If you want to form a Limited Liability Company (LLC) in Colorado, we’ve got you covered!
Here are a few of the things you will learn by reading this article:
- The steps you need to follow when starting a new Colorado LLC
- Important tasks you’ll need to take care of once you register your LLC
- How long the process takes and how much it will cost
Keep reading to learn everything you need to know to start an LLC in Colorado.
Step 1: Name your Colorado LLC
You must select a business name before creating an LLC. But you can’t just name your LLC whatever you want. There are specific rules for naming a Colorado LLC. Some words are required, and other words are banned.
Words You Have to Use
Colorado Revised Statutes Section 7-90-601 says that LLC names must state that the business is an LLC. To do so, you must use one of the following terms in your LLC name:
- “limited liability company”
- “ltd. liability company”
- “limited liability co.”
- “ltd. liability co.”
Words You Can’t Use
Section 7-90-601 also makes some rules about words you aren’t allowed to use.
First, an LLC name can’t use words that would violate the law, like a reference to crime or other illegal activities. You also can’t use the word “cooperative” in your LLC name.
You should also make sure you don’t choose a name that implies your business is a government entity. You also can’t use your name to give an impression that your business does things that you aren’t legally allowed to do.
The big rule is this: if you need a license to do your job, double-check with the Secretary of State to make sure your company name complies with the law.
Your LLC name must also be different or “distinguishable” than every other name registered in the state. If two businesses were allowed to have the same name, people might confuse the two companies. So, Colorado law requires every business to have a different name to prevent this problem.
Research the LLC Name You Want
Once you pick a name for your LLC, check if somebody else has already registered it using the Colorado Secretary of State’s Business Entity Search.
If someone else has already used the name you want to claim, you can’t use it unless the other entity files paperwork to dissolve or change its name.
Colorado Revised Statutes Section 7-90-602 allows you to reserve a name for 120-day periods if it is available. To do so, you must submit an online Statement of Reservation of Name and a $25 filing fee to the Colorado Secretary of State.
Colorado does not accept paper filings for name reservations and many other documents. You must file online instead.
Colorado DBA: Using a Trade Name
It’s important to note that you don’t need to operate your business under its formal legal name. Many LLC owners opt to use a “DBA” (short for “doing business as”) instead of their LLC’s official legal name.
If you register a DBA, you will use it to run your business. You’ll put it on your website, your signs, and your business cards too. With a DBA, your LLC can “go by” a different name.
If your LLC’s legal name is “Rocky Mountain Ski Shop, LLC,” you could use a DBA of “Rocky Mountain Ski Shop.”
But say you later decide to start selling snowboarding equipment as well. To better explain what your business does, you can register another DBA and begin using the name “Rocky Mountain Ski and Board.”
As with name reservations, trade names must be filed online. You can register your trade name by searching for the business record for your LLC with the Secretary of State’s Record Identification Search feature. Once you find your LLC’s record, you can file your statement of trade name from that screen. There is a $20 filing fee.
Step 2: Appoint a Registered Agent for your LLC
Your “registered agent” is a person or business that accepts legal papers and other important documents for your LLC.
Colorado Revised Statute Section 7-90-701 says that all LLCs must appoint a registered agent to receive service of process.
Receiving service of process is a legal term used when someone files a lawsuit against another person or business. It involves sending out official court papers. If your business gets sued, then your Colorado registered agent will get the paperwork.
Your agent must have an office or address in Colorado. They also need to be available to receive papers during regular business hours.
In Colorado, any person or business who has an address within the state can be a registered agent. So, new LLC owners often think they can save a few bucks by serving as their own registered agents.
In reality, this is usually not a good idea.
Most experienced LLC owners know that using a professional registered agent service makes more sense than being their own agent. These services let you pay a small annual fee to use them as your agent.
You might think that one of these services is not worth the cost. In fact, serving as your LLC’s registered agent may seem like a great idea for several reasons:
- It’s cheap: You’re not paying someone else to do it for you.
- It’s easy: The only address and contact information you have to keep current is your own.
- It’s reliable: You will receive all important documents personally.
We strongly suggest that you don’t name yourself as your LLC’s registered agent. Here are a few reasons why:
- No privacy: Your name and address will be published on the Secretary of State’s website. This means that anyone with an internet connection can find your personal information.
- Junk mail/spam: You will get a ton of junk mail in addition to a small amount of real mail and any service of process.
- No breaks: You also must be available at all times during regular business hours to receive documents. This means no vacations, sick days, or leaving the office for lunch.
- Business interruptions: Client meetings can be interrupted by people serving process. That could be embarrassing or hurt your reputation.
