Are you about starting a business in Colorado and want to form an LLC? If YES, here is the legal requirement to start an LLC in Colorado and how much it cost. This article will help you understand how to form an L.L.C. in Colorado. We will show you a step-by-step process on how to create an L.L.C. in Colorado and what you need to do after forming your L.L.C.
Colorado is a state in the Western united states encompassing most of the southern Rocky Mountains as well as the north-eastern portion of the Colorado Plateau and the western edge of the Great Plains. It is the 8th most extensive and 21st most populous U.S. state. The estimated population of Colorado was 5,695,564 on July 1, 2018, an increase of 13.25 percent since the 2010 United States Census.
What is an L.L.C.?
L.L.C. is the abbreviation for Limited Liability Company. Creating an L.L.C. is one of the easiest ways to build a wall between your private assets and your company financial liability. It helps protect your personal assets if someone sues your company. An L.L.C. offers you the protection you simply can’t get as a sole proprietorship or General partnership.
An L.L.C. also has some tax advantages; the business itself is not responsible for taxes on its profit. Instead, the members of the L.L.C. report their share of business profit and loss on their personal tax returns just the way taxes are reported for a general partnership; this is called “pass-through taxation.” This means a lower tax rate on company profits along with asset protection and tax flexibility. The L.L.C. business structure has a number of other advantages;
- No Residency Required: Owners of an L.L.C. don’t have to be U.S. Citizens or permanent residents.
- Legal Protection: Owners of an L.L.C. are given limited liability for business debts.
- Enhanced Credibility: Partners, suppliers, and lenders may look more favourably on your business when you form an L.L.C.
- Ownership Flexibility: There is no limit to the number of owners an L.L.C. can possess. Additional members can buy equity in the company.
- Less Record Making: With an L.L.C. no annual meeting or minutes books are required.
- Gain Access to Business Loans: When you form an L.L.C., your business will begin to build a credit history. This will aid your business access loans.
An L.L.C. combines the assets protection of a corporation with the simplicity of a partnership, which makes it one of the most popular entity structures for small business.
A Detailed Guide to Starting an LLC in Colorado and the Cost
Forming an L.L.C. in Colorado is a straightforward process and won’t cost you much money. Below are the steps to follow if you want to form an L.L.C. in Colorado.
A Colorado Limited Liability Company (LLC) is a legal structure used to protect your personal assets (home, car, bank account) in the event your business is sued. Interestingly, you can use your Colorado LLC to run a business or to purchase assets such as real estate, vehicles, boats, and aircraft.
STEP ONE: Choose a Name for Your LLC
In Colorado, prior to filing your Colorado LLC’s Articles of Organization with the Secretary of State, it is expected that you search the state’s database to make sure your desired LLC name is available for use. Please note that your Colorado LLC name must be unique and distinct when compared to other business that are legally registered in the state.
Be sure to choose a name that complies with Colorado naming requirements and is easily searchable by potential clients. You are expected to follow the naming guidelines below;
- Your name must include the phrase “limited liability company” or one of its abbreviations (LLC or L.L.C.).
- Your name cannot include words that could confuse your LLC with a government agency (FBI, Treasury, State Department, etc.).
- Restricted words (e.g. Bank, Attorney, University) may require additional paperwork and a licensed individual, such as a doctor or lawyer, to be part of your LLC.
STEP TWO: Hire a Colorado LLC Registered Agent
The Colorado Secretary of State requires you to list a Registered Agent in your LLC’s Articles of Organization. A Colorado Registered Agent is a person or a company designated to receive notices from the state sent to your LLC, as well as any legal mail (called Service of Process) in case your business is involved in a lawsuit.
A registered agent must be a resident of Colorado or a corporation, such as a registered agent service authorized to transact business in Colorado. You may elect an individual within the company including yourself.
Please note that your Colorado Registered Agent must have a physical street address located in the state and PO Boxes are not allowed where Service of Process and other documents can be received. People who are Qualified to be Your LLC’s Registered Agent are;
- Your LLC can be its own Registered Agent.
- List an office or position within your LLC as the Registered Agent.
- A friend or family member can be your LLC’s Registered Agent.
- Hire a Commercial Registered Agent. Hiring a Commercial Registered Agent is a good idea if you want to keep your address off public records or if you don’t have an address in Colorado.
STEP THREE: Colorado Articles of Organization, State Business License, and Initial List
To register your LLC, you will need to file the Articles of Organization with the State of Colorado. This can be done online. When filing, you will need to state whether your LLC will be member-managed or manager-managed. Colorado LLC filing forms and fee is $50 (Non-refundable)
Please note that in order to form a Colorado LLC, you have to submit 3 documents to the Secretary of State. The Articles of Organization, the State Business License, and Initial List of Managers or Managing Members. This is mandatory.
