Have you decided to start an LLC in Colorado and are looking for a good guide? In this article you will find everything you need to launch your business easily and successfully.
We’ll take a look at the 6 steps to form a Limited Liability Company. In addition, we will focus on the costs, practical aspects, and requirements you will face during the process.
Let’s get started!
Step 1: Name Your Colorado LLC
- Step 1: Name Your Colorado LLC
- Step 2: Choose a Registered Agent
- Step 3: File the Formation Documents with the State
- Step 4: Create an Operating Agreement
- Step 5: Get an EIN
- Step 6: Taxes, Licensing & Income Reporting
The name of an LLC is an important part of its reputation. First of all, the name of the company determines the first impression and expectations of potential customers.
To make your company well-known, the name of your LLC should be creative, memorable and reflect the specifics of your business. Moreover, it must meet the requirements of state law.
The basic naming requirements in Colorado are:
- Uniqueness: the name cannot be the same as that of another registered company in the state;
- Indications of business type: the name must contain words or abbreviations such as:
- limited liability company;
- ltd. liability company;
- limited liability co.;
- ltd. liability co.;
- No forbidden words: do not use the words “Treasury,” “State Department”, or other terms that imply a connection with the state.
Determine the Name is Available
Matching the desired LLC name with the name of an existing company that is already registered with the state is a common reason for refusal to register. To avoid this, you should search for the name in advance using the database on the Colorado Secretary of State website.
If it confirms that the option you chose is a unique name, then we congratulate you! Now you can confidently write your company name in the Articles of Organization and proceed with registration. If you are not ready to officially open, we recommend that you use the filing a name reservation service.
However, if the name is already in use, you should look for some alternatives or make substantial changes. Here are several ways to create a distinguishable name without completely abandoning the original version:
- Change the abbreviations or words describing the type of business;
- Remove, add or move keywords;
- Add or delete an article (“a”, “an”, or “the”).
Note that not every adjustment of the LLC name is considered a significant difference. Thus, the uniqueness of the name will not be affected in any way:
- Replacing capital letters with lowercase letters or vice versa;
- Adding spaces;
- The presence or absence of punctuation.
Optional: Name Reservation
You’ve chosen a particular name for your Colorado LLC and made sure it meets legal requirements, but you’re not ready to register your company right now. Are you worried that the name will not be available when you file the Articles of Organization?
Use the reservation option. This allows you to store the name you want before starting your LLC. After the name reservation you can do your preparation and paperwork without any worries that someone will use your name.
You can apply for a renewable 120-day name reservation Online for a $25 fee.
Step 2: Choose a Registered Agent
Handling documents is an integral part of business. The government needs to contact the company at all times. Therefore, every budding LLC must choose a mediator for state and legal communications, which is called a registered agent. According to Colorado Revised Statute 7-90-701, both domestic LLC and foreign companies must comply with this requirement to operate in Colorado.
According to the Secretary of State website, a registered agent handles such important documents as:
- Official correspondence;
- Tax notices;
- Legal documents.
Having a registered agent guarantees not only communication with the state, but also forwarding service of process to the entity in case of a lawsuit. This relieves business owners of additional tasks and helps effectively protect their rights in court.
If your main office is outside Colorado, a registered agent is especially essential because they provide the owner with information about the LLC’s activities. It allows you to quickly respond to changes in the law and the company and make decisions on time.
A registered agent can be an individual or a business entity whose information is listed on the Articles of Organization before it is submitted for approval.
Individual as Registered Agent
Colorado legislation allows a wide range of individuals to serve as a registered agent. The state requirements for candidates are as follows:
- Be a permanent resident of Colorado;
- Must be 18 years old or older;
- Have a physical address in Colorado (not a P.O. box);
- Be available during business hours.
Obviously, there are many people who meet these conditions:
- An LLC owner;
- An accountant or a lawyer;
- Friends, etc.
Nevertheless, you should be careful when choosing a registered agent. Not everyone can do this job well.
Registered Agent Service
If you are looking for a high-quality registered agent service, hiring an LLC formation service is the best option. Companies like ZenBusiness or IncFile will not only help with business formation requirements, but also provide 1 year of free registered agent service.
Having a registered agent is a must not only when you start your LLC, but also throughout its existence. Therefore, there may be a need to change your registered agent one day and appoint a new one instead.
There may be several reasons for such a decision, from a desire to switch from individual to a professional service to the resignation of a registered agent. Regardless of the circumstances, you should strictly follow the procedure and immediately notify the state about the change. Otherwise, an LLC may face such consequences as fines or even administrative dissolution.
Step 3: File the Formation Documents with the State
The key step in the LLC formation process is the filing of the Articles of Organization, after approval of which your business will finally be officially registered.
To file, you must complete and submit a sample document, which is publicly available on the Colorado Secretary of State website. Please note that the state prefers electronic filing, so paper applications are not used.
As a rule, filing your Articles of Organization is a simple procedure. However, the process will go much faster if you make sure you have a registered agent, a unique business name, and a suitable office beforehand.
The information you should provide in the Articles of Organization includes:
- The LLC name;
- The LLC’s street address;
- The name and address of the person forming the LLC;
- Contacts of registered agent;
- Creation goal (This can be a general statement);
- Management structure;
- Name and address of applicant;
- Applicant’s signature.
The processing fee of the Articles of Organization by the Secretary of State is $50, which can be paid by card.
The Secretary of State does not send copies of the completed Articles of Organization to companies. You can access them by searching for your business and going to your LLC page.
Step 4: Create an Operating Agreement
An Operating Agreement is an internal company document that describes the principles of the LLC, the distribution of ownership interests, rights and duties.
