How to form an LLC in Colorado
A limited liability company (LLC) is a popular business structure in Colorado. This type of company has a flexible taxation and management structure, making it attractive to many entrepreneurs.
While it might seem difficult to form a Colorado LLC, this guide will help explain the process by breaking it down into manageable steps.
Starting a Colorado LLC: Key takeaways
- LLCs blend limited liability protection with tax flexibility, which is ideal for small and large businesses.
- Colorado’s simple LLC formation process is complemented by minimal annual reporting.
- Block Advisor’s Business Formation Service can help you through the process of Colorado LLC formation.
What is an LLC?
An LLC is a business entity that can help protect you personally from liabilities incurred by your enterprise. That’s why it’s called a limited liability company. In many cases, if someone sues your organization, only the organization’s assets are at stake. Your personal assets can remain secure.
Besides liability protection, an LLC formation also enables you to run your business under unique tax rules. For instance, people who start an LLC can choose how they want their business to be taxed. Learn more about how an LLC is taxed.
Benefits of forming an LLC in Colorado
You’ve decided to file for a Colorado LLC, but what makes this the proper structure for your business? What are the benefits of running an LLC? There are quite a few:
- Pass-through taxation — Profits and losses are passed to the business owner(s), eliminating double taxation.
- Limited liability protection — In many cases, your personal assets can be protected against business debts and liabilities.
- Flexible management structure — You choose who runs the organization. You can do so yourself (along with any other members) or delegate the duty to an external manager.
- Multiple taxation structures available — You can opt to be taxed under many different rules, allowing you to run your organization more efficiently.
- Perpetual existence — Your LLC can change owners without terminating. Members can walk away or retire without endangering the existence of the firm. Your company exists forever unless you submit a Statement of Dissolution with the Colorado Secretary of State office.
Ready to form your Colorado LLC?
How to start a Colorado LLC
The benefits LLC formation gives to its owners attract many entrepreneurs. The sooner you start forming an LLC with the Colorado Secretary of State, the sooner you gain access to these advantages.
However, it’s vital to launch your Colorado LLC properly. Otherwise, you could miss some advantages and create additional issues for yourself.
1. Choose your Colorado LLC name
The first thing you need to do is choose a name for your Colorado LLC. It’s paramount to take your time during this stage for several reasons.
First, your LLC’s business name defines your activity. It lets customers identify your business with a particular product or service. Second, your LLC name must be available in the state. You can do a name search on the official Secretary of State website. But even if the name is available, keep the following guidelines in mind when choosing one for your Colorado business:
- The name needs to let others know you’re an LLC and not some other type of business. You can do this by incorporating the term “limited liability company” or an abbreviation (L.L.C., LLC, etc.). Ensure the name doesn’t contain “corporation,” “sole proprietorship,” or any other words that may imply you use a different business structure.
- The name mustn’t indicate you’re a government agency, such as the Treasury, State Department, FBI, Department of Transport, or Colorado Department of Revenue.
- The name can’t contain restricted words unless you obtain relevant business licenses and other documents. These include “credit union,” “attorney,” “lawyer,” and “bank.”
- Avoid using someone else’s trademarked name, which can result in legal issues.
If the name is available and checks all the boxes, it’s time to file your name reservation. You do this on the Secretary of State’s website. After submitting the Statement of Reservation of Name, your name will be reserved for 120 days. If you don’t form your LLC within this period, you must re-file the Statement of Reservation.
2. File your LLC Articles of Organization
Articles of Organization formally establish your enterprise. You file Colorado Articles of Organization on the Secretary of State’s online portal and submit a $50 filing fee.
Here’s some information commonly required when building your Colorado LLC articles of organization:
- Name and physical address of the small business
- Your name and address (or any other person filing for the LLC)
- Registered agent name and address
- How you’ll run your LLC (manager-managed or member-managed structure)
- Type and purpose of your business
3. Choose a registered agent service
When filing your Articles of Organization, you must provide information about your Colorado registered agent. A registered agent is a business entity or individual that receives crucial documents on your LLC’s behalf.
You can opt to be your own registered agent. But keep in mind this means you could potentially be served at home (if you run your business from home) or in front of customers and employees during regular business hours. It also requires you to have a physical address in the state, which could be a deal-breaker for some out-of-state entrepreneurs. A P.O. box won’t cut it.
Alternatively, it is common to partner with a registered agent service. They accept and forward paperwork for you. Block Advisors Business Formation Service allows you to appoint a third-party registered agent while forming your LLC.