- Method of filing: You can form an LLC in Colorado by mail or online; however, it is advisable to fill your LLC online since it has a faster approval time and the process is much easier.
- Colorado LLC approval: Your Colorado LLC will be approved immediately when you file online, but it can take 5-10 minutes before your documents are available for download.
After the process, you will see 3 documents available for download and the document will be stamped and approved:
- Articles of Organization
- Initial List of Managers or Managing Members
- State Business License
Please note that if you’re expanding your existing LLC to the State of Colorado, you will need to form a Foreign LLC.
STEP FOUR: Craft Your Colorado LLC Operating Agreement
A Colorado LLC Operating Agreement is a written contract among the partners of the business that clearly states who owns the LLC and how much of the LLC they own. Your Colorado LLC’s Operating Agreement will also document how the LLC is managed, how profits will be shared, and how taxes are to be paid among other related issues.
Please note that an Operating Agreement should be put in place for both Single-Member LLCs and Multi-Member LLCs located in Colorado.
The fact is that having an Operating Agreement for your Colorado LLC helps prove that the company is a separate legal entity from yourself. This helps maintain the personal asset protection provided by your LLC and it is very beneficial to have if you ever end up in court.
“Internal Document”: An LLC Operating Agreement is an “internal document”, meaning, you don’t have to send a copy to the Department of Taxation, the IRS, or any other government agency. You just need to keep a copy of the Operating Agreement with your LLC business records and give a copy to the other LLC Members, if applicable.
Please note that an operating agreement is not mandatory in Colorado, but it’s a good practice to have one.
STEP FIVE: Apply for an EIN for your Colorado LLC
The next step you are expected to take is to apply for an EIN for your Colorado LLC (Don’t apply for an EIN until your Colorado LLC is approved by the Secretary of State). An EIN (Employer Identification Number) is obtained from the IRS after your Colorado LLC is approved by the Secretary of State. An EIN is also called an EIN Number, FEIN, Federal Employer Identification Number, or a Federal Tax ID Number. They all mean the same thing.
You can liken your Colorado LLC’s EIN Number as the company’s “social security number”. It helps identify your LLC to the IRS for tax and filing purposes. Please note that your Colorado LLC’s EIN will also be used when you open an LLC bank account, register your LLC with the Department of Taxation, and to process employee payroll (if applicable).
How is a Colorado LLC taxed: The IRS doesn’t have a specific tax classification for LLCs and instead, a Colorado LLC can be taxed 4 different ways with the IRS; 2 of which occur by default (they occur simply by obtaining your LLC’s EIN), and 2 require a special election be made (a form must be filed after you obtain your LLC’s EIN). We recommend reading how an LLC is taxed before applying for an EIN for your LLC.
Please note that;
- An EIN is free ($0): The IRS will issue an EIN to your LLC at no cost.
- Husband and wife LLC: If you are forming a 2-Member LLC in Colorado you can elect a special type of taxation called a Qualified Joint Venture. This allows a 2-Member LLC (owned by a husband and wife) to be treated as a Sole Proprietorship instead of a Partnership for tax purposes.
- EIN Responsible Party: This will be the IRS’s “contact person” when you apply for your Colorado LLC’s EIN. If you have a Single-Member LLC, you will be the Responsible Party. If you have a Multi-Member LLC, any LLC Member can be the Responsible Party. For more information, please see EIN Responsible Party for LLC.
- How to apply for an EIN: There are 3 ways to apply for an EIN for your Colorado LLC:
If you have an SSN or ITIN, you can apply for an EIN online. If you apply for an EIN online and you get an error message, you’ll need to apply for an EIN with Form SS-4 instead.
STEP SIX: Colorado LLC Annual Requirements
In Colorado, you would need to complete the following requirements every year in order to keep your Colorado LLC in operations and in good standing:
- If you are filling online, you are required to pay a fee of $10 (Non – refundable)
Please note that the Filing Window is due within a 5 month period, starting 2 months before and 2 months after the date in which the LLC was formed. For more information, visit Colorado’s Secretary of State website. So also, Late Filings in Colorado come with a $50 penalty. In addition, failure to file your annual report for 2 months will cause your LLC to be designated as “Delinquent,” resulting in loss of certain rights and privileges.
In most states in the US., LLCs may face fines and even automatic dissolution when they miss one or more state filings. When this happens, LLC owners risk loss of limited liability protection. A quality registered agent service can help prevent this outcome by notifying you of upcoming filing deadlines and by submitting reports on your behalf.
