If you’re reading this, then you’ve already made the decision to start a Limited Liability Company (LLC) in Colorado.
It’s exciting to start a new business or move your business to a different state, so congratulations!
I’m going to tell you everything you need to know in this guide about forming an LLC, but before I do I’m going to go over some basic information about LLCs so that you can decide whether a Limited Liability Company is really the best structure for your business in Colorado.
(To skip to the “How to Form an LLC” section, click here.)
What Is a Colorado LLC?
A Colorado LLC is a Limited Liability Company formed in the state of Colorado that is governed by the laws, regulations, and statutes of the state of Colorado.
Why Choose an LLC?
Your business will benefit from three major advantages that aren't available from business structures such as a partnership, sole trader, S, or C Corporation.
1. Limited Liability and Asset Protection
The biggest benefit to LLCs, as opposed to sole traders or partnerships, is that owners of an LLC aren’t held personally responsible for the company’s liabilities and debts.
So, if your LLC in Colorado is sued or goes bankrupt, creditors aren’t legally allowed to go after your personal items or assets, like your house or car. Financial compensation and recourse are limited to the assets of the LLC.
When you consider that any unexpected event can cripple even the most prepared business in Colorado, you’ll appreciate this level of protection if you value the hard work you’ve put into your LLC.
2. Privacy
The second benefit of forming an LLC is that your individual information (like your name and street address) is protected.
Hackers and scammers are more prevalent now than they’ve ever been, and they’ve become better at their crimes over the past decade. They can use seemingly inconsequential information to steal your identity, and from there they can run up debts of thousands of dollars in your name.
When you start an LLC your information as a private individual is kept safe.
How does this work? All you have to do is use an LLC formation service designed for business entities. The LLC formation service will put their information on the public record and you’ll maintain ownership of your LLC. This will keep your information off the register that the Secretary of State’s website publicly displays, so hackers and scammers can’t access it with a simple search.
My two choices for the best LLC formation services for any LLC in Colorado are Northwest Registered Agent and ZenBusiness.
3. Taxation
The third and last benefit of forming an LLC is that LLCs provide some significant advantages over corporations when it comes to taxes.
Corporations experience what’s known as “double taxation.”
This happens when the profits made by the corporation are subject to corporate taxes. Then the profit left over after the corporate taxes are taken out are distributed among the business owners as dividends. The dividends are subject to personal income tax, as well.
So, it’s called “double taxation” because you’re taxed twice.
If you start an LLC, you can completely avoid double taxation. The profits of your LLC get taxed at company rates, rather than corporate rates, and the profits distributed to owners of LLCs are taxed as personal income. This means that as the owner of a Colorado LLC, you’ll only be taxed once for your income.
Furthermore, the Tax Cuts and Jobs Act, introduced in 2017, provides an additional tax benefit for LLCs called the Qualified Business Income Deductions (QBID). With QBID an owner of an LLC in Colorado can enjoy nearly 20% in discounts on their taxes. Of course, this isn’t a benefit that you would receive if you choose any other business entity.
How to Start an LLC in Colorado
If you’ve read this far and you still feel that you want to form an LLC in Colorado, then here are the five steps to forming your LLC in Colorado.
*Important* If you need help cutting through the red tape and want a guide to the complicated process of forming an LLC, a variety of companies will complete the LLC formation process for you.
They’re called LLC formation services, and they’ll help you set up your LLC in Colorado for as little as $0, plus state filing fees. (However, my choice for the best LLC formation service is ZenBusiness, which charges $49 plus the filing fee.)
If you want a guide to get you through the filing process and help you form an LLC in Colorado, check out my article on the best LLC service here: The 20 Best LLC Formation Services Reviewed And Ranked.
1. Obtain Articles of Organization Form
Obtaining a copy of the Colorado Articles of Organization form from the online site of the Colorado Secretary of State is step one on your journey to form an LLC in Colorado.
You can get the PDF Articles of Organization form for LLCs here.
Here’s a PDF on how to fill out the Articles of Organization form for your Colorado LLC.
You can complete this form from your computer and submit it to the Colorado Secretary of State to form your LLC in Colorado.
It’s important to note that all of the other steps listed below relate to this Colorado Articles of Organization form.
2. Choose Your Business Name
The first step to filling out your Articles of Organization form is choosing a business name for your LLC in Colorado.
You don’t want to just write down whatever name first pops into your head as the entity name for your Colorado LLC.
Every business in the state of Colorado is required to have a name that’s unique to it. So, you aren’t allowed to have an LLC in Colorado that has the same name as another company.
