If you are someone looking to convert your idea into a business in Colorado, then forming a Limited Liability Company, or LLC can be an excellent option for you.
An LLC is a hybrid business structure formed by mixing the features of a partnership/sole-proprietorship and a corporation. It protects your personal assets from legal liability and, at the same time, gives you great operational flexibility.
Colorado has its own unique process for forming an LLC; for example, the State does not mandate a public notice of formation. Missing a step, or making mistakes in the process, could result in you having to start the whole process all over again.
Let us look at the procedure you must follow to form your LLC in the State of Colorado.
Name Your Colorado LLC
Naming your business is the first step toward forming your company in Colorado. Your LLC’s name will appear in all the legal documents, advertisements, and online campaigns targeted at customers. A good name will help your LLC to have brand value in the market. It will also help the customers quickly identify your business from among the competition. Make sure that you have a unique name that captivates your customers.
There are a few guidelines you must follow while naming your LLC.
Naming Guidelines
The name you select has to be unique and distinguishable. Your LLC’s name cannot be similar to any existing names. Plurals, prepositions, capitalizations, and other designators do not make your LLC’s name different from names that already exist in the public domain. To ensure your LLC’s name is unique, you must conduct a state-mandated name search.
Your LLC’s name must include “limited liability company” or an abbreviation of this phrase such as “Ltd Liability Co.”, “LLC,” or “LLC.”
The name of your company should not imply it is a government agency. Therefore, you cannot use terms like “F.B.I.” or “Treasury.”
Your LLC’s name cannot include restricted words or abbreviations without prior permission. So adding professional designations like a doctor, lawyer, etc., would mean getting a license and ensuring that such a professional is part of your LLC.
You could consider a trademark and social media search before finalizing your LLC’s name and registering it. Remember that a trademark, or social media with the same name as your LLC, doesn’t automatically disqualify it.
Does Your Business Require a DBA?
A Doing Business As Certificate, or DBA, is a document that allows your LLC to choose a name to operate under other than its registered name. Also known as a ‘trade name,’ you may need this if your LLC’s registered name is not working for your business’s brand.
Over time, you may wish to diversify your business. For example, you may enter new market areas or decide to sell new products. Your name currently for your LLC may not suit this new product or business area. In such cases, it would be better for you to operate under a new name that is more apt for your new product line or business area. An assumed name allows you to run the business of your LLC under a different name.
In Colorado, you can apply for your DBA with the Secretary of State online using the State’s website portal.
Doing a Name Search and Name Reservation
You must ensure that the name you choose is ‘distinguished’ from the other entities. Colorado mandates it. You may use the online portal of the State to do a Colorado Business Name Availability Search. You should also check the Colorado Business Database to ensure that the name you have selected is genuinely unique.
If your LLC’s name is not already registered, you should see “this name is available” appear after you type in your LLC’s potential name.
You may be set on your LLC’s name but may not want to register it with Colorado just yet. Though not mandatory in Colorado, you can reserve your LLC’s name for up to 120 days by filing a ‘Statement of Reservation of Name’ online at the Colorado Secretary of State’s website.
Registering Your Business Domain
More and more of the services available to us are moving online; it is always advisable to have a website for your business. Not only does it get the word out about your LLC, but it will also provide easy access.
So before you select a name for your LLC, it is recommended that you ensure that the domain name you need is also available.
You can check currently available domain names.
Choose a Registered Agent in Colorado
You must select a registered agent before your company can start functioning. A Registered Agent is an individual or another business entity responsible for receiving all official communication on behalf of the LLC.
A registered agent will be the point of contact between the State and your LLC. In Colorado, appointing a registered agent is a requirement by law under Colorado Revised Statute 7-90-701.
Who Can Be a Registered Agent?
The State of Colorado provides specific requirements that your registered agent must comply with. The agent you select for your LLC must be:
- An individual State resident (above 18 years) or
- A business entity that has obtained authorization to conduct business in the State.
The registered agent should be available during business hours on all working days. You can appoint yourself, a friend, a relative or even a member of your LLC as the registered agent. You also have the option of hiring a registered agent service.
Individual v. Registered Agent Service
While you have many options concerning who can appoint as your registered agent, opting for a registered agent service has certain advantages, albeit at a cost.
You can better focus on the core functions of your business. A professional registered agent service ensures that you don’t fail to duly respond to any notice or other communication that may be sent to your LLC. They remind you when your returns and other filings are due and help ensure you don’t miss any deadlines.