Step SEVEN: Colorado State and Regulatory Licenses and Permits
In Colorado, in order to operate your LLC you must comply with federal, state, and local government regulations. For example, restaurants likely need health permits, building permits, signage permits, etc.
The details of business licenses and permits vary from state to state. Make sure you read carefully. Don’t be surprised if there are short classes required as well. Fees for business licenses and permits will vary depending on what sort of license you are seeking to obtain.
- Federal: Use the U.S. Small Business Administration (SBA) guide.
- State: Apply for or learn more about licenses, permits and registration with Colorado’s Department of Regulatory Agencies.
- Local: Contact your local county clerk and ask about local licenses and permits.
STEP EIGHT: Taxes Requirements in the State of Colorado
In Colorado, depending on the nature of your business, you may be required to register for one or more forms of state tax.
- Sales Tax – If you are selling a physical product, you’ll typically need to register for a sellers permit through the State of Colorado’s website. This certificate allows a business to collect sales tax on taxable sales. Sales tax, also called “Sales and Use Tax,” is a tax levied by states, counties, and municipalities on business transactions involving the exchange of certain taxable goods or services.
- Employer Taxes – If you have employees in Colorado, you will need to register for Unemployment Insurance Tax and Employee Withholding Tax through the State of Colorado’s website.
FEDERAL LLC TAX REQUIREMENTS
- Most LLCs will need to report their income to the IRS each year using:
- Form 1065 Partnership Return (most multi-member LLCs use this form)
- Form 1040 Schedule C (most single-member LLCs use this form)
Recommendation: You’ll need to speak with an accountant to determine all your Colorado LLC’s tax reporting and filing requirements. Figuring out your tax filing requirements can be very complicated and if filed improperly, it can lead to penalties, fines, and interest. We recommend working with an accountant to make sure you meet all your federal, state, and local tax obligations.
STEP NINE: Open a Colorado LLC Bank Account
Once the IRS has issued an EIN Number to your Colorado LLC, you can open a business checking account.
It’s best practice to have a business checking account for your Colorado LLC in order to maintain your personal liability protection. Using a personal bank account for your LLC is called “commingling of assets” and this can lead to personal liability issues if you end up in court.
Please note that having a separate business bank account for your Colorado LLC also makes record-keeping easier for accounting and tax purposes. Since banks in Colorado have their own rules and regulations, it is recommended calling a few places to determine the following:
- Minimum initial deposit
- Minimum balance requirements
- Monthly maintenance fees (if any)
Required Colorado LLC paperwork: In order to open a business bank account for your Colorado LLC, you’ll need to have the following:
- Articles of Organization (stamped and approved)
- State Business License
- Initial List of LLC Managers or Managing Members
- EIN Confirmation Letter from the IRS
- Photo ID (driver’s license and/or passport)
- Operating Agreement (it may not be needed, but it’s a good to bring anyway)
N.B: Call the bank ahead of time and double-check what documents are required.
- LLC Members: If you have a Multi-Member Colorado LLC, all Members that want to be on the bank account should be present when opening the account.
- Debit card and credit cards: Most banks will provide a business debit card on the spot after the account is opened. If not, they’ll usually mail the debit card in 1 to 2 weeks.
- Non-U.S. residents: If you are a non-US resident that has formed an LLC in Colorado, you can still open a U.S. business bank account.
STEP TEN: Obtain a Colorado Business Phone Number
International best practices require that you obtain a business phone number for your company as against making use of your own private number. You can get a local Colorado telephone number or you can get a “1-800” number for your business.
There are many options to choose from when it comes to official phone number, but just ensure that you choose a telecom company that will better serve your business.
Step ELEVEN: Hiring of Employees
Of course registering an LLC means that you will need employees and in order to get it right, you should ensure that you stay on the side of the law and here are some steps you should follow:
- Verify that your new employees are able to work in the US
- Report employees as “new hires” to the State
- Provide workers’ compensation insurance for employees
- Withhold employee taxes
- Print compliance posters and place them in visible areas of your workspace
Lastly, ensure that you find out more information from the Colorado Department of Labor, Licensing, and Regulation website.
Forming an LLC in Colorado is not a difficult task, all you need to do is search your Colorado LLC name in the database, designate your Registered Agent, file your LLC Articles of Organization and pay the state filing fee ($50). After your Colorado LLC is approved, complete your Operating Agreement, obtain a Federal Tax ID Number, and file your Periodic Report.
N.B: Even after forming it, there are still some things you need to put in place before you commence operation. Please note that the information in this article is provided only for general purpose and it is no way a legal advice. No lawyer-client relationship is established or should any such relationship be assumed. For legal advice, please consult with a professional lawyer.