4. Prepare an LLC Operating Agreement
An Operating Agreement is an internal document determining how you’ll run your company. It outlines the roles of members and managers. Without an Operating Agreement, default state rules apply to your organization.
Most operating agreements contain the following information:
- Name and street address of the LLC
- Name and office address of your registered agent
- Purpose of your company
- Members and their respective capital contributions
- Division of profits and losses
- How to add new members and waive existing members
- Management structure
- How the LLC will be taxed
- Liability and indemnification clauses
5. Obtain an Employer Identification Number
Pass-through taxation doesn’t exempt you from all taxes. You’ll still need to pay sales tax and other types of tax. But how?
That’s where your Employer Identification Number (EIN) comes in. An EIN is a unique number the IRS assigns to identify your enterprise for tax purposes. A general rule of thumb is that you need an EIN if you’re a multi-member LLC or have employees. You can apply for your number on the IRS website. Read how to get an Employer Identification Number (EIN).
An EIN isn’t just necessary for federal and state tax purposes. You may also need it to open a business bank account. Only when you provide an EIN and other information (e.g., doing business as (DBA) name) will some institutions consider you for a business account. Block Advisors Business Incorporation Service can help you obtain an EIN as part of the process of forming your LLC.
6. Maintain your Colorado LLC
So, you’ve received the green light for your LLC, and the business is underway. Don’t put your feet up just yet! You must maintain your company to remain in good standing with the Secretary of State.
Primarily, you must file a periodic report each year with the Secretary of State. You can find the form on the Colorado Secretary of State website. After completing the document, you can submit it online for a small fee. The report is due during a three-month period that starts on the first day of the anniversary month when you formed your LLC.
For instance, if you launch your company on May 14, your report is due each year between May 1 and July 31. The Secretary of State will allow you to file up to two months ahead of time as well. Register for the Secretary’s email notification service to ensure you don’t miss a submission deadline.
Ready to launch your Colorado LLC?
If you’re ready to form an LLC in Colorado on your own, the steps above can serve as a guide. As with any business decision, its important to consider you and your company’s situation before making a move. Laws vary from state to state. This article is intended to be informative and is not a substitute for the advice of a business attorney. An attorney can review your specific circumstances and confirm that your decisions are in your best interest.
Feeling overwhelmed by the complexities of the filing process? Don’t panic. The good news is that Block Advisors is equipped to help make this important process less stressful. Block Advisors Business Formation Service is convenient and affordable – saving you time and stress.
Get started in just 10 minutes – just provide basic information about the LLC you wish to launch. We’ll file all the paperwork so you can focus on getting your business off on the right foot.
This article is for informational purposes only and should not be construed as legal advice. You may want to seek the advice of an attorney to evaluate all relevant considerations.
About the Author
Carl Breedlove is a lead tax research analyst at the Tax Institute. He specializes in business, rental property, and state taxation. Carl is a University of Missouri-Kansas City School of Law graduate with a JD and an LLM in tax.
How much does it cost to set up an LLC in Colorado?
The cost of setting up an LLC in Colorado is $50. When filing for your LLC, you pay the Secretary of State this one-time fee. Other than that, filing your periodic annual report costs $10.
Is Colorado a good state to open an LLC?
Many entrepreneurs favor Colorado for forming an LLC due to the relatively low filing fee. Additionally, a Colorado LLC is entitled to the same perks as other LLCs in the country, including things such as pass-through taxation, limited liability protection, and management/taxation flexibility.
How long does it take to form an LLC in Colorado?
It generally takes about three days to form your LLC in Colorado online if you have all the necessary documentation prepared. Filing your business by mail usually takes around 20 days.
How do I file paperwork for an LLC in Colorado?
You can file paperwork for your LLC in Colorado electronically on the Secretary of State’s website. You can also do so in person or by mail, but the processing times may be longer. You can also use a third-party service, such as Block Advisors Business Formation to complete this task.
What is the minimum number of members for an LLC in Colorado?
The minimum number of members for an LLC in Colorado is one. In other words, you can be a single-member LLC in Colorado. There’s no member upper limit. The company can have as many members as needed.
What are the benefits of forming an LLC in Colorado?
The most significant benefit of forming a Colorado LLC, as with other LLCs, is access to limited liability protection, which can help protect your personal assets from certain business losses and liabilities. In addition, an LLC gives you access to pass-through taxation and flexible management structures.
How do I set up a single-member LLC in Colorado?
Setting up a single-member LLC in Colorado is similar to creating a multi-member company. The only significant difference is that you don’t need an EIN if you maintain the default tax status of a disregarded business entity and don’t have employees. Instead, you can file the LLC with your social security number.
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