How to form your LLC in Colorado

Starting an LLC in Colorado

The state of Colorado has a strong startup ecosystem with access to high speed internet and availability of important business resources. The secretary of state and other government agencies provide in-depth information regarding Colorado LLC filing online and offline as well as small business incentive programs. It is a growing state industrially and economically with the real gross domestic product (GDP) valued at $385.83 billion. If you want to file an LLC in Colorado then there are several top sectors and industries that vary from traditional sectors like manufacturing to lifestyle industries like visual arts and crafts.

What is a Colorado LLC?

A limited liability company (LLC) is one of the most popular business structures in the U.S. and more often than not, first time business owners file a Colorado LLC application owing to the ease of doing business. This is an extremely flexible entity structure and is considered to be a hybrid entity as it combines various characteristics of a sole proprietorship, partnership, and corporation. An LLC follows what is known as pass-through taxation and the regulations and laws governing its formation can vary from one state to another. One of the common requirements is to maintain a Colorado LLC registered agent in the state. There are different types of limited liability companies that you can form in the state and they are:

• A single-Member LLC like sole proprietorships
• Multi member LLC like partnerships
• Manager-Managed LLC
• Foreign limited liability company

Benefits of forming an LLC in Colorado

A limited liability company is a quite popular structure owing to its many advantages. Entrepreneurs prefer Colorado LLC filing online due to these advantages or salient highlights of this type of entity structure. Let’s take a look at some of the benefits:

• Limited personal liability – When you file an LLC in Colorado, one of the biggest advantages is limitations on personal liability. This is because an LLC is considered to be legally separate from its owners. Unlike in sole proprietorships, an LLC will be responsible for its obligations and debts instead of the owners or members.
• Less paperwork – One of the important benefits of forming an LLC is that the entire registration process requires less paperwork or documentation. Certain other types of entities like corporations also offer limited liability protection but require substantial recordkeeping.
• Tax Advantages – If you start a Colorado LLC then you will have distinct advantages when it comes to taxation. A limited liability company doesn’t have its own federal tax classification and can instead adopt the tax status of different entities like S corporations, sole proprietorships, C corporations, or partnerships. Being a pass-through taxation entity, the LLC will not be levied any corporate taxes and the income as well as expenses will pass through to the owners. As a result, the owners of an LLC will have to file personal tax returns.
• Flexible profit distribution – If you file an LLC in Colorado then this is another benefit that you can enjoy. LLC’s have a lot of flexibility when it comes to distribution of profits i.e., the profit is not required to be distributed equally.

Start an LLC in Colorado

In the last five years, the startup ecosystem in Colorado has grown by leaps and bounds. Resources and funding are also available right from the early development stage. State agencies and private institutions offer a wide variety of programs that vary from entrepreneurship growth and development to conducting a Colorado LLC search for incentive and tax credit programs. The most important aspect though is to form your company in the state. There are several key processes to consider prior to business registration and post formation. Let us look at what all areas you will need to focus on to run your business efficiently.

1. Choose Colorado LLC name

Starting a business requires you to follow several paths and one such path is reaching out to your customer base. If you want your prospective customers to find you or to be able to identify and associate you or the brand then a business name is what you need. This is the most basic requirement and without a proper name, you will not be able to start a Colorado LLC. Names are considered as important assets and play a key role in brand building, marketing, sales, and are even required for other business related processes like banking or applying for a business license.

• A chosen name for Colorado LLC filing online should contain words like “limited liability company”, “limited company” or abbreviations like L.L.C or LLC pursuant to CO Code § 7-90-314(1).
• The chosen name should be distinguishable from any other name in the state database. Hence, it is important to conduct a name availability search also known as Business Database Search in Colorado.
• Once the chosen name is available, you will need to file the Statement of Reservation of Name pursuant to §7-90-301, et seq. and §7-90-602 of the Colorado Revised Statutes (C.R.S.). The fee for reservation of name is $25 and you can reserve it for a period of 120 days.

2. Choose a Colorado LLC registered agent

If you have decided to register a limited liability company then you will need to be compliant with different state requirements. One such requirement is that of a registered agent. Most states in the USA have made it mandatory to hire a statutory agent. Similarly, you will have to hire and maintain a Colorado LLC registered agent pursuant to CO Code § 7-80-301 (2022). IncParadise can be your registered agent in this state as we are committed towards handling service of process in accordance with the Colorado Code and can also help you to file a Colorado LLC application for registration of a new business.

