Essentials To Setting Up an LLC in Colorado
A limited liability company may be formed in Colorado by submitting the required paperwork to the Colorado Secretary of State. These papers, like all other business types for the state of Colorado, can only be done electronically and include a filing charge of $50 for domestic companies and $100 for international businesses.
Both filing documents must be filled out and sent in compliance with Colorado Revised Statute (CRS) 7-90-301. There will be no need to print and mail any of the necessary paperwork with the streamlined online forms, and most applicants will likely find the procedure far easier than anticipated.
EIN (Employer Identification Number)
You can receive an EIN by filling out a PDF Document (Form SS-4) from the Internal Revenue Service (IRS) or by applying for one on the IRS website. Any LLC that hires people involves an EIN in order to pay withheld taxes on such jobs, open bank accounts, register for credit cards, and otherwise function separately as a corporate organization.
Operating agreements are not necessary when establishing an LLC in Colorado, but these operating agreements are highly essential. By forming an operating agreement, you are creating a guideline on how the Colorado LLC will operate; basically, a model about how the business’s corporate relations will be organized. Creating such an operating agreement has been seen to prevent disagreements between staff and owners.
Renewal of LLC
Both corporate companies shall preserve their good reputation by sending an annual report. Renewals may be done electronically in a matter of seconds by utilizing the record identifier or ID search feature (found linked in the heading of this paragraph).
In Colorado, state authorities only need the registered agent information, the principal office address, and a few other bits of specific information. Both filers must request a $10 filing charge for their periodic report, but this fee will escalate if the renewal is late.
How To Start an LLC in Colorado?
A limited liability company (LLC) is a legal arrangement for a firm. It blends the limited responsibility of a company with the independence and absence of formalities of a partnership or sole proprietorship.
Any business owner who wishes to restrict his or her legal responsibility for company defaults and claims should think about creating a Colorado LLC. The following are the measures to form an LLC in Colorado.
1. Choose a Name for Your LLC
According to Colorado statute, a Colorado LLC must have the words or abbreviation “limited liability corporation,” “ltd. liability company,” “limited liability co.,” “ltd. liability co.,” “limited,” “l.l.c.,” “llc” or “ltd.,” “Limited Liability Company,” “Limited Company,” or the abbreviation “L.L.C.,” “L.C.,” “LLC,” or “LC.” The terms “Restricted” and “Business” can be abbreviated as “Ltd.,” and “Limited” can be abbreviated as “Ltd.”
The name of your Colorado LLC may be distinct from the names of any corporate companies currently on file. Check the company name database to see whether a name is accessible.
Through submitting a Statement of Reservation of Name, the available name may be reserved for 120 days. The form must be completed and sent electronically at the Secretary of State’s website. There is a $25 filing charge.
When doing business in the real world, you are not forced to use the official legal name registered in your Articles of Association. You may instead use a fictional brand name, often known as a trading name, “DBA” (short for doing business as), or presumed name.
You must submit a Statement of Trade Name of a Reporting Entity by registering electronically and you will incur a charge of $20.
2. Appoint a Registered Agent
Any Colorado LLC must have a service of process registered agent in the state. There is a person or corporate company that offers to sign court documents on behalf of the Colorado LLC if it is sued. Prior to designation, the registered agent must choose to allow provision of process on behalf of the limited liability corporation.
The licensed registered agent can be (1) a full-time citizen of Colorado, (2) a Colorado business organization with its principal place of business in Colorado, or (3) a foreign entity approved to do business in Colorado with a permanent place of business in the state. From here, we hope you know how to pick your registered agent or registered agent service provider.
3. File Articles of Organization
A Colorado LLC is established by filing articles of organization with the Colorado Secretary of State. On the website, you can browse and download sample articles of association type. The following elements must be mentioned in the articles:
- The name of the LLC
- The street address of the LLC
- The licensed registered agent’s name and address
- The individual forming the LLC’s name and address
- Whether the LLC would be operated by a director or by its registered agent
- A declaration that the LLC has at least one participant
- The name and address of the person filing the articles.
The articles of organization must be submitted electronically, and the invoice is $50.
4. Prepare an Operating Agreement
In the state of Colorado, an LLC operating agreement is not necessary, but it is strongly recommended. This is an organizational guide that outlines how the Colorado LLC will operate.
