Follow our free guide to form an LLC in Colorado:
- Pros and Cons of Forming an LLC in Colorado
- Starting Your Colorado LLC
- Maintaining Your Colorado LLC
- Additional Colorado Resources
Check out our informative guide on how to form an LLC in Colorado, as well as the pros, cons, and how to keep your business compliant with the state.
Pros and Cons of Forming an LLC in Colorado
No Corporate Taxes for LLCs
Colorado does not impose any corporate/franchise on LLCs. The members of the LLC are only required to pay state taxes on their personal income taxes.
High Median Salary (vs US)
The median income for Colorado exceeded the national average income by almost $10,000 in 2016. With an increase of almost 3%, the average household income in Colorado is fast approaching $70,000.
Privacy for Business Owners
The state of Colorado does not require the names of members/manager of an LLC to be included in the Articles of Organization. An organizer (the party who prepares and files the paperwork) is able to submit the official documents to the state in place of the actual owners.
Higher Average Cost of Living
The average cost of living in Colorado is more than 10% higher than the national average. The median house price rose approximately 40% between 2000 and 2015. By the following year, real estate pricesjumped another $30,000.
Problems for Non-Traditional Ventures
Strict regulations make traditional avenues of funding unavailable for cannabis businesses, and publicly traded companies are still not allowed to participate in the selling of cannabis. Additionally, any person who is involved in trafficking cannabis is not eligible for tax deductions.
Cost of Doing Business
- $50 Filing Fee/ $10 Periodic Report
- No corporate/franchise taxes for LLCs
Starting Your Colorado LLC
While the idea of forming an LLC may seem like a challenging task, the whole process has far fewer bumps with professional help like Swyft Filings. Below is a list of the steps needed to ensure that your Colorado LLC is formed correctly:
- Step 1: Name your LLC
- Step 2: Establish ownership of your LLC
- Step 3: Decide on a Registered Agent
- Step 4: File the Articles of Organization
- Step 5: Create your Operating Agreement
- Step 6: Fill out the paperwork for an EIN
Step 1: Name Your Colorado LLC
Figuring out what to call your new Colorado LLC is an important initial step — something you need to do before filing any paperwork. As you are brainstorming about possible business names, there are a few guidelines to keep in mind:
The official name of your business must end with one of the following:
- Limited Liability Company
- Limited Company
Your business name cannot be intentionally misleading to consumers
The name of your new LLC must not be similar to another organization’s name/trademark
A few restrictions do exist regarding the name of your LLC, depending on the state where you are starting your business.
A few examples include:
- “Lottery” and “Bank” are ineligible for use (any state)
- Terms that represent educations or Veterans’ organizations are restricted
- Terms related to the Armed Forces or civil servants (police, EMT, fire)
LLC business names associated with government and/or financial entities are not always restricted - it depends on the state. Additional paperwork may be required.
In addition to naming your LLC business, you also need to establish an online presence with a website. You can easily check domain name availability at a number of online web services sites.
Step 2: Establish Ownership
The owners of an LLC are not called owners — they are instead referred to either as members or managers. The difference depends on the management structure of the business.
LLCs generally have two management structures:
- Member-managed (ownership of business is divided among the members and all parties receive portions of the profits)
- Manager-managed (the appointed manager is the main operator and the members are passive investors who are not actively involved in the daily business operations)
After you have selected a name for your business, you then need to choose a management structure and designate the members of the LLC. Key points regarding Colorado’s rules concerning LLC ownership include:
Required Number of Members
Colorado LLCs must have at least one member or manager in order to form an LLC.
Member Disclosure Requirements
Members/manager(s) are not required to disclose their identity in the Articles of Operation.
LLC members in Colorado may be of any age. An LLC organizer must be at least 18.
There are no residency restrictions imposed on LLC members in Colorado.
Step 3: Find a Registered Agent in Colorado
All Colorado LLCs are required to appoint a registered agent and submit the agent’s contact information (must be a physical address/not P.O. box) to the state. This agent must be accessible during standard business hours and acts as the state’s point of contact with the company.
What is a registered agent?
A registered agent is a person or business who is authorized to accept official government notices (including the Secretary of State) and service of process notices on behalf of the LLC.
Why do you need a registered agent?
Whenever you form an LLC in Colorado, you are required to appoint a registered agent in order for the state government to have a steady contact person for your business. This role is especially beneficial for companies that do not have a physical address.
Who can be a Colorado registered agent?
The requirements to be a registered agent are as follows:
- A resident with a physical address in Colorado
- An LLC or corporation that is licensed to conduct business in Colorado.
It is also possible for you to be your own registered agent as long as you use a physical address.
Why you may not want to be your own registered agent
Because the registered agent’s contact information (including physical address) is a matter of public record, any business owner who chooses to be his/her own registered agent risks compromising personal information.
Additionally, since notices for lawsuits are generally delivered to the registered agent, business owners risk encountering process servers during inconvenient/embarrassing times.
Tip: Avoid the hassles that come with being your own registered agent and choose Swyft Filings to fill the registered agent needs for small businesses in Colorado. Find more information here.