- It’s your fault if you miss something: You always have to make sure your address is correct and up to date. If you make a mistake or miss something, you are held responsible.
It’s almost always best to hire a professional registered agent, and it usually only costs around $100 per year. Plus, your agent will notify you immediately if it receives any documents for you.
If you are looking for a professional registered agent service, take a look at our Best Registered Agent ranking for some of our recommendations.
If your LLC plans to conduct business outside Colorado, we recommend using a national service.
If you want to conduct business in another state, you must first register your foreign company as a foreign LLC and appoint a registered agent in that state. For this reason, it makes sense to just hire one agent instead of multiple service providers across the country.
Step 3: File Your Colorado LLC Articles of Organization
Articles of organization are the legal document you’ll file when starting an LLC. They list important info about your business and must be filed with the Colorado Secretary of State.
If you would like to avoid the hassle of handling your LLC filing yourself, you can also use a professional LLC formation service. Check out our Best LLC formation services article for some of our suggestions.
What to include in my Colorado Articles of Organization?
Colorado Revised Statutes Section 7-80-204 says that they must include:
- The LLC’s name.
- The address of the LLC’s principal office
- The registered agent’s name and address.
- The name and address of each person forming the LLC.
- If the LLC will be run by the members or a manager.
You can also choose to add any other details that you want to include. This is not required, though.
Colorado LLC Filing Fee
In Colorado, you must file the articles online. The state fee is $50.
Colorado LLC Processing Time
Your articles will be immediately processed after you file online and receive payment confirmation.
Step 4: Draft your Colorado LLC Operating Agreement
An operating agreement is a legal contract that controls how an LLC runs. It explains each member’s legal rights and obligations and sets the rules for running the business.
Operating agreements aren’t legally required for Colorado LLCs. However, they can be useful when starting a new business. A formal contract ensures that every party involved has clearly defined roles and responsibilities. This can prevent future arguments between members when they disagree about how to handle things.
For instance, say a member wants to sell their interest in the LLC. The operating agreement will outline the steps to buy them out. It might also say who gets their duties when they’re no longer working for the company.
Operating agreements are helpful for various other reasons, including:
- They determine the rights and duties of LLC members. If one LLC member is responsible for running the business or managing the books, the operating agreement should say so.
- They say what the manager has the right to do. Managers also have special duties to the company and the members. The operating agreement should state these.
- They outline what the LLC is legally able to do. The operating agreement should also set down how the company is allowed to conduct its business from day to day.
- They say how new members can join the company. They also have rules about how exiting members can leave.
- They set down how and when profits are paid to members. They can also create different types of membership and payment schemes.
- They say whether members or managers are in charge. They also say how to hire and fire managers.
- They say how and under what circumstances the LLC should end. You might not want to dissolve your business now, but you might in the future. It’s best to think about it and plan before it becomes an issue.
- They say how to change the rules. You may need to amend your operating agreement in the future. The operating agreement should set down the rules for making changes.
While LLC members have a lot of control when writing an operating agreement, Colorado Revised Statutes Section 7-80-108 lists some things the contract can’t do. Be sure to read this law to make sure your agreement complies.
Operating agreements are crucial for your LLC because they create the rules of your business. Every member should be involved in this process so that they understand and agree to the terms. Once the contract is signed, make sure you keep an extra copy for your LLC’s files.
Step 5: Get an EIN (Employer Identification Number) for Your Colorado LLC
An Employer Identification Number (EIN) is a 9-digit tax ID given out to LLCs and other entities by the IRS. Basically, an EIN is like an SSN for your business. You will use it to file taxes and complete other tasks for the US government.
Here are the most common times when you need an EIN:
- Does your LLC have more than one member?
- Does your LLC have any employees?
- Is your LLC taxed as a C corporation or S corporation?
You’ll need to get an EIN if you answer “yes” to at least one of these questions.
You don’t need an EIN for a single-member LLC, as long as you file taxes with your SSN. Still, having an EIN may help you in some cases. For example, you can use it to avoid fraud and keep your business and personal finances separated.
Also, if you want to open a business bank account, you’ll likely need an EIN to sign up.
Getting an EIN doesn’t take long at all – just a few short minutes! So, there’s no good reason to pay someone to do it for you unless it’s part of a larger service package.
First Tasks After Registering your Colorado LLC
Once you start your Colorado LLC, there are some additional tasks you’ll need to take care of. This will make sure that you remain compliant with local law and industry standards.
Open a Business Bank Account
In Colorado, LLCs aren’t required to have a business bank account. Even so, tracking expenses is easier if you keep LLC funds apart from your personal accounts. A business account will also help you maintain the personal asset protection provided by an LLC.