It outlines the registered agent and managers’ privileges and duties, as well as how the Colorado LLC will be handled. It will even help you keep your limited liability by demonstrating that your LLC is a distinct business enterprise.
In the absence of an operating agreement, your LLC’s operations would be governed by state LLC statute. Form Your Own Limited Liability Company, by Anthony Mancuso, will help you create an LLC operating agreement (Nolo). An operating agreement does not need to be lodged with the Articles of Organization if one is established.
5. Apply for an EIN
And if the Colorado LLC has no staff, it must receive its own IRS Employer Identification Number (EIN) if it has more than one participant. If you create a one-member LLC, you must receive an EIN only if it would have workers or if you want to levy it as a company rather than a sole proprietorship (disregarded entity). You will get an EIN by filling out an online application on the IRS website. There are no filing charges.
6. Open a business bank account
Keeping your personal and corporate accounts apart allows your accountant to prepare your taxes more efficiently. It may also be used to show that the organization is a different agency from you. If your accounts are intertwined, you may lose your personal money as well as your company profits in a dispute.
Well, the limited liability feature of your Colorado LLC covers you, but how can anybody tell what money is yours and what belongs to the company if the finances are all merged into the same bank account? Many banks would need evidence that the Colorado LLC is licensed with the State of Colorado in order to open an account. Expect to be sent the following forms:
- A stamped—or official—copy of your Articles of Organization
- A Certificate of Good Standing indicating that the organization is duly licensed as a Colorado LLC.
- A duplicate of your EIN (unless you are a single-member LLC without any employees)
The first two papers are available for free printing from the website. Simply browse their company database for your Colorado LLC.
7. Get a business license
A general business license is not needed to create an LLC in Colorado, however you will need an occupational license to work in some controlled industries. Among the regulated occupations are:
- Psychologists, psychiatrists, alcohol educators, and social services are also examples of professionals.
- Engineers, developers, and landscape architects
- Cosmetologists, barbers, nail designers, and estheticians are also examples of beauty professionals.
- Electricians and plumbers
Check out the city-specific criteria for the cities in which you would be working. There may be general business licenses or industry-specific licenses. Denver, for example, does not require general licensing but does require permits for food peddlers, dry cleaners, child care centers, and other companies.
8. Open a wage withholding account
Do you plan to recruit staff and deduct taxes from their pay? The state of Colorado then allows you to open a salary withholding account, which you can do for free online. If you’re recruiting W-2 workers or withholding taxes from 1099 contractors, you’ll need this. You will use this account to administer and reimburse deferred income tax.
9. File Periodic (Annual) Reports
Per year, Colorado llc shall submit a Periodic Report with the State of Colorado. The documentation must be submitted electronically at the website. The filing charge is ten bucks. The periodic reports are due every three months, starting on the first day of the anniversary month in which the Colorado LLC was created.
For example, if the SMLLC was created on June 15, the report will be due each year between June 1 and August 31. You should also submit the documentation two months ahead of schedule. You may request that the Secretary of State send you an email when the Periodic Report is due.
Benefits of Forming an LLC in Colorado
Personal responsibility insurance and pass-through taxes are the two primary advantages of creating an LLC in Colorado. We’ll proceed with the most significant. Personal responsibility insurance is a privilege provided by all businesses and limited liability partnerships.
It creates a “security shield” between the personal assets and the assets of the company. If the company is prosecuted, you cannot use your personal assets to pay off any loans or obligations. The second advantage is that pass-through taxation is available to llc, sole proprietorships, and partnerships.
Your corporation is not taxed on its own under this principle. Instead, all corporate gains or expenses are reported on a personal tax return. You escape the downside that Corporations face: double taxation. Paying taxes at both the business and personal levels is referred to as double taxation.
Colorado LLC vs Corporation
An LLC is Cheaper to Create and Maintain
Unlike a corporation, forming and managing an LLC does not cost a lot of money. You will be charged a one-time filing fee of $50 for the creation of an LLC. The Periodic Report, which is due once a year, costs just $10. It is therefore less costly to manage an LLC than it is to maintain a corporation.
An LLC has Less “Red Tape”
An LLC, unlike a corporation, is not burdened by strict organizational laws. It is not necessary to appoint a board of directors, employ corporate officers, or schedule corporate meetings. A company is liable for this.