There are a lot of different ways to make the name of your LLC unique. For instance, some of the different names you could use are: “Ltd Liability Co,” “Co Ltd Liability,” “Limited Company,” “Liability Co,” “Limited Liability Co Ltd,” and “Limited Liability Company (LLC).” These suffixes not only clarify that your business is in fact a Limited Company or Colorado LLC, but it also creates a name that no other business has, sort of like putting some numbers at the end of a screen name if someone already had the one you wanted.
So, how do you determine whether the name is taken? You check with the Colorado Secretary of State. You can see if the name is already registered with the Secretary of State before filing.
For a list of rules about acceptable names and abbreviations for your Colorado LLC, check out this page from the Colorado Secretary of State.
You can file a Statement of Reservation of Name form with the Colorado Secretary of State.
If you don’t like your official business name, don’t worry. You have the option to register a trade name as well. Your trade name is the name your business presents to the world. So, if your Colorado LLC is named “Bobby’s Crab Shack Liability Co,” or “Super Staples Limited Company,” you can consider filing registration forms for trade names like “Bobby’s Crab Shack” and “Super Staples.”
Here’s a list of forms for trade name registration from the Secretary of State.
3. Choose a Colorado Registered Agent
Every Colorado LLC is required to have a “registered agent” or “resident agent.”
A registered agent is a legal agent service that will accept mail, documents, and legal notices (like service of process) on behalf of your LLC and makes itself available as your point of contact during business hours.
You have two options here: you can be your own registered agent or you can appoint a registered agent.
Choosing to be your own registered agent means that your personal information is on the website of the Secretary of State. Hackers and scammers only have to perform a simple search on the site, and your name and address turn up in the search results. You also run the risk of getting into legal trouble if you aren’t available to receive a legal notice or document from an official state office during business hours.
Being the registered agent for your LLC is very time consuming, and if you screw up and miss an important document or notice, you leave your LLC open to lawsuits and default judgments against it. The only real upside to being your own agent is that you don’t have to pay any registered agent fees.
If you choose to appoint a registered agent service, they keep your personal information safe, provide your company with an office address to use on the public record, and make sure to intercept every piece of mail and every document on behalf of your LLC. The only real downside is that you have to pay somewhere between $99–$299 per year for agent services.
But the fee that agents charge for their services is a fair price to pay when you take into consideration all the headaches you can avoid by appointing a registered agent, rather than trying to take on the job yourself. Your registered agent doesn’t even have to be exclusive to Colorado, it can be a foreign entity. A foreign entity is a corporation that was formed in a different state (not Colorado) but still qualifies to do business in Colorado.
Here’s an article to make your search for the right Colorado registered agent for your LLC a bit easier: Best Registered Agent in Colorado.
No matter which agent you choose for your LLC, be sure to file the Statement Appointing an Agent form from the Secretary of State.
4. Choose Your LLC Address
All LLCs in Colorado are required to list both a name and an address on their registration forms, which will be listed as public information for the business entity.
Using a registered agent is obviously the easiest way to go about getting an address for your LLC. However, if you don’t have an agent, you’ll probably have to use the physical street address of your business. Barring that, you’ll have to use your home address, which is not ideal.
Appointing a registered agent is arguably the best choice here. When LLCs use registered agents, their personal information is kept safe and off the public record—away from hackers and scammers.
5. Sign and File Your Articles of Organization
Once you’ve read over the information on the form and you’re sure it’s all correct, it’s time for you to file it with the Colorado Secretary of State.
If you’re filing the form yourself, you sign it yourself. If you’re using an LLC formation service for your business, they’ll sign the form and file it on behalf of your business.
If you’ve checked over the information on the form and it’s correct and ready to file, press the “Submit” button. It will take you to another page where you will be prompted to pay the filing fee, which you can do with a credit card. Now, the registration process is completed on your end.
Once your form is submitted and you’ve paid the filing fee, you have to wait for the Secretary of State to process the forms. It can take up to 20 days for them to process the forms and then notify you via email or mail. Some LLC formation services offer an expedited registration process that only takes around three days after filing all the forms and paying the filing fee.
Other LLC Activities
Colorado LLCs have to partake in certain activities after they are formed to maintain good legal standing with the Colorado Secretary of State, but these activities aren’t part of the process of forming an LLC.
Some of these activities include filing an annual report, paying state taxes, and obtaining a Certificate of Good Standing, along with other activities to comply with the laws regarding LLCs in the state of Colorado and maintain your LLC status with the Secretary of State.
If you want to reduce some of the inevitable load of building and running your new LLC, you also might want to consider a Colorado PEO or online legal services.
Colorado LLC Fee Summary
Whether you choose to go through the process of forming your LLC on your own or you use an LLC formation service to guide you through it, you will have to pay several fees. Most of these can be paid directly on the Secretary of State’s website with a credit card.
