The very first step towards formalizing your business, or entering the market as a new business, is to form a company. A Limited Liability Company, or LLC, is one of the types of companies you can form in Colorado.
An LLC is a hybrid business structure formed by mixing the features of a partnership/sole-proprietorship and a corporation. 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 take a look at the procedure you will have to follow to form your LLC in the state of Colorado.
Name Your Colorado LLC
Your LLC’s name will appear in all the documents it files, advertisements, and online campaigns targeted at customers. There are a few guidelines you will have to consider when naming your LLC, these include naming rules mandated by the state of Colorado.
The name 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 will have to 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”.
Your LLC’s name should be such that it is not confusable with a government agency. Colorado’s state regulations will not allow for you to name your company “Cara’s Ice-cream Agency” and abbreviate it as “CIA”.
Your LLC’s name cannot include restricted words or abbreviations without prior permission. So adding professional designations like 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. Though keep in mind that a trademark, or social media with the same name as your LLC’s, 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. This process can only be completed online in the state of Colorado.
Apply on Colorado’s Secretary of State’s WebsiteObtain a Trade Name
Doing a Name Search and Name Reservation
To ensure that the name you choose is ‘distinguished’ from the other entities present, and as is mandated by Colorado, you will have to do a name search.
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 registered it with Colorado just yet. Though not mandatory in Colorado, you can reserve your LLC’s name for upto 120 days by filing a ‘Statement of Reservation of Name’ online at the Colorado Secretary of State’s website.
Reserve Your Name on Colorado’s Secretary of State’s WebsiteSubmit Periodic Report
Fee: $25 for every 120 day reservation period
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. You should check the availability of domain names, and register your URL.
Choose a Registered Agent in Colorado
Depending on how involved you are with your LLC’s operations, it may be hard to keep up with all the legal requirements, documents, timely filing, and notices from state authorities. A registered agent will be the point of contact between the State and your LLC. They will ensure that all the documental requirements are fulfilled and preserved properly. In Colorado, appointing a registered agent is a requirement by law under Colorado Revised Statute 7-90-701.
Who Can Be a Registered Agent?
There are certain requirements mandated by Colorado for who can be a registered agent:
- Person must be over the age of 18
- Have a street address in Colorado
- If a legal entity, be allowed to do business in Colorado
- Be available during normal business hours
You can appoint yourself, a friend, relative or even a member of your LLC as the registered agent. You also have the option of hiring a commercial registered agent.
Individual Registered Agent v. Commercial Registered Agent
While all the options are feasible, opting for a commercial registered agent has certain advantages, albeit at a cost.
You can better focus on core functions and avoid skipping any legal issues that might affect your business’s functioning. A commercial registered agent frees you for when you’re out of town or on vacation.
A commercial registered agent is dedicated to ensuring your LLC is up to date with the paperwork and avoids unnecessary legal liabilities/costs.
Most commercial registered agents 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
This is the most important step, as completing this step marks your LLC’s formation and legal presence. The Articles of Organization will carry basic information about your LLC, necessary for Colorado to be able to register it on its records.
How to File the Articles of Organization
Some of the information you will be required to fill out in the Articles of Organization:
- 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
File Your Articles of Organization on Colorado’s Secretary of State’s WebsiteFile Articles of Organization
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 outlines how your LLC will function on a daily basis, as well as in the distant future. It is natural to feel insecure about the future of your LLC with regard to internal disputes and conflicts. An LLC without an operating agreement will fall under the standard contract and tort laws of Colorado.
An operating agreement consists of the terms agreed between the members of the LLC and acts as a core document for the clear, smooth, and effective functioning of the LLC. Although it is not mandatory by law to form an operating agreement, it helps avoid internal confusion, and defines responsibilities as well as liabilities.
There is no fixed format for this agreement. You have all the freedom to include the terms of 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
If your operating agreement needs detailed drafting, it might be better to have a professional draft it. Most commercial registered agents also offer drafting services.
Limits of Operating Agreement
An operating agreement cannot exclude you, members or employees from the laws of Colorado. Though the agreement is used to limit liability, it cannot be done to curtail the law.
Obtaining an EIN
An Employer Identification Number (EIN) is used for tax administration purposes by the IRS. It is also used for opening a separate business bank account for your LLC, applying for certain business loans, obtaining licenses, and managing 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 will have to visit the IRS website between 7 am to 10 pm from Monday to Friday. You will use your Taxpayer Identification Number (SSN) along with other information regarding your LLC. Once you’ve submitted the form, you’ll receive an EIN immediately. The entire session lasts for 15 minutes, and you can obtain only one EIN only once per day.
File Annual Reports
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.
The due date of filing the Periodic report is three months, starting from the first date of the month you formed your LLC. If you formed your LLC on the 8th of August, 2020, the due date of filing the Periodic report starts from the 1st of August 2021. You can file it two months before this period (the 1st of June 2021) or file it two months after this period (the 1st of October 2021 in this case).
Not complying with the same might cost you your LLC’s “good standing” with Colorado, necessary for obtaining loans, licenses, permits, and opening a bank account. A further delay will make your LLC ‘delinquent’.
As a default feature, the Secretary of State’s Office will not notify you when the due date of filing the Periodic report arrives. Unless you opt for the email notification service. Though not mandatory, it is advisable to opt for this feature to ensure that you never miss the due date.
Submit Your Periodic Report on Colorado’s Secretary of State’s WebsiteSubmit Periodic Report
Tax Liability For Your Colorado LLC
How your LLC is taxed changes depending on the nature of its business and how you choose to present your LLC to the state. 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
For filing as a Partnership, you’ll have to additionally file Form 1065 and provide information regarding each partner in Form K-1. If a sole proprietorship or Partnership wishes to be taxed as a C-Corp or S-Corp, they can file Form 8832 and Form 2553, respectively.
State Tax Liability
Like the federal taxes, state taxes are also filed online on the Department of Revenue of Colorado’s website.
While many states require filing a business privilege tax or initial privilege tax, Colorado does not have this requirement.
There are also alternative tax options available such as the gross receipt tax. To qualify for this, you’ll need to have a total income of less than $100 in Colorado and also not rent/own any estate in the State.
Apart from the Federal and State taxes, your LLC might require paying certain other taxes, depending on its functioning and type.
One of them is the sales tax, or sales and use tax, which is payable if your LLC sells physical products. For this, you’ll first have to register for a seller’s permit. Once you finish the registration process, you’ll receive a certificate that will permit you to collect this tax.
Another is the Employer Taxes payable if you’ve employees in your LLC. The two most essential employer taxes are Unemployment Insurance Tax and Employee Withholding Tax.
Permits & Licenses in Colorado
Your LLC may need licenses or permits to operate in certain industries. Certain types of business require prior permission from the concerned authorities. These licenses and permits are different for different regions and involve different fees. Make sure to double-check if your LLC requires any licenses or permits as not complying with the same might attract harmful side-effects for your LLC. A few such licenses and permits:
- Construction permit.
- Signage permit.
- Health permit.
- Zoning and land use permit.
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 do not get mixed with your business, shielding them from insolvency cases and other legal suits. Your bank will require your LLC’s EIN, among other information, in order for it to open a bank account. Many network providers offer business/enterprise plans, depending on your LLC’s needs.
Be cautious while filling out the forms, and make sure that 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 secure licenses. Always consult a professional before making decisions regarding taxation, choosing the type of your LLC, or filling out the necessary forms. Having formed an LLC, your business is ready to achieve new horizons!