While the Colorado formation process does not require an Operating Agreement, it is essential for the smooth running of the company. Even if you choose to be a sole proprietorship, it will increase your business success and growth.
These are some reasons why you might want to adopt an Operating Agreement for your LLC:
- Avoiding conflicts between participants and managerial misunderstandings;
- Legitimizing your company in the eyes of the court: in case the company becomes a party to a lawsuit, the Operating Agreement will be the main document, that allows to avoid the state’s default law;
- Increasing the efficiency of work procedures by standardizing them.
There is no official form for this document, but you can draft an agreement by choosing one of these 2 ways:
- Write it yourself;
- Hire an attorney.
Write it yourself
The structure and content of the Operating Agreement is determined by the owner of the business. This document usually includes:
- Rights, duties and roles of the participants;
- How to distribute profits and losses;
- Voting procedure;
- Voluntary dissolution of the LLC;
- Procedures for member additions and resignations;
- Shares buyout;
- Amendment procedures, etc.
You do not have to write the Operating Agreement from scratch. There are many free online templates on the Internet, and most of them are good.
However, you can get a better Operating Agreement by hiring ZenBusiness, which provides a free template in every package you purchase.
Hire an attorney
If you aim at having a detailed and personalized Operating Agreement, you should contact an attorney. With the help of an expert who knows the nuances of the law, you will be able to protect your LLC’s interests most effectively.
Depending on your preference and budget, you can order the entire Operating Agreement or just have it checked.
Of course, the professional services cost some money, but it gives confidence, peace of mind and a reliable base for the development of your business.
What are default laws?
The general state laws set forth the basic principles of an LLC. Their purpose is to fill in the gaps made by the owners of the company when drafting the Operating Agreement. It often deals with voting procedures or voluntary dissolution procedures.
Despite the fact that default laws allow you to maintain stable work, they are not always beneficial. Due to their general nature, such rules cannot take into account the interests of a particular company. Therefore, you should be careful when drafting the Operating Agreement to foresee all possible situations.
Step 5: Get an EIN
An EIN, or Employer Identification Number, is a nine-digit code that the IRS assigns to each LLC to find it quickly in records. It is required if you plan to:
- Pay any business taxes;
- Open a commercial bank account;
- Get a business credit card;
- Hire employees, etc.
You can obtain an EIN in one of the 3 ways below.
An easy and quick way to save your time and effort.
You can file online Monday through Friday from 7:00 a.m. to 10:00 p.m. You must have a valid individual tax ID number. For example, a Social Security Number.
You can start using an EIN as soon as you apply.
If you prefer fax, use Form SS-4, which should be sent by fax (855) 641-6935.
It usually takes 4 business days to process your request.
For those who like hard-copy documents, you can get your EIN by mail. You will need to download Form SS-4, fill it out, and mail it to the address:
Internal Revenue Service Operation
Attn: EIN Operation
Cincinnati, OH 45999
If you choose this method, you may have to wait about 4 weeks to get your EIN.
Step 6: Taxes, Licensing & Income Reporting
After approval, the Articles of Organization LLC is considered officially registered. However, in most cases, this is not enough to get down to work. There are a number of requirements in Colorado that you must know and follow to maintain your reputation.
While taxes may be a significant part of the expenses of a start-up LLC, it is an integral part of doing business.
By default, the IRS treats LLCs as “pass-through” entities that do not pay federal income tax and do not file separate returns. All profits and losses “pass through” the company to its members who fill out personal 1040 tax returns and/or Schedule C.
If they wish, owners may also indicate that the LLC will be taxed as a corporation by selecting C or S corporation treatment.
Unlike some other states, “franchise” or “privilege” taxes do not apply in Colorado.
When it comes to income tax, profits and losses are reported on the owners’ individual tax returns.
Sometimes, as an alternative to income tax, there is a tax on gross receipts of the LLC. It requires you to meet such criteria as:
- Your business income in the state is less than $100.00;
- The company does not own or rent any real estate located in Colorado.
Depending on the location and specifics of the business, it may be subject to additional taxes.
For example, if an LLC hires employees, then it faces a number of tax obligations. Such businesses must pay Unemployment Insurance Taxes and register with the Department of Labor and Employment. Moreover, you have to ensure paying employee income taxes by withholding them from their salaries.
There may also be a local tax, information about which is available on the local government’s website of the city, county, or municipality.
According to the type of business, some companies need to obtain a license or permit before doing business.
The Secretary of State’s office is not responsible for these issues. Thus, you can check with the CDOR Divisions, Colorado Department of Regulatory Agencies, or your local government whether an LLC requires licensure.
After you start your LLC and begin growing the company, it is important not to forget about the Periodic Report. Its purpose is to inform the Secretary of State about changes in the LLC.
You can file the Periodic Report online for a $10 fee every year.
The Periodic Report filing deadline is listed on the LLC summary page. Sign up for the Business and Licensing Division’s email notification service to make sure you don’t miss the date. If it does happen, you can file a late report within 2 months with no consequences.
However, if you do not remedy the situation after 3 months, the company will receive “noncompliant” status and a $50 late fee. There is also a 60-day period after which the company will be declared delinquent, and the participants will be required for filing a Statement Curing Delinquency.
We have reviewed the process of starting an LLC in Colorado. All of the steps are within the reach of every entrepreneur, but you can hire an LLC formation service, making the process of starting a business more comfortable.
For a reasonable price, an online company will not only do the paperwork, but also help with Annual Reports or other requirements. Besides, most of them provide a registered agent, and some even do it for free for one year.