The registered agent’s address is available for the public to access on the concerned websites. So if you work out of your home or a private office, having a professional registered agent service will help you maintain privacy.
Most registered agents service offer their services in multiple states, making it easier for you to expand your business in the future.
File the Articles of Organization with Colorado
Articles of Organization is a legal document needed to officially form and legally incorporate your LLC. This is the most crucial step, as completing this step marks your LLC’s formation and legal presence. The Articles of Organization will carry essential information about your LLC, necessary for Colorado to be able to register it on its records.
Some of the information you will be required to fill out in the Articles of Organization include:
- The LLC’s name
- The LLC’s type, its nature of business
- The LLC’s registered agent’s name, address and contact details
- Details on your LLC’s members
- Details on your LLC’s planned date of formation
Expedient Filing
Colorado does offer an expedited processing option on payment of an additional fee. For details, please read the State’s fee schedule.
Public Notice of Formation
The State of Colorado does not mandate that your LLC publish a public notice of formation.
Create an Operating Agreement for Your Colorado LLC
An operating agreement is a legal document. It lays down the rules of your LLC’s internal operation and functioning. When you have multiple members in your LLC, it is quite possible that misunderstanding may arise, which in turn would lead to business disputes. An operating agreement helps you avoid this by acting as a guiding force in matters of the day-to-day functioning of the LLC.
An operating agreement consists of the terms agreed between the members of the LLC and acts as a core document for the LLC’s clear, smooth, and effectual functioning.
Although it is not mandatory by law to draft an operating agreement, you should have one. It offers credibility to your enterprise. You will need an operating agreement for opening an account with the bank. More importantly, it helps protect the LLC’s limited liability status by reinforcing it.
There is no fixed format for this agreement. You have all the freedom to include the terms of the agreement you feel are necessary for your LLC. Some of the important and commonly included terms in the operating agreement are:
- Name, address and contact details of the members.
- Purpose of the LLC (a general purpose ensures that your functioning isn’t restricted).
- Duration of the membership.
- Capital contribution by each member.
- Responsibilities and other liabilities of each member.
- The profit-sharing ratio between the members.
- Terms for Dissolution of the LLC.
Writing the Operating Agreement Yourself v. Hiring a Service
You can create your operating agreement, or you can purchase templates that you can customize to draft the operating agreement of your LLC. However, if your operating agreement needs detailed drafting, it might be better to have a professional draft for you. Experts in the laws of Colorado, these professionals will help you draft an operating agreement that suits the needs specific to your business model. Most registered agent services also offer drafting services.
Limits of Operating Agreement
An operating agreement cannot exclude you, members or employees from the laws of Colorado. The terms are limited to the law. You cannot include something prohibited by the laws of Colorado.
Obtaining an EIN for your Colorado LLC
The IRS uses an Employer Identification Number (EIN) for tax administration purposes. It is also necessary to open a separate business bank account for your LLC, apply for certain business loans, obtain licenses, and manage employee-related matters.
It is mandatory by law to obtain an EIN if you fall in one of the below categories:
- Your LLC has a business structure as a partnership or a corporation.
- Your LLC has employees.
- Your LLC withholds taxes for non-wage income paid to a non-resident alien.
- Your LLC files excise taxes.
You must visit the IRS website between 7 am and 10 pm from Monday to Friday. You will use your Taxpayer Identification Number (SSN) and other information regarding your LLC. Once you’ve submitted the form, you’ll receive an EIN immediately.
Option 1: Request an EIN from the IRS
Apply online – OR –Option 2: Apply for an EIN by Mail or Fax
Download form
Mail to:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Fax: (855) 641-6935
Fee: Free
File Annual Reports in Colorado
An annual report, known as a Periodic Report in Colorado, is a recurring document that has to be submitted annually to the Secretary of State’s Office. It is used by the authorities to get the latest and updated information about all the business entities operating in the State.
The due date for filing the Annual Report will depend on when you have formed your LLC. First, you must find your LLC’s ‘Periodic report month’ using the Secretary of State’s website. The Annual Report can be filed two months before or two months after the periodic report month without penalty.
If you miss the deadline, the State will charge you a penalty of $50. If you fail to file the document for more than two months after it has become due, the State will classify your LLC’s status as delinquent, which can result in your LLC losing some of its rights and privileges to conduct business in the State. You can file your reports online with the State of Colorado. The filing fee is $10.
