How to start an LLC in Colorado

A limited liability company (LLC) is a business structure in the US that protects its owners from personal responsibility for its debts or liabilities. To start a limited liability company (LLC) in Colorado, you must conduct a business name search, hire a registered agent, write an operating agreement, and file articles of organization with the state.

In addition to the aforementioned steps, there are a number of other things to remember when starting a business in Colorado. You may, for example, want to open a business bank account to separate your business and personal finances, and apply for an Employer Identification Number (EIN) to identify your business with the IRS. 

In this step-by-step guide we’ll cover everything you need to do to start your business in Colorado.

Benefits of an LLC in Colorado

LLC business owners can take advantage of several programs and funding made available by the Colorado Office of Economic Development and Industrial Trade. Benefits of starting a limited liability company in Colorado include:

• Protection of personal assets from business liability and debts.

• A limited liability company is inexpensive to register.

• The LLC doesn't have to pay any federal tax as a pass-through entity. This means that the owners can avoid double taxation.

• LLCs have management flexibility. LLCs can decide between member-managed vs. manager-managed structures.

Colorado LLC fee breakdown 

A limited liability company must pay some required fees to register in Colorado. Some of these expenses must be paid to the Secretary of State of Colorado, while others are the responsibility of other state agencies or the federal government. Here is a breakdown of mandatory Colorado LLC fees:

1. Articles of organization fee

Articles of organization must be filed with the Colorado Secretary of State (Sos) by LLC business owners. When applicants formally form the business, they must pay a one-time filing fee. The Colorado SoS charges $50 for the online filing of the article of organization. Only credit or debit cards are accepted for this fee's payment. Colorado accepts American Express, Mastercard, and Visa.

2. Colorado periodic report fee

LLCs must submit an annual report to the Secretary of State in Colorado. The Colorado periodic report filing fee is $10. The report must be submitted within a five-month timeframe, beginning two months before and two months after the creation of the LLC. Colorado's state government imposes a $50 fine for late filing.

3. Colorado foreign LLC fee

Individuals who have an LLC registered in another state and want to expand into Colorado must register the LLC as a foreign LLC in Colorado. The fee to register a foreign LLC in Colorado is $100. A Statement of Foreign Entity Authority is required to register a foreign LLC in Colorado.

4. Business permit and license fees

Depending on the industry and location, a business may require federal, state, and local permits and licenses to operate in Colorado legally. This is necessary for any business structure. The cost of business permits and licenses depends on the business conducted.

Name your Colorado LLC

The first and most crucial step in an LLC formation is selecting a company name. Choose a name that conforms with Colorado naming rules and is easily searchable by potential clients. The following are Colorado’s LLC naming guidelines:

• The term "limited liability company" or one of its acronyms must appear in the business name (LLC).

• The name cannot contain any terms that could be mistaken for those of a public authority (FBI, Treasury, State Department).

• Restricted words (e.g., bank, attorney) may necessitate additional documentation and the participation of a licensed individual, such as a doctor or lawyer, in the Colorado LLC.

Here is a guide on how to select an LLC name:

1. Do a Colorado business name search

Individuals may use the Colorado Business Name Availability Search before requesting a name reservation. The website will also urge applicants to search the Colorado Business Database if the name they choose for their company is already taken. Applicants should provide the name they want to use, eliminating identifiers such as "LLC" to perform the most accurate search.

2. Search available domain names

Whether or not the chosen web domain name is available should be considered when choosing a trade name. It's crucial to have a URL that precisely matches the company name. This action can significantly impact how potential clients discover the company. Searching for the desired URL online using a selected domain registry is the easiest way to find out if it is available.

3. Reserve your Colorado business entity name

All LLC naming inquiries and requests are handled by the Business Organizations Division of the Colorado Secretary of State. Business applicants must submit a Statement of Reservation of LLC Name online to reserve a business name. It is possible to reserve an available LLC name for 120 days. Applicants are required to pay a filing fee to reserve a business name.

Choose a registered agent in Colorado

Every formal business in Colorado is obliged by state law to have a registered agent. All official documents from the State of Colorado are delivered to a registered agent. The agent gets any service or process that might be delivered to a company during a legal proceeding. A registered agent in Colorado is an individual or corporate organization that serves as a company's point of contact for¹:

• The Colorado Annual Report and certificate of good standing, among other interactions with the State of Colorado.

• Receiving any process serving requests for the company in any legal action.

Using a registered agent service ranges between $50 and $300. Any business owner or employee who is at least 18 years old and resides in Colorado may serve as their company's registered agent. Individuals may also elect a member of their LLC or a friend they trust, as long as they match these standards as well.

Why businesses should use a Colorado registered agent service

When forming an LLC, many companies opt to use a registered agent service. Here are some reasons an LLC business might choose a registered agent service:

• A registered agent is required by law to be available in one location every business day during business hours. Unless you or someone else will be present in one place every business day to receive mail, you will need to hire a registered agent service.