An LLC is Not Subject to Double Taxation
As previously said, the gains and expenses of an LLC “pass in” on your personal federal tax return. That is not the case for a corporation, since its earnings are taxed twice. This ensures that earnings are levied at the corporation level, and then dividends are taxed again at the shareholder level.
A limited liability corporation (LLC) is a “pass-through” organization. This ensures that the earnings are charged at the same pace as your own. The LLC does not file income taxes with the IRS. This is not to say that a Corporation has little potential for development.
This isn’t the case. They are simply more difficult to manage and are best fit for businesses who need to attract capital from outside investors. Consider technology and startup firms.
To start an LLC could be a safer choice for business owners (especially those just starting out) who want to escape the hassle of operating a complicated corporate structure (but also want personal asset protection).
Colorado LLC vs a Sole Proprietorship/Partnership
An LLC Member Enjoys Personal Liability Protection
An LLC provides a “shield of security” between your personal assets and the assets of your company. When the corporation is prosecuted, only the company’s funds will be used to compensate off the LLC’s debts. In brief, your personal belongings (bank account, home, vehicle, etc.) are safeguarded and secure in the event that the company is sued.
There is no other precaution for a single proprietorship. Since the law considers you and your company to be the same thing, your personal properties will be included if your business is prosecuted. The same holds true with a Partnership.
There is no different agency formed in this situation. When the business is prosecuted, your and your partner’s personal properties will be used to pay off its debts.
Get Business Insurance For Your Colorado LLC
Company insurance enables you to control costs while concentrating on the success of your LLC. The below are the most popular forms of company insurance:
- General Liability Insurance: This is a large insurance scheme that covers the corporation against claims. The majority of small companies obtain general liability protection.
- Professional Liability Insurance (PLI) is a form of company insurance that protects cases of malpractice and other business negligence for professional service suppliers (consultants, accountants, and so on).
- Workers’ Compensation Insurance: A form of insurance that protects staff who are sick, disabled, or killed on the job. Workers’ compensation policy is required by statute in Colorado for companies with one or more staff, except officers and LLC registered agent.
Create Your Business Website
Creating a website is a significant move toward legitimizing the business. Any organization requires a website. And if you believe the company is too limited or in an offline market, if you do not have a website, you are losing out on a significant portion of future clients and sales.
Some people may believe that designing a company website is out of their control because they lack website-building expertise. Although this was a legitimate problem in 2015, online technology has seen substantial strides in recent years, rendering the lives of small business owners even easier.
The below are the key explanations why you can not put off creating your website:
- Any legal company has a website, period. When it comes to bringing your company online, it doesn’t matter what size or sector it is.
- Social networking accounts, such as Facebook pages or LinkedIn company profiles, are not a substitute for a business website that you own and manage.
- Website builder software, such as the GoDaddy Website Builder, have made it incredibly easy to create a basic website. You don’t need to employ a web developer or designer to build a website you’re proud of.
Send Out a Press Release
Press releases are one of the simplest and most effective ways to advertise the business. They are still one of the least expensive tactics since they:
- Gives advertising
- Establish your brand’s online presence Boost your website’s search engine optimization (SEO), drawing more customers
- Are a one-off commitment in terms of time and resources
- Have long-term advantages
Colorado LLC Tax Filing Requirements
If you’re selling a physical item, you’ll usually need to apply for a seller’s permit online at the State of Colorado’s website. This credential entitles a corporation to receive income tax on taxable sales. The sales tax, commonly known as the “Sales and Use Tax,” is a fee imposed by governments, cities, and towns on commercial purchases including the exchange of such taxable products or services.
If you have workers in Colorado, you must apply with the Unemployment Insurance Tax and the Employee Withholding Tax electronically at the State of Colorado’s website.
Federal LLC Formation Tax Filing Requirements
Most llc must file Form 1065 Partnership Return (most multi-member llc use this form) and Form 1040 Schedule C with the IRS each year (most single-member llcs use this form). Your federal taxes would be affected by how you pay yourself as an owner.
Avoid Automatic Dissolution
When an LLC fails to file one or more state reports, it can face penalties and even automatic dissolution. When this occurs, LLC shareholders run the risk of losing their LLC limited liability rights. A good licensed registered agent service will help you avoid this by informing you of impending filing deadlines and sending information on your behalf, therefore it is worth getting help from a registered agent service provider.