You may read the Business FAQ section of the Colorado Secretary of State’s website for more information.
Tax Liability For Your Colorado LLC
The way your LLC is taxed depends on the nature of its business and how you choose to treat your LLC for taxation purposes. Your LLC can be taxed as a:
- Sole proprietorship: a single-owner business
- Partnership: multiple-owner business
- C – Corporation: income is split for taxation
- S – Corporation: the tax liability is split between the LLC and its owners
Federal Tax Liability
By default
The Federal Tax liability of your LLC will depend on the number of members you have and how you choose to treat your LLC for taxation purposes. If you would like your LLC to be taxed like a C-Corp or S-Corp, you can do so by filing Form 8832 and Form 2553, respectively.
If you’re a single-member LLC, your default taxation type will be that of a sole proprietor. The LLC has to report its activities under Schedule C, Schedule E and/or Schedule F of Form 1040.
On the other hand, if your LLC is multi-membered, it will be taxed as a ‘partnership’ by default. In this case, apart from filing Form 1040, you’ll have to file your partnership return in Form 1065 and provide information in the K-1 of each partner.
You must pay Federal self-employment tax (presently 15.3%) on the profits you take from your LLC. You are eligible for certain deductions like business expenses. You are also liable to pay Federal Income Tax. The income tax you have to pay will vary depending on your income, filing status, deductions, etc. However, federal corporate taxes must be paid if you treat your LLC as a corporation for tax purposes.
State Tax Liability
Colorado does not impose any tax on LLCs for the privilege of doing business in the State. However, in case you choose to treat your LLC as a corporation, your LLC will have to pay Colorado’s Corporate Tax, which is currently 4.63% of taxable income.
Additionally, if your LLC sells any product or service that is subject to sales tax, you will have to obtain a seller’s permit from the State.
Miscellaneous Taxes
If your LLC has hired employees, you must sign up for Unemployment Insurance Tax and Employee Withholding Tax.
Permits & Licenses
Your LLC may need licenses or permits to operate in certain industries. Certain types of businesses require prior permission from the concerned authorities. These licenses and permits are different for different regions and involve different fees. Depending on the nature of your business, your LLC may be subject to three licensing jurisdictions: Federal, State and Local.
Federal Licensing requirements will depend on the business activity carried on by your LLC. If your company is engaged in any area of business regulated by the Federal Government, you will be required to obtain relevant Federal Licenses and Permits.
Some business activities requiring Federal Licenses and Permits are Agriculture, Alcoholic beverages, Aviation, Firearms, ammunition and explosives, Fish and Wildlife, Commercial fisheries, Maritime transportation, Mining and drilling, Nuclear energy, Radio and television broadcasting, and Transportation and logistics.
At the State level, you will need a seller’s permit if your LLC sells any product or service that is subject to sales tax. You apply for a seller’s permit by visiting the Colorado Department of Revenue website. Additionally, some professions are required to get certain State permits. You may visit the Colorado Department of Regulatory Agencies website to understand the licensing requirements of your LLC.
Depending on where you operate your business, you may also be required to get the local government’s license and permit. To know more about local licensing requirements, get in touch with the office of your county or city government.
For more information regarding;
Business Bank Account & Phone Number
A separate business bank account, email address, and phone number for your LLC would help make its operations more efficient. Your personal assets are not mixed with your business, shielding them from insolvency cases and other legal suits. Your bank will require your LLC’s EIN, among other information, for it to open a bank account. Depending on your LLC’s needs, many network providers offer business/enterprise plans.
Using your phone number for your LLC can prove to be very inconvenient. Therefore, it is best either get a separate phone number for your business or hire a phone answering service. Doing this would protect your privacy, look professional and reduce the risk of missing important calls.
Final Thoughts
Colorado is a good choice for your LLC. The State has a booming economy and various business incentive schemes such as the Colorado Credit Reserve (CRR), Work Opportunity Tax Credit (WOTC) and the Colorado Microloans Program. Get in touch with your local county or city government office to determine if your LLC is eligible for any of these incentives.
Be cautious while filling out the forms, and ensure you never miss a due date for any required documentation. Periodic Reports are taken very seriously in Colorado; not filing them on time could risk your LLC’s ability to take loans and specific licenses. Always consult a professional before making decisions regarding taxation, choosing the type of your LLC, or filling out the necessary forms. We wish you and your new business the very best!