other types of insurance:
- Professional Liability – This would cover you and your company in case a worker was to suffer an illness or injury on the job. This could lead to a medical malpractice suit.
- Directors & Officers Insurance – Should one of your LLC’s members get into trouble with investors, suppliers, or customers, this type of policy helps protect them from getting sued personally
- Employment Practices Liability – This would cover you in case one or more of your employees were to file a complaint against either you or another employee, which could result in lawsuits
- Commercial Auto Insurance – If any of your company’s vehicles are involved in an accident, this type of insurance protects both the driver and passengers. It also covers damage done to other people/property when it comes down to being at fault for an accident.
- Worker’sCompensation – This covers you should one of your employees become injured on the job. It would not only help them, but it protects you from getting sued.
- Umbrella Insurance – Umbrella insurance provides protection above and beyond what regular liability insurance offers. Depending on how high your limits are, this type of policy can protect both yourself and your LLC in case of a large claim.
- Property Insurance – Whether commercial or residential, property insurance is important because if your assets are damaged or destroyed, it helps replace those items, so the company does not have to suffer financially.
Create Your Business Website
While not required, having your own website is an effective way to market your company.
Many businesses use sites like Facebook or Twitter but creating a site specifically tailored towards what you do is even better.
Send Out a Press Release
Whether you’re just starting out or have been in business for a while, sending out your own press release can help get the word out about your company.
You might also be able to contact local publications so they can cover your grand opening.
Colorado Business Permits and Licenses
Depending on what your business is, you may have to apply for the following:
1) Sales Tax License
If your company sells any type of goods or services, you’ll have to collect sales tax from customers and submit it to the state government
2) Employment License
Depending on what your business does and who it hires, you may need to apply for an Employment License. This could apply if you’re hiring people in fields such as nursing, childcare, or construction
3) Zoning Permit
This is required if you plan on having a home-based company where clients come up to your house. You should check with the city to make sure this permit is not needed because it’s difficult and sometimes impossible to get one
4) Trademark Application
If your business uses any kind of name, symbol, or mascot that distinguishes you from other companies (including logos and colors), then applying for a trademark is important. It gives you legal ownership over that item and keeps others from using it without your consent
5) Fictitious Name Application
If your business chooses to operate under a name that’s different from the LLC owners, you’ll have to apply for a Fictitious Name Certificate. This applies when your LLC operates without using an assumed name
6) DBA (Doing Business As)
A DBA is required when you choose to use an alternate business name or when your LLC operates using an assumed name. The difference between this and the fictitious certificate is that the former applies when operating only in certain locations, while the latter can be used anywhere within Colorado.
Colorado LLC Tax Filing Requirements
If you choose to form an LLC in Colorado, the tax filing requirements are as follows:
- Initial Franchise Tax – After your company is approved by the state of Colorado, you may have to pay this fee. The amount required varies based on how many member shares your company has
- Sales and Use Tax Filing – Like most states, Colorado charges sales tax that must be paid quarterly. Along with paying sales taxes, if you sell items out of your home or office, it may require additional filings depending on what they are
- Retroactive Liability Payments – These are special fees that vary depending on what type of general business license/certificate was applied for but will usually be between $5-$300 dollars
- Employment Security – If you hire employees, you’ll need to file this form as well.
- Monthly Tax Return – This has to be submitted every month and can vary. The company can be charged anywhere from $4 to $100 dollars depending on factors such as sales volume and the number of withholding exemptions allowed for each employee.
Federal LLC Tax Filing Requirements
- Annual Federal Tax Return – Whether you choose to file as an S or C Corp, there are certain factors that determine how much you’ll need to pay. You may be eligible for tax deductions/credits, so consulting with a CPA can help avoid any surprises.
- Employment Tax Forms – If your business has employees, you will have to pay federal payroll taxes. This applies if the company makes over $600 in one quarter.
- Federal Withholding Payments – If your LLC employs people, whether, via W2 or 1099 forms, this payment method must also be submitted quarterly
- Estimated Quarterly Taxes – These are special fees for self-employed individuals who make over a certain amount of money depending on their filing status. The fees usually range from $100 to $1,000 dollars a quarter.
