How to Start an LLC in Colorado
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While starting a business comes with many risks and complex processes to figure out, starting an LLC in Colorado requires only a few simple steps. This step-by-step guide will help you understand what needs to be done to formalize your business and begin your next venture.
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Each week, around 2000 new small businesses are started in Colorado. These small businesses account for almost all the entities in the state, and employ about half of the workforce. Colorado’s economy relies on entrepreneurs and these ventures to remain vibrant and appealing, which is why it is critical that more people take the leap to start a new business. One of the best ways to do this is through an LLC, or limited liability company.
Name the LLC
Have a name in mind? See if it’s already listed in the state’s business directory. If the name comes up in a search, it’s taken. If it doesn’t, it’s yours to claim.
One of the first things you need to decide about your business is what it will be called. You will put your LLC name on many formation documents, so this is where you need to start.
Choosing a name can be difficult. It is important not just for the formalities of forming an LLC, but it’s also the name customers will learn and remember for years to come.
As you consider names, there are some state laws that govern business names that you should know about:
- Names must include LLC – The name you choose must follow Colorado’s naming requirements. For an LLC, that means it must contain some version of the term “limited liability company” or an abbreviation like LLC. Colorado allows for the words limited and company to be abbreviated as “Ltd.” and “Co.” as needed.
- Certain words are banned – Certain words cannot be used in your Colorado business name. This includes anything that may imply your business is a government agency, like “State”, “Department”, or “Treasury”. You can also not use words for professional services if the LLC does not have a licensed provider of those services, like “attorney” or “doctor.”
- All names must be unique – You must also have a name that is distinguishable from the names of all other business entities registered with the Colorado Secretary of State. The office provides a database of all business names so you conduct a name search and be sure your name is unique. It’s a good idea to look for similar names as well, as anything too close could be rejected as indistinguishable.
The requirement for a unique name is only within Colorado itself, so you can technically choose a name that is taken in another state. However, if the name has been trademarked at the national level, this could present problems.
You should also look for matching domain name availability and social handles before registering a name. You want to create a consistent customer experience.
You can file a name reservation in Colorado for 120 days.
Select a registered agent
Any LLC registered in Colorado is required to have a registered agent appointed. This agent is the official point of contact for the state and will receive any correspondence on behalf of the business. This includes tax and legal documents, as well as service of process in the case that the business is sued.
Unlike most other states, Colorado allows your LLC to act as its own registered agent. You can also act as your own registered agent, appoint someone involved in the LLC, or any individual so long as they meet the state’s guidelines.
To be a registered agent in Colorado, you must:
- Be 18 or older
- Be a full-time resident of Colorado
- Be on-site and available to receive documentation during regular business hours
- Have a physical mailing address, not a P.O. box
Because a registered agent is required to be available during all regular business hours, some people do not want to appoint an individual. Taking a vacation or being away from the office could mean missing a delivery and being in violation of state laws.
Instead, you can choose to use a registered agent service to act on behalf of the company. Colorado requires that this agency be a business entity with its principal place of business registered in the state. These services will act as your registered agent for a small annual fee.
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File Articles of Organization
Once you have determined your startup’s name and a registered agent, you will be able to complete the Articles of Organization paperwork. This is the formal document that establishes your LLC and acts as an application for the state to recognize the business.
The process takes place on Colorado’s state website and is done completely online.
Be prepared to include the following information when filing Articles of Organization:
- Name of your LLC
- Principal office address
- Mailing address if different from above
- Registered agent name, address, mailing address, and consent
- Management structure of the LLC (members or managers)
- Confirmation that there is at least one LLC owner
- Name and address of the person forming the LLC
- Name and address of the person filing the document
You can fill out and submit your LLC formation documents here.
Filing fee
Colorado typically charges a $50 filing fee for Articles of Organization. However, between July 1, 2022, and June 30, 2023, this has been reduced to $1. Foreign entities must pay $100 to file.
Colorado processing time
Once payment is received online, your LLC will be instantly formed as long as there are no errors or omissions with your paperwork.
Create an LLC operating agreement
Unlike corporations, operating agreements are not a required document when creating an LLC, and the state of Colorado will not ask you to submit one.
However, it is considered best practice to have an operating agreement in place before you start an LLC or any other business entity. This internal document establishes how your LLC will be run, how decisions will be made, and how conflicts will be settled.
Having this all documented before any conflict arises ensures that everything can be referenced in the agreement down the line. If you do not have an operating agreement, state LLC law will be used to settle disputes.
You can create an operating agreement from scratch or use one of many free templates online. For complex scenarios, some people also hire a business attorney to help draft the document. The most basic operating agreements should discuss:
- Basic information about your company, including any fictitious names used
- The business’s purpose, industry, and primary product or service
- A statement of intent to conform to laws of the state
- Any duration of the business, whether it is limited or in perpetuity
- Tax treatment elections such as S-corp or C-corp
- Information about all members and managers, including ownership percentage and job responsibilities
- Each member’s contributions and how funds will be raised later
- How votes will be conducted and counted, as well as how they are provisioned
- Member compensation and tax responsibility
- How new members will be added and existing members will be treated upon exit
- Dissolution terms, rights, and responsibilities
Depending on your business and industry, you may choose to include further information. This document is used for your business only and is not filed with Colorado.
Get your EIN
While your Social Security Number has many uses, it is used most frequently by the Internal Revenue Service (IRS) to track individuals for tax purposes. In the same vein, the IRS issues Employer Identification Numbers to businesses in order to properly maintain records. This number, called an EIN, is free and issued immediately upon application for any business in the United States.