If you want to recruit staff for your business, take these measures to keep in compliance with the law:
- Confirm the prospective employers are qualified to serve in the United States.
- Employees can be reported to the state as “recent recruits.”
- Employees can be equipped with employees’ compensation benefits.
- Employee taxes should be withheld.
- Print workplace compliance posters and display them in high-traffic parts of the workplace.
Minimum wage in Colorado
Colorado’s minimum wage is $12.32 per hour. The minimum wage in Denver is $12.85 per hour.
Frequently Asked Questions (FAQs)
Should I form an LLC in Colorado?
Whether you are just starting out or have been working as a sole proprietor, you should think about creating an LLC. llc restricts an owner’s legal responsibility for corporate debts and claims and has a great deal of versatility in terms of business control, management, and taxes.
How do I know if my LLC name is available?
It is important that the name of the LLC be distinct from the names of all existing companies on file. To ensure that your suggested name is available, you may perform a free name search on their website.
How much does it cost to form an LLC in Colorado?
To register the Colorado Articles of Organization, the Colorado Secretary of State charges a fee of $50. For $25, you may reserve your LLC name. Filing on your own is frequently the most cost-effective alternative, but processing all of the forms and filing them on your own can be difficult.
Hiring a lawyer is another choice, but it would usually cost you hundreds, if not thousands, of dollars. With bundles beginning at $49.00, Nolo’s Online LLC formation program will handle all of the paperwork and filings for you.
Do I need an operating agreement for my Colorado LLC?
While operating agreements are not needed in Colorado, they are strongly recommended. An operating agreement can help secure your limited liability status, avoid financial and managerial misunderstandings, and guarantee that you choose the laws that control your company rather than state law by design.
Do I need a business license in Colorado?
Depending on the size of your company and where it is based, your LLC can include additional local and state business licenses. Check with the community where the company is based regarding municipal permits (or county if you are in an unincorporated area).
Are there Colorado business taxes I need to pay?
In certain situations, such as whether you want to sell merchandise and pay income tax, or if you have staff, you must file the Colorado Department of Revenue (DOR).
Can a foreign LLC do business in Colorado?
To do business in Colorado, all llc established outside of Colorado must register with the Colorado Secretary of State. Foreign limited liability companies shall nominate a licensed registered agent for operation of process who is physically located in Colorado.
To apply, you must apply for a Declaration of Foreign Company Authority. The application must be sent electronically. The reporting charge is one hundred bucks. Scan the company name website before filing to verify the LLC’s name is accessible in Colorado. If the name is not accessible, the LLC must have a Colorado presumed entity name.
Can I form a single-member LLC in Colorado?
A Colorado single-member LLC is treated the same as a multi-member LLC for most llc formation purposes. The processes for creating a single-member LLC in Colorado are the same as those described above. When it comes to preparing a tax report, single-member llc have more leeway.
Can I form a professional LLC in Colorado?
If you wish to join an LLC in Colorado to offer a licensed professional service, you must first incorporate a professional limited liability company (PLLC). Architects, lawyers, dentists, registered public accountants, and other practitioners are examples of technical services.
In general, if you have a business that necessitates the acquisition of a Colorado state license before training, you are a professional service. llc may be created to offer professional services under Colorado law.
However, only one type of service can be offered, and all of the LLC’s owners must be certified or registered to offer the professional service for which the LLC was established.
Can I dissolve my Colorado LLC when I’m done?
If you decide to shutter the company and end all activities, you can properly disband your Colorado LLC to reduce your responsibility for claims and government fines.
Do I need to get a DBA or Trade Name for my business?
Most limited liability company (LLC) do not require a DBA. The name of the limited liability company LLC can serve as your business name. Similarly, you can accept checks and other payments under that LLC name too. However, if you’re looking forward to register a DBA if you would like to conduct business under another business name.
Conclusion: Starting LLC in Colorado
If you want an easy, low-cost company that covers your personal properties in the event of a litigation, then forming an LLC in Colorado is definitely the best choice for you. If you want a company that is easy, affordable, and protects your personal belongings, an LLC is the right choice for you.
Starting a business correctly doesn’t have to be difficult. With over 15 years of experience consulting new businesses and start ups, Matthew is probably the best person to help you set a strong foundation for your business.