- Additional Taxes – Finally, if your company has any investments, there may be special taxes that apply depending on those types of activities
- Calculating Franchise Tax – If you choose to incorporate as an S Corp or C Corp, the state charges a franchise tax for this distinction. Usually, it’s based on business income but can also vary based on other factors such as net worth and the number of shareholders.
- State Income Tax Return – Colorado doesn’t have a state income tax fee for LLCs, but after filing with the federal government agency and paying quarterly employment taxes (if needed), you may receive a state refund which is allowed by law (based on net income)
- Sales Tax – Depending on your company’s annual sales volume, if you sell items in Colorado or to customers located there, you’ll probably need to pay state sales taxes quarterly.
- Colorado State Annual Disclosures – These are just informational forms that must be submitted annually. They usually range from $5-$30 dollars depending on your LLC status and the number of members it has
File Your LLC Annual Report
After you register your LLC, it’s very important to file an Annual Report. The fee varies depending on the type of business entity license/certificate that was applied for, but usually costs between $5-$30 dollars.
Hiring Employees for Your LLC
Before you hire employees for your LLC, there are certain steps that need to be taken. Make sure the company is properly registered, file with the Colorado Department of Employment Security, fill out federal IRS forms (W-4 and I-9), and submit employment tax returns.
How to Build Business Credit?
One of the main reasons to form an LLC is so you can build credit. Luckily, there are many easy ways to do this.
- The first step involves filling out a D&B application online or getting one mailed to your company.
- If approved, you’ll receive your DUNS number, which acts as your company’s unique identifier.
- Other important business-related numbers that must be obtained before applying for financing include EIN, TIN (Tax Identification Number), FRAN (Filing Reference Number), and POE (Previous Office Encounter).
- You also need to set up merchant accounts with vendors like Paypal if you plan on selling items online.
- Finally, open up business credit card accounts through companies like American Express or Visa.
Doing all of these things will help you build business credit for your LLC.
Virtual business address service
A virtual business address is a service that acts as an official company mailing address for your LLC. The benefit of using this type of service is that it can be used as an address anywhere in the world. Using a virtual business address will not only assist you with building credit but also make acquiring business loans and financing easier as it provides an official company address.
Colorado Foreign LLCs
Foreign LLCs must be registered with the CO SOS within 90 days of conducting business in this state.
You’ll need to submit a completed Application for Registration of an Assumed Business Name, along with the filing fee ranging from $50-$750 depending on your LLC’s assumed business name choice and its length/complexity.
There will be additional fees if you hire a registered agent service (see below).
Foreign LLC Residency
To register your foreign LLC in Colorado, it must:
- Be formed under the laws of another state or country (as long as there are no local restrictions)
- Have enrolled in the Foreign Limited Liability Company Roster maintained by the Office of the Secretary of State
- File with the Secretary of State a Certificate of Authority to Transact Business in Colorado, with the filing fee ranging from $50-$750 depending on your LLC’s assumed business name choice and its length/complexity.
Note: If you hire a registered agent for services there will be an additional fee as well
How to Obtain a Certificate of Good Standing in Colorado?
To obtain a Colorado Certificate of Good Standing, you must first file with the state for LLC formation.
Once your LLC has been formed, you can request your good standing certificate directly through the Colorado Secretary of State website.
The fee for this certificate is $20 dollars. Keep in mind that it may take up to five business days to receive your certificate once payment has been submitted.
What are the benefits of having a Certificate of Good Standing?
- It shows your company’s financial health and verifies its existence
- An unrestricted Certificate will make it easier for current members to transfer membership interest during transactions/sales/divorces, among other things
- If an EIN is needed but not assigned, one can be obtained when filing for a Certificate of Good Standing
- It can be used in place of, or with, a Colorado Articles of Organization when opening up business bank accounts
Starting a Colorado LLC today is not difficult. There are just a few requirements that must be met before you can begin the process.
Make sure that your company name does not violate any local or state laws, register your business with the Employment Security Department, file for necessary Colorado business licenses and permits, hire employees, apply to D&B for a DUNS number, open merchant account accounts with companies like Paypal, American Express or Visa if you plan on selling items online, etc.
Also, request your Colorado Certificate of Good Standing once the formation has been complete, so members have proof of the company’s good standing status.