Most LLCs will be required to obtain an EIN, but other types of businesses, like sole proprietorships, don’t need one. The only exception would be a single-member LLC with no employees. But even in these cases, an EIN is useful when it comes to filling out financial paperwork and working with vendors in the future.
Not only does the number help legitimize your business, but it also prevents owners from needing to share their personal Social Security Number during regular transactions.
You can get your EIN by visiting the IRS website.
Get Colorado business licenses
There is no statewide generic business operating license required in Colorado. Certain businesses or professions may be regulated by state agencies and require their own process, but this is specific to your business. However, any business in an industry where sales tax is levied will need to obtain a sales tax license, also known as a seller’s permit.
The sales tax license can be applied online through MyBizColorado, by mail, or in person. There is a $50 deposit required, but it is returned once the business has paid $50 in taxes. This license is valid for two years and requires a $16 renewal fee. Keep in mind that a separate license will be needed for each physical location of a business.
The majority of cities and counties throughout Colorado will require their own general business operating license, though rules vary widely. For example, Colorado Springs only requires licenses for very niche businesses like concrete contractors, tree services, and food trucks. Other areas, like Aurora, will require a license for every business in city limits. It is important to look into the specific regulations in the relevant location for your LLC, including generic licenses, zoning needs, and permits.
Open business bank accounts
One reason that many business owners choose to register as an LLC is the additional asset protection it affords them. The business is treated as a separate entity, while still allowing owners to claim profits and losses on their personal taxes each year. However, in order to maintain these benefits, you may need to demonstrate that the business is truly separate from your personal finances. One of the best ways to establish this divide is by setting up bank accounts dedicated to your business.
A business-specific checking account is usually the first way to show a separation of finances. This account can be used for all spending and income related to an LLC. From there, you may also choose to open savings accounts and credit cards in the business’s name. All finances related to your LLC should be done through these dedicated accounts. Not only does this show that you are a separate entity from your business, it makes accounting and filing taxes much simpler.
Review LLC tax rules in Colorado
Because LLCs are pass-through entities, the business itself is not responsible for taxes. Instead, the members of an LLC pay personal income taxes which account for any profits and losses the business sustained. Colorado charges a flat tax rate of 4.63% on any profit throughout the year.
If your LLC has any employees, there are additional employer taxes that must be paid as well. This includes withholding employee income taxes, which are paid to the Department of Revenue. You will also need to pay state unemployment taxes through the Colorado Department of Labor and Employment.
Get insurance for your LLC
The structure of an LLC protects your personal assets and provides personal liability protection, but you must also protect the business independently. This means getting some kind of insurance, usually general liability insurance, for your business.
General liability insurance offers coverage to protect against lawsuits that may be brought against an LLC.
For some industries, professional liability insurance can also be important. Roles that require professional certification, like medical practitioners or attorneys, will need this insurance to protect them against lawsuits when acting in an official capacity. You can also look into things like commercial property insurance where relevant.
About BOI Reports…
For LLCs to operate legally, owners must understand and comply with Beneficial Ownership Information (BOI) reporting rules under the Corporate Transparency Act. Properly filing your report with the Financial Crimes Enforcement Network (FinCEN) is crucial to avoid penalties. If you are unsure whether your LLC must disclose ownership information to FinCEN, see our post about BOI reporting here.
Additional resources to help you set up a business in Colorado
Colorado’s Secretary of State is responsible for all business operations in the state. To help business owners, they offer several resources:
FAQs
Do LLCs have to file an annual report in Colorado?
Colorado requires a Periodic Report to be filed with the Secretary of State, rather than an annual report or statement of information, as it’s known in other states. These reports are due every year and must be filed, along with a $10 filing fee, to remain in good standing with the state.
How much does it cost to form an LLC in Colorado?
The fee to file Articles of Organization in Colorado is $50, which is how an LLC is formed. You may also need to pay for a registered agent, business licenses, and other formation costs depending on the steps you choose to take when doing business as an LLC.
Does Colorado let me form a professional LLC?
Yes, Colorado has a separate business structure for professional LLCs. This is required for those who provide a licensed professional service and want to form an LLC. Examples include architects, attorneys, accountants, and medical professionals. Each PLLC may only cover one specific service, and all owners must be licensed or registered to perform the service.
Can I submit my Colorado Articles of Organization by mail?
Colorado mandates that the majority of forms are submitted online. This allows them to be filed in real-time and immediately processed once payment is confirmed. The Articles of Organization are included in the forms that must be filed online and cannot be submitted by mail or in person.
Who can be a registered agent in Colorado?
An individual acting as a registered agent must be 18 or older and have a primary residence in Colorado. If you are using a service, the business entity must have a usual place of business in Colorado. This includes your LLC, which can act as its own registered agent. The agent must provide consent to serve as such.
Is there a state EIN in Colorado?
EINs are issued by the IRS at a federal level. However, businesses in Colorado must register for a state tax number through the Colorado Department of Revenue. These serve a similar purpose to an EIN and allow Colorado to manage taxes for each individual business in the state.
Can I reserve an LLC name in Colorado?
If you have chosen a name for your business and verified it is available in Colorado’s database, you can reserve it before registering your LLC. You must file a reservation for 120 days, or extend this with a Statement of Renewal of Reservation of Name. During this time, no one else can form a business under the reserved name.
Do LLCs pay taxes in Colorado?
LLCs are pass-through entities, meaning the member or members of the LLC are responsible for paying taxes on all profits and losses. The profit tax rate in Colorado is 4.63% and this will be reflected in the personal tax returns of each member, rather than through a corporate LLC tax return. All businesses pay employment and sales taxes.
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