3. File an Article of Organization with Colorado Secretary of State

Once you have reserved a name and chosen your Colorado LLC registered agent, the next step would be to actually register your company. The formation of a limited liability company is governed by 2022 Colorado Code, Title 7 – Corporations and Associations, Article 80 – Limited Liability Companies, Part 2 – Formation. You will be required to file the Articles of Organization pursuant to CO Code § 7-80-204 (2022). There is only one option for new business registration and that is Colorado LLC filing online of Articles of Organization along with a fee of $50. It is important to ensure proper information is provided in the registration document and is compliant with the state regulations and laws.

Form your new business in Colorado Today!

4. Prepare Colorado LLC operating agreement

If you have decided to start a Colorado LLC then it is a good decision because this type of entity structure offers several advantages over other structures. Hence, it is one of the most popular entity choices for first time business owners. Although a limited liability company doesn’t have to fulfill too many state-required formalities and documentation, it is often recommended to prepare an operating agreement. This is a key document for any limited liability company as it controls the structure of the entity and also the operational aspect. This document also sets in place the relationship among the various members of a multi-member LLC. This document is not legally required in order to file an LLC in Colorado but it does play a key role in protecting your company’s status. Some of the important components of a Colorado LLC operating agreement are:

• Organization including members and structure of ownership
• Management and Voting
• Equity structure of the business
• Addressing all fiduciary duties and liabilities
• Distribution of profits and losses
• Changes in membership
• Anti-dilution protection
• Circumstances for dissolution

5. Obtain an EIN for a Colorado LLC

One of the important aspects to consider prior to Colorado LLC filing online is the entity tax structure. The type of tax levied on the company will also determine the type of tax ID required for filing state taxes. You require a Social Security number (SSN) if it is a single member LLC and an Employer Identification Number (EIN) if it is a multi-member LLC. The EIN is a type of tax ID also known as the Federal Employer Identification Number (FEIN). This is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to different entities.

6. Check local licenses and permits

The state of Colorado offers several benefits to entrepreneurs and startups including small business incentive programs. Once you have registered your company in the state, the next step is to conduct a Colorado LLC search for business licenses and permits. Your company may require a single license or multiple licenses depending on the business activity and location of your company. Let’s take a look at the various licenses and permits applicable in this state:

• Sales and Use Tax License – Once you file an LLC in Colorado, the said entity will not be operational without proper licenses. The state doesn’t have a general business license but there is a sales and use tax license that you may need to obtain. The Colorado Sales Tax License is issued by the Colorado Department of Revenue (CDOR) and is also known as a reseller’s license, resale certificate, or even a vendor’s license. This type of license is normally valid for a period of two years. There are different categories of sales tax license in the state based on the primary business activity. These are:
  • Standard Retail License (Sales Tax License)
  • Wholesale License
  • Single Special Event License
  • Multiple Special Event License
  • Mobile Vendors
• Regulatory Licenses – The second most important type of license is the regulatory license. This is required if your business profession or industry is listed amongst the regulated services by Colorado Department of Regulatory Agencies – DORA’s Divisions. Let’s look at an example to understand how this works.

  Example: If you start an accounting firm in the state then such an industry or professional will fall in the list of regulated services. You can conduct a Colorado LLC search for accounting licenses on the DORA website itself. The issuance of such a license is governed by the Board of Accountancy, DORA, Division of Professions and Occupations.

• City or County licenses – One of the important Colorado LLC filing requirements is that of a city or county license. The licensing laws and regulations will vary from each city or county to another. The licensing or permit requirements of Pitkin County, CO will be different from that of Archuleta County. You will be required to contact the local county office to know more about additional licenses your LLC may need.

7. Open Colorado LLC bank account

Once you start a Colorado LLC, it becomes important to ensure your business earnings and expenses are kept separate from that of your personal gains and expenditure. In fact, the law also states that a limited liability company is treated as separate from an individual or the owner and hence requires a separate bank account. There are several benefits of a business bank account like enabling ease of bookkeeping, filing of proper taxes, and providing additional protection to the company.