Here are some good reasons to open an LLC bank account:
- Convenience: Keeping things separate makes your LLC’s bookkeeping much simpler.
- More business opportunities: Your LLC can only receive credit card payments through a business account. You can also do business with people who won’t take personal payments.
- Personal asset protection: Mixing your personal and business funds could cause you to be held responsible for the LLC’s debts.
The third point, asset protection, is key.
As an LLC owner, you can keep your personal assets from being seized for business liabilities. Only the assets owned by the LLC can be used to pay debts if your business is sued. This means you won’t have to risk your own money.
This idea that there is a legal difference between you and your LLC is known as the “corporate veil.” If you mix your LLC’s assets with your personal funds, the corporate veil can be “pierced” in a lawsuit. So, if you act like an LLC’s assets belong to you, you can be held personally liable if the business is sued.
Business accounts help keep your personal assets separate from your company’s. This will help you protect yourself in lawsuits by preventing the corporate veil from being pierced and maintaining your liability protection.
Get Business Insurance For Your Colorado LLC
It’s vital for any business owner to have insurance. If you don’t have insurance, you risk losing it all if something goes wrong.
Keep your industry’s risks in mind when choosing insurance policies for your business. This will help you get coverage that fits your needs.
Make sure you look into different types of business insurance, such as:
- General liability insurance: You’ll need this if there’s an injury on your property. It pays for damages and a lawyer if you need one.
- Commercial automobile insurance: This works like your own car insurance. It covers drivers and vehicles for your business.
- Workers’ compensation insurance: Under Colorado Revised Statutes Section 8-40-203, all employers in the state must carry workers’ compensation insurance. You can purchase a policy from an insurance company or self-insure your LLC.
- Commercial property insurance: This protects your property in the event of damage. Keep in mind that flood insurance is often a separate policy.
- Professional liability insurance: Lawyers, doctors, architects, and other professionals need this insurance. It provides coverage and legal defense in the event of a malpractice case.
- Business income insurance: If you have to close for some time, business income insurance can pay back the loss of income. Policies vary, though. Make sure that you know exactly what kinds of losses will be covered.
Keep Your Colorado Company Compliant
If you operate an LLC, then you might need to follow certain rules. For example, you may need to obtain a business license or file taxes. It’s also important to stay informed of any changes to local laws that might impact your business.
Colorado Business Permits and Licenses
Colorado does not use general business licenses. However, licenses and permits are issued by state agencies for some types of business. You can call the Colorado Small Business Development Center’s hotline at 720-665-7439 for more info.
Colorado Tax Requirements
If you plan for your LLC to sell products in Colorado, you’ll need to collect and pay sales tax to the Colorado Department of Revenue. You can register as a new business with the online Colorado Sales and Use Tax System.
Federal LLC Tax Filing Requirements
For federal income taxes, an LLC in Colorado is a pass-through entity. This means you’ll report your LLC’s profits and losses on Schedule C of your personal tax return.
Even if you aren’t hiring any workers, you’ll still need to pay social security and medicare taxes. If you do hire employees, you must withhold taxes from their pay.
Annual Report and other Filing Requirements
You must file these reports online by finding your LLC’s record with the Secretary of State’s Record Identification Search tool. There is a $10 filing fee.
Colorado Business Formation Quick Links
- IRS — apply for an EIN online
- IRS information regarding the federal tax treatment of LLCs
- Business Entity Search (SOS)
- Record Identification Search (SOS)
- Starting a Business in Colorado e-Learning Course (SOS)
- LLC Checklist (SOS)
- Entity Names FAQ (SOS)
- Fee Schedule (SOS)
- Colorado Sales and Use Tax System
- Colorado Business Resource Book
- Naming Requirements: Colorado Revised Statutes Section 7-90-601
- Name Reservation: Colorado Revised Statutes Section 7-90-602
- Trade Names: Colorado Revised Statutes Section 7-71-101
- Registered Agents: Colorado Revised Statute Section 7-90-701
- Articles of Organization: Colorado Revised Statutes Section 7-80-204
- Operating Agreements: Colorado Revised Statutes Section 7-80-108
- Periodic Reports: Colorado Revised Statutes Section 7-90-501
Colorado LLC FAQs
How much does it cost to start a Colorado LLC?
The filing fee is $50.
What is the processing time to form my Colorado LLC?
Your articles of organization will be immediately processed after you file online and receive payment confirmation.
What are the benefits of a Colorado LLC?
An LLC protects you from personal liability from your business debts. LLCs are also not required to file income tax returns like corporations are.
Where do I check if my Colorado LLC name is available?
Once you pick a name for your LLC, check if somebody else has already registered it using the Colorado Secretary of State’s Business Entity Search.