• When yearly reports or other filings are due, a registered agent service will inform business owners and assist with the filing while also maintaining a compliance calendar. This aids company owners in avoiding penalties and upholding the reputation of the business, both of which are crucial for preserving their limited liability protection.

• In front of staff and customers, receiving service of process for a lawsuit on the company premises might be a delicate scenario. Business owners can avoid this problem by selecting a registered agent who will accept any service of process and other documents at their office and covertly transmit them online.

File Colorado articles of organization

The Colorado Articles of Organization is the form individuals fill out and file with the state to form an LLC. Colorado only provides an online option for filing the articles of organization. Visit the Colorado secretary of state's website, select the articles of organization form and click on “fill online”. The Colorado SoS charges $50 for the online filing of the articles of organization. The required information to fill in the form is as follows:

• Enter an entity name. Applicants must first fill in their selected business name. The words or the abbreviation limited liability company, LLC, or "ltd." must appear in the name of a limited liability company. 

• Principal office street address.

• Principal office mailing address.

• Name and mailing address of the person forming the limited liability company.

• Registered agent name.

• Statement regarding registered agent consent.

• Registered agent street address.

• Registered agent mailing address.

• Management. Select whether the limited liability company is managed by managers or by members.

• Statement regarding LLC members.

• Additional information.

Before submitting the form, carefully read it; mistakes could have legal consequences. The information in the document must be in English and include the name and address of at least one person who requested that it be delivered for filing.

To skip handling the paperwork yourself, you may opt to use a service like Nearside or LegalZoom to file your LLC with the state for you.

Create a Colorado operating agreement

An operating agreement is a legal document that defines the ownership structure and member roles of a limited liability company (LLC). The operating agreement for a business is regarded as a governing document in Colorado. Setting up a single-member LLC in Colorado does not require business applicants to have an operating agreement. However, even single-member LLCs can benefit from writing up an operating agreement.

Individuals who choose to create an LLC operating agreement can start before, during, or after filing the articles of organization. The operating agreement is not registered with the state; it is held in the LLC's internal business files. Reasons why an LLC should have an operating agreement, include:

• If there are disagreements among the LLC members, it provides individuals with a written document to consult.

• Colorado default laws will govern the LLC if no operating agreement exists. If the company dissolves, there is no documentation regarding how members will split the assets.  

• It aids individuals in finding investors for their LLC. An operating agreement adds credibility to a company. Before opening a company bank account, banks may request to see an operating agreement.

Here is a step-by-step guide on how to create an operating agreement:

1. Include the name of the business, its industry, a description of the services it offers, and the address of its headquarters. Add a statement of the company's purpose, which outlines the objectives it hopes to accomplish.

2. Describe each member's duties and obligations in detail.

3. Determine the Percentages of Ownership.

4. Designate Rights and Compensation Details.

5. Establish guidelines for company management.

6. Define the terms for joining or leaving the LLC.

7. Describe the operational and financial features of the LLC and its tax status.

8. Create Dissolution Terms.

9. Add a Severability Clause.

Operating agreements are essential for future legal challenges since they contain important information regarding business dealings. Therefore, it is usually best to seek advice from business attorneys or the company's registered agent while drafting them. This does not exclude business owners from creating an operating agreement. They can draft an operating agreement that will hold up in court if they take the appropriate precautions and are as detailed as possible.

Get an EIN number

An Employer Identification Number (EIN) is a unique 9-digit number the Internal Revenue Service (IRS) assigns to a company to identify it easily. Employers use their EINs for annual tax reporting.

Individuals may keep their personal and corporate finances separate by obtaining an EIN. This also allows business owners to protect their private data from identity theft. Having an EIN is frequently required for several crucial business activities, such as:

• Separating personal finances from business.

• Developing business credit through applying for business loans, lines of credit, and business credit cards.

• Creating a company bank account. 

• Filing business tax returns.

The IRS accepts direct applications for EINs from businesses and typically issues them immediately. Before starting operations, business organizations must submit a phone, online, fax, or postal application for an EIN. Obtaining an EIN is cost-free.

On the IRS website, business applicants must fill the Form SS-4: Application for Employer Identification Number². For the IRS to grant an EIN, business owners must provide the following details on the application:

• The name of the primary shareholder and partner of the business, as well as their taxpayer identification number (TIN).

• Reasons for application.

• Date of beginning or acquisition.

• The main sector of the business.

A company must be based in the United States or one of its territories to apply online for an EIN. An EIN is immediately assigned following the validation of the online data. The company to which an EIN is allocated is the only one with that EIN. Even if the first employer goes out of business, the numbers never expire, and the identical set is never assigned to another company.