8. Comply with taxes and other regulations

Once you file a Colorado LLC application for new business registration, your company is formed. It will then become important to ensure your LLC is able to meet all annual compliances as stated in the Colorado Code or as required by the office of the Secretary of State. There are primarily two important annual requirements and they are:

• Periodic Report – Some states in the USA require businesses to submit an annual report as a part of their annual maintenance. Similarly, Colorado requires limited liability companies formed in this state to submit the periodic report each year with the Secretary of State. This is one of the most important Colorado LLC filing requirements annually and helps the entity in question to maintain a “Good Standing” with the state. There is a fee of $10 for filing this report which has to be submitted by the end of the month of initial registration.
• LLC Taxes – Colorado LLC filing online will make your company active in this state. This also means that such a company will be required to file applicable taxes in Colorado. Since a limited liability company is considered as a pass-through entity, the taxes will be filed through individual income tax returns. Colorado has a flat income tax rate of 4.63% and you will be required to calculate your taxes on the basis of this. Apart from this, you may be required to file self-employment tax and sales and use tax.

Know more about starting a Colorado LLC!

There are several factors to consider before and after Colorado LLC filing online including the type of documentation. If you are a first time business owner then you may have several questions related to new LLC formation. Hence, we have created a special section of “Frequently Asked Questions” for addressing some of the queries that you may have.

Is Colorado a good state to form an LLC?

If you want to file an LLC in Colorado then it is important to identify the advantages of choosing this destination. One of the prime reasons that entrepreneurs prefer this state is the pro-business environment. Some of other advantages are:

• The state has a central location supported by a strong transportation infrastructure right from airports to interstate highways.
• The tourism industry is considered to be one of the primary drivers of the Colorado economy generating in excess of $1 billion in taxes.
• The state has a highly skilled and educated workforce and this provides a competitive advantage to small businesses and large enterprises
• The state also has competitive tax structures with several tax credit programs to help lower the overall tax burden of LLC’s

How do I know if my Colorado LLC name is available?

Once you have chosen a name in compliance with state naming guidelines, you can conduct a Colorado LLC search for name availability. This process will help you to identify if the chosen name is already being used by any other company in the state. If the chosen name is available then you can reserve it and if it is not available then you will have to think of a new name based on the Colorado LLC filing requirements and conduct the name search again.

How much does an LLC cost in Colorado?

If you want to start a Colorado LLC then there will be two types of costs, which are initial costs and annual costs. Initially, the cost to form a limited liability company would take into consideration the reservation of business name ($25), cost to hire a Colorado LLC registered agent (varies according to chosen RA service), and the registration costs ($50).

Do I need a business license for my Colorado LLC?

Yes. If you are planning to transact in the state of Colorado then you may be required to apply for single or multiple business licenses and permits. One of the important licenses required by domestic and foreign LLCs is the sales tax license. Apart from this, you may also need city or county licenses, and other permits based on location and activity. You can subscribe to our Business License Research Report service as it provides detailed information on several aspects of licensing in the state.

Can I set up a single-member LLC in Colorado?

Yes, you can start a single-member LLC (SMLLC) by filing Articles of Organization with the office of the Secretary of State. Most of the Colorado LLC filing requirements will be similar to that of any domestic limited liability company.

What taxes does an LLC pay in Colorado?

Once you opt for Colorado LLC filing online, depending on the tax status chosen, you will be required to file state taxes. Some of the LLC taxes are:

• Personal income tax for a pass-through entity
• Colorado Sales and Use Tax
• Withholding tax
• Other miscellaneous taxes like excise and fuel tax

Can I register a foreign LLC in Colorado?

Yes. The formation of a foreign limited liability company will be governed by the 2022 Colorado Code, Title 7 – Corporations and Associations, Article 80 – Limited Liability Companies; Part 9 – Foreign Limited Liability Companies. You will be required to file a Statement of Foreign Entity Authority (SOFEA) along with a fee of $100.

How do I dissolve my Colorado LLC?

Once you have formed a Colorado LLC, there can be several reasons to discontinue the business. You will be required to file Articles of Dissolution pursuant to CO Code § 7-80-802 (2022) if you want to wind up your business in this state. The fee for processing a dissolution is $10.

Ready to form a Colorado LLC?

Colorado is a pro-business state where the industry is evolving and economically stronger than before. You can choose from several different structures although the most popular structure is that of a limited liability company. When you start a Colorado LLC, you will be able to enjoy several advantages over other business structures including tax credits. If you want to file an LLC in Colorado then IncParadise can assist you with the process of registration of your new business in the state.