Here is a breakdown of the costs of forming an LLC in the state of Colorado:
Articles of Organization filing fee:$50
Name Reservation filing fee: $25
Registered Agent fee: $99–$299
Annual Report Filing fee: $10
State Personal Income Tax: 4.4%
State Corporate Income Tax: 4.4%
After Starting Your Colorado LLC
It’s a huge step to start an LLC, so have a beer or a glass of wine, go out, or do whatever it is that you do to celebrate. But you’re not ready to start running your business yet.
Here are the three steps you need to take after forming your LLC to build the necessary foundations for your business.
Step 1. Create an Operating Agreement
The Operating Agreement is essentially a contract between LLC members that details how the business will run. It should define each LLC member, and then lay out structural, managerial, operational, and financial details.
The Operating Agreement identifies each member as a business owner, establishes the ownership percentages of each member, and identifies which member should make high-level decisions. A good Operating Agreement should outline the roles, rights, and responsibilities of each member, as well as their relationships with each other. It should also clearly indicate the ownership percentages and the shares of profits and losses for each member.
Furthermore, Operating Agreements should describe what happens if a member leaves or if a new member comes into the business. With this model, the Operating Agreement for your business will not only provide your business with instructions on how to operate, but also provide information on what to do if there’s a disagreement between your Colorado LLC members.
As you can probably tell, the Operating Agreement is CRUCIAL to the successful operation of your business because each of the items outlined in it defines how it will run.
Your business has to operate based on the instructions outlined in the agreement, so if you get it wrong your business growth could be stifled, slowed due to poor decision-making practices outlined in your agreement and failure to allow for adaptation and innovation. Getting it right means that your business can progress without the constraints of a faulty Operating Agreement.
If you’ve never written an Operating Agreement and you’re worried about getting it right (which is understandable), Northwest Registered Agent has a free Operating Agreement template you can download or there are LLC formation services and online legal services that also help draft and file Operating Agreements on behalf of your business.
Step 2. Apply For an Employer Identification Number
You’ll need an Employer Identification Number (EIN) if you plan on hiring employees or opening a bank account specifically for your business. An EIN also lets you handle employee payroll and apply for certain permits and licenses. Your business isn’t required to hire employees in order to obtain an EIN in Colorado, it’s simply a tax identification number for LLCs.
An Employer Identification Number (EIN) is a number used to identify businesses, much as social security numbers are used to identify individual people. You can apply for an EIN for your business through the Internal Revenue Service (IRS).
A lot of LLC formation services file for an EIN on behalf of your business, which takes a lot of the guesswork out of filing.
You can also file for an EIN yourself. If you go to the IRS’s website between 7 a.m. and 10 p.m. Monday through Friday, you can file the form needed to apply for a business EIN.
Step 3. Open a Business Bank Account
The last step you need to complete before you jump headfirst into the business world is to create a business account specifically for your Colorado LLC.
A lot of people forget this step or are ignorant about it. They end up doing business from their personal account and then trying to separate business expenses from personal expenses later. It may seem easier to do business this way, but you shouldn’t, for two reasons.
The first reason is that deciphering business transactions from personal spending isn’t as easy as you think it is. Sure, you can remember what that expense was for a few days after the purchase, but it gets a lot more complicated and hard to remember a year later when you’re filing your taxes. Using your personal account makes tax season unnecessarily complicated.
The second reason is that using your personal account for business expenditures leaves you vulnerable to personal lawsuits. Yes, even though you have personal asset protection through your LLC, using your personal bank account does away with that.
You’ll need a bank kit to open a bank account in the state. A bank kit typically contains things like your EIN, copies of your Articles of Organization, initial resolution, and Operating Agreement.
This is yet another thing that an LLC formation service can do on behalf of your business. Bank account kits typically come along with LLC formation services.
In Summary
Deciding to start an LLC in the state of Colorado is huge. So congratulations on taking the first step!
If you choose to start your LLC on your own and forego an LLC formation service (which can start at $0 plus state fees), then there are five steps you need to follow:
- Obtain the Articles of Organization form
- Name your LLC
- Choose your registered agent
- Choose your LLC address
- Sign and file your Articles of Organization
There’s a lot of red tape to get through, you’ll have to learn a ton of legal jargon, and the whole process can be really time consuming. But one of the benefits of starting your LLC yourself is the rewarding feeling you get from having completed it without outside services.
If you’re taking on the LLC formation process on your own, congratulations! I hope this guide is helpful to you. Forming your LLC is only the first of many victories you'll achieve on your business journey!