Step 4: File the Articles of Organization
The most important step for legally forming an LLC in Colorado is to file the Articles of Organization with the Secretary of State. This vital document includes the following:
- The name of the LLC
- The contact information for the registered agent
- The location of the business
- The name(s) of the members or organizer filing the paperwork
- The designation of the LLC as member-managed or manager-managed
- The statement of purpose
Additional Colorado Filing Requirements
The state of Colorado also allows professional service businesses to form a specific type of LLC known as a Professional Limited Liability Company (PLLC).
Colorado allows the following professions to form a PLLC:
- Physicians (general, surgeon, podiatrist, dentist, optometrist, chiropractor, physical therapist)
- Professional Counselors and Psychologists
- Architects and Land Surveyors
- Social Workers
A few points to consider:
- The PLLC is only allowed to provide services for which the business was formed.
- The members of the PLLC must be licensed in the profession of the business.
- The members of the PLLC are still subject to whichever licensing boards govern their profession.
Step 5: Create an LLC Operating Agreement
When you form an LLC in Colorado, it is good practice to create an LLC Operating Agreement to add structure to your business and project a sense of professionalism.
What is an LLC Operating Agreement?
The LLC Operating Agreement is a legal document that defines the rights and responsibilities of each person involved in the business and laying out the details involving how the business will operate.
Why do I need an LLC Operating Agreement?
Because the LLC Operating Agreement defines the roles of the business’s members and provides direction for daily operations, the document ensures stability and structure to the LLC and reduces future disputes.
What goes into an LLC Operating Agreement?
While there is not a set rule of what must be included in your LLC operating Agreement, most documents include the following the information:
- Designation of the members/managers
- Initial capital contributions of the members
- Voting designations and percentages
- Member transfer/addition rules and restrictions
- Distribution of profits
Tip: Get a customized LLC Operating Agreement for your small business with Swyft Filings. Find more information here.
Step 6: Obtain an EIN
What is an EIN?
The EIN (Employer Identification Number), sometimes referred to as a Federal Tax ID, is a nine-digit number assigned to your business by the Internal Revenue Service (IRS) that identifies your business with the government.
What business entities need an EIN?
The types of business entities that need an EIN include:
- An LLC with employees (even if owned by one person)
- An LLC with more than one member
- A partnership (LLC or C-corp)
Please Note: A sole proprietorship is the only business entity that is not required to have an EIN.
Why is an EIN necessary?
The more common reasons you would need an EIN are:
- To file your company’s taxes
- To hire employees
- To pay independent contractors
- To open a bank account in the U.S.
Please Note: If you collect revenue of any kind through a business entity, you will need an EIN.
Swyft Filings offers EIN services for small businesses in Colorado. Find more information here.
Maintaining Your Colorado LLC
Once you have filed and completed the beginning steps for forming your Colorado LLC, the following part of the process involves getting your company off the ground and functioning. Those next few steps are:
- Step 1: Register for any required taxes in Colorado
- Step 2: Apply for the necessary licenses and permits
- Step 3: Obtain a Certificate of Good Standing
- Step 4: File the Annual Report for your LLC
Step 1: Register for Colorado State Taxes
Colorado is one of the few states that does not require LLCs to pay any state tax and/or franchise tax/annual fee taxes. The members of the LLC are required to pay state income taxes on their net income, in addition to any federal tax requirements — the state income tax rate is 4.63%
Please Note: Any LLC that chooses to be taxed as a corporation (c-corp) will pay a 4.63% corporate tax. Members will then be required to pay state taxes on net income, which is also 4.63%.
Step 2: Obtain Business Licenses and Permits
The business licenses and permits required in Colorado vary wildly depending on the county or municipality where your new LLC is located.
If you would like to see more in-depth information on licenses and permits, please feel free to visit the content in our learning library that covers business licenses and permits.
Step 3: File a Periodic Report
In order for an LLC to remain in good standing with the state of Colorado, a periodic report (also called an annual report) must be filed. The primary reason for the periodic report is to keep your LLC’s information up-to-date with the state.
Due Date: The anniversary month of the LLC’s formation
Implications of Late Filings: $50 late fee and the LLC’s status is changed to “Delinquent”
Swyft Filings helps you stay compliant by providing stress-free solutions. File your periodic report with us today.
Step 4: Obtain a Certificate of Good Standing
After your Colorado LLC has been formed and is ready for business, there is still one last step — getting a Certificate of Good Standing.
The majority of financial institutions and businesses may require proof that your new business is fully compliant with the state. Obtaining a Certificate of Good Standing provides your LLC with a “seal of approval” from the Secretary of State.
What is a Certificate of Good Standing?
The Certificate of Good Standing is an official notification from the government agency that confirms your entity has been properly filed and is still in compliance.
Why should I get a Certificate of Good Standing?
While doing business, there will be times when you will need to show that your LLC is fully compliant with the state. Many banks and businesses will request a Certificate of Good Standing as part of the due diligence process (especially during major transactions).
Swyft Filings can create a Certificate of Good Standing for your Colorado LLC. Click here for more information.