Get Colorado business licenses and permits

A business license is a form of license that shows the organization has the authority to operate from the government. Colorado does not issue a general permit for all types of businesses. The kinds of licenses and business permits to apply for depends on the business’s industry and type. Individuals can obtain a business license via mail or online by submitting an application to the appropriate licensing or regulatory authority for their business.

The three primary licensing authorities are state, local, and federal. The sales tax license, often known as a seller's permit, is Colorado's primary state-level business license. Obtaining a sales tax license is necessary if:

• The individual is operating businesses in Colorado.

• Your company is not located in Colorado but generates more than $100,000 in yearly sales.

• The business intends to lease or sell tangible personal property that is typically taxed on sales.

For a sales tax license, individuals may visit the Colorado Department of Revenue website. Some industries require the acquisition of particular licenses in addition to the sales tax license. Every company has a unique EIN, which is required to file taxes or make administrative changes to the company. For further information on licenses, visit the Colorado Department of Regulatory Agencies website.

The nature of a company, the sector it operates in, and the location of the company might all affect whether or not it requires a business license. Business owners might also need to apply for federal, local, and even state licenses. There may be several licenses from various sources that your company needs. Individuals must conduct research on their type of business to ensure they complete all licensing and permit requirements.

Do you need a business license in Colorado?

Colorado does not issue or require a license for a general type of business. State authorities issue licenses for particular business, activity, and profession types. The type of activity your business engages in often determines the license requirements. Benefits of having a business license include:

1. Legal protection: A company must abide by all rules set forth by the city issuing the license to obtain one. A new company's infrastructure, plans, and rules are confirmed by submitting an application for a business license to comply with local laws. Additionally, having a business license shields the owner from being forced to close down for operating an illegal business because most cities legally require businesses to have licenses.

2. Credibility: Customers can be skeptical about new companies, and may want to confirm that a company is authentic before purchasing goods or services, especially online. Customers are more likely to feel secure doing business with an entrepreneur if they can see their business license displayed in their store or on their company website. Business licenses increase legitimacy.

3. Funding: Many cities provide financing to new companies, especially startups. A business must have a license proving that the city has authorized the business to be eligible for funding.

Open a business bank account for your Colorado LLC

Opening a business bank account is an important step in setting up any business. To confirm the specific paperwork needed, individuals consult their chosen bank’s website. Most banks require the following details:

• Business license with the name of the business and the owner's name or names.

• Employer identification number (EIN), or personal social security number. 

• Driver's license, passport, or other accepted personal identification.

• Organizing documents that have been filed with the state.

• Bylaws, operating agreements, or partnership agreements, especially if the business has multiple owners.

How to choose a bank for your Colorado business bank account

Individuals should consider various aspects when selecting a bank to open a business account with, including:

• Interest rates on savings and checking accounts: Business owners should look for a bank that provides competitive rates on savings and checking accounts for businesses. By choosing the business bank account with the best rate, you can increase the growth of your funds.

• Interest rates on credit lines: As the company expands, business owners may want to consider obtaining a loan or credit line from their bank. Individuals should ensure that their selected bank has affordable interest rates.
• Transaction fees and deposit limits: Business checking accounts may restrict the total amount of cash deposited and the number of transactions per month. Transaction limitations on accounts also include fines for going above them.

• Individuals should confirm that the bank they choose offers extra services such as frequent currency exchanges and routine notary services. Some banks are better suited to provide specialized services that can help a limited liability company.
• Any discounts the bank may offer to start-up companies: Some banks provide interest on checking accounts for businesses. 

Frequently asked questions

How much does it cost to open an LLC in Colorado?

The cost to start an LLC (limited liability company) online in Colorado is $50. When filing for the articles of organization, this fee is paid to the Colorado Secretary of State.

How long does it take to get an LLC in Colorado?

You can expect the Colorado Secretary of State's office to process your documents and file your LLC formation within 1-2 weeks.

Is there an annual fee for LLCs in Colorado?

To maintain an LLC in Colorado, individuals will need to pay an annual fee of $10 along with State business tax at the rate of 4.65% and federal taxes.

How are LLCs taxed in Colorado?

Since LLCs are pass-through corporations, their owners will be responsible for paying the profits' 4.63 percent flat tax in Colorado. As opposed to a corporation, the LLC and the owners are treated as one legal entity, preventing double taxation.

Where do I find a statutory agent in Colorado?

You can find Colorado statutory agents online. Registered agents are also known as statutory agents. Nearside offers registered agent services for businesses in Colorado.

How do I get a free LLC in Colorado?

Individuals cannot get an LLC for free in Colorado. This is not possible due to the state filing fee. The Colorado Secretary of State charges $50 for filing the certificate of formation.

References

1. https://www.sos.state.co.us/pubs/business/FAQs/regAgent.html#
2. 6 Jul. 2022, https://www.irs.gov/forms-pubs/about-form-ss-4#