Starting a business in Colorado can be an exciting time. Before selling your product or service though, the nuts and bolts of licenses, registrations, and taxes must be completed.
The guide below will show you the DIY process of forming an LLC in Colorado. However, you can also use an online LLC service to handle the paperwork for you. We reviewed and ranked the 7 best available.
The Top 2 Worth Considering:
- Northwest Registered Agent is a great option if you are looking for premium customer support.
- IncFile is ideal if you are looking for the best pricing with excellent features.
Step 1: Name Your LLC
Selecting a name for your Colorado LLC is a first step, yet a very important one. A name that is unique and easy to remember is helpful in finding potential clients or retaining customers.
The name should indicate the product or service. It should also follow guidelines set forth by the state of Colorado.
The name of an LLC will likely appear on business cards and stationary, marketing materials, a website, legal contracts, business bank accounts, invoices and/or a building directory.
Colorado law requires that the business name includes the words, “Limited Liability Company,” “Ltd. Liability Company,” “Limited Liability Co.,” “Ltd. Liability Co.,” “Limited,” “LLC,” “L.L.C,” or “Ltd.” It must be different than other names already registered. Distinguishing features include the following:
- A key word is different.
- An article (a, an, the) is added or deleted.
- Abbreviations such as LLC are added or deleted.
The following are not considered distinguishing features:
- Punctuation, including periods, commas, underscores, apostrophes, and inverted apostrophes, are deleted or added.
- Uppercase and lowercase letters are changed.
Let’s imagine that someone is considering opening a flower shop in Boulder, Colorado. The name she is considering, Flowers by Fanny, Limited is already in use. If she decided to change the name to flowers by fanny, limited, it would likely not be considered distinguishable. Instead, if she decides to legally name her business,Flowers by Fanny, LLC or better yet, Fanny’s Florals, LLC, the name would be considered distinguishable.
Determine the Name is Available
Following the selection of a name but before filing the Articles of Organization, check to ensure that your name is unique on the Colorado Secretary of State Business Database Search. Doing a keyword search and deleting abbreviations such as LLC, will usually produce the best results. Searching in other places, such as online, is also a good idea.
After you have determined that your chosen name is “distinguishable,” the name can be reserved in order that you have exclusive rights for 120 days.
Optional: Name Reservation
Sometimes a situation may arise where an individual wants a particular name but needs time to organize his/her company before filing paperwork for an LLC. In this case, a name can be reserved for 120 days. To reserve a name, submit a statement of reservation of name to the Secretary of State. The statement should include the name and address of the person applying, and the name proposed to be reserved. Statements must be submitted online. The reservation can be renewed for an additional 120 days.
Step 2: Choose a Registered Agent
Every LLC in Colorado is required to have a registered agent. This agent can be an individual or a company.
The role of the registered agent is that of a contact person between the LLC and the state. As stated on the Colorado Secretary of State website, the registered agent “is the individual or business responsible for accepting service of process for an entity and isn’t necessarily an owner or director. The registered agent is responsible for forwarding service of process to the entity.”
Simply put, the registered agent receives communications or documents from the state involving such things as taxes or lawsuits and communicates them to the LLC.
Some may wonder why a registered agent is necessary. The importance of the agent is to ensure that someone is always available to receive important documents even if the business owner leaves the office, goes on vacation, or is otherwise away. Also, having a registered agent is especially important if a physical office does not exist in Colorado.
The owner of the LLC can designate a registered agent on the Articles of Organization application.
Individual as Registered Agent
Most importantly, the individual must be a resident of the state of Colorado and at least 18 years of age. In Colorado, an entity can act as its own registered agent. However, using a third party ensures that nothing falls through the cracks. The third party can be an accountant, an attorney, or even a friend. The agent must have a physical and mailing address in Colorado.
Registered Agent Service
If using a service, we recommend either using an LLC formation service (like Incfile or Northwest Registered Agent) which gives you a free registered agent or ordering a registered agent service by yourself if you choose to DIY your LLC formation.
Step 3: File the Formation Documents with State
Let’s assume that fictional Fanny has selected both the name for her LLC and the registered agent. She is ready to complete the paperwork (called the Articles of Organization) that actually creates Fanny’s Florals, LLC in Colorado.
It is required that this step be completed online. The filing cost is $50. A sample of the Articles of Organization document is available on the Secretary of State website.
Because applications are filed online, they are processed immediately after being submitted. The Secretary of State does not send back confirmation copies of filings. However, images of the document are available to view and print. Go to the the Entity’s summary page and click on “Filing History and Documents.”
Step 4: Create an Operating Agreement
An operating agreement in the state of Colorado is recommended though not required. The agreement is a contract that defines the operations of the LLC, includes terms and conditions, states the responsibilities of its members, and ensures legal protections of its members.
All owners of the LLC must be in agreement of the terms in the agreement and sign before a notary public.
The operating agreement is useful for both multi-member and single-owner LLCs. In both cases, the agreement provides protections.
For example, in the case of the multi-owner LLC, the terms can stipulate what should happen if a death or divorce occurs among one of its members. In the case of the single-owner LLC, the agreement could be used in court as evidence that the LLC is separate from the individual owner.
The operating agreement can be created in two ways. Some individuals may choose to write the agreement on their own, using an online template. In this case, forms are available that are specific to state. Be sure to use the correct multi-member or single-member form.
The alternative is hiring an attorney to create the document. The benefits of using an attorney are ensuring the document doesn’t exclude any important information, adheres to state law, and invalidates default provisions that may not be what you wish.
Step 5: Get an EIN
An EIN is an Employer Identification Number. Anyone who runs their business as a corporation or partnership must file for this 9-digit number in order to identify the tax accounts of a business. The number can be applied for in one of the following three ways:
Applying online is the quickest method. The process can be completed between 7 a.m. and 10 p.m. EST, Monday through Friday. When the form is completed, the information will be immediately validated and a number issued while you are still online. In order to apply online, a valid individual taxpayer number, such as a Social Security number, is required.
Form SS-4 can be downloaded, completed and faxed to 855-641-6935, twenty-four hours, seven days per week. The EIN will be provided within four business days.
If either of the above methods are unavailable, Form SS-4 can be mailed, though processing will take approximately four weeks. The form can be mailed to the following address:
Internal Revenue Service Operation
Attn: EIN Operation
Cincinnati, OH 45999
Think you’re ready to open up shop now? Guess again!
Step 6: Taxes, Licensing & Income Reporting
Businesses like Fanny’s Florals, LLC may be official after completing the above steps, but it is important not to overlook a few critical details.
On the federal level, most LLCs do not pay taxes directly to the government. Instead, they report income and losses on the owner’s personal 1040 tax returns. Schedule C is often used for reporting. Unless the LLC chooses to be taxed as a corporation, a single-member LLC is taxed as a Sole Proprietorship and a multi-member LLC is taxed as a Partnership.
Unlike many other states, Colorado does not have a franchise or privilege tax for the privilege of doing business in the state. Unless electing to be taxed as a corporation, LLCs are taxed on “pass through” income on individuals’ personal income tax returns. In some cases, Colorado offers a gross receipts tax as an alternative to income tax. In order to qualify for this tax, income must be generated only through sales and total less than $100,000. In addition, the taxpayer may not rent or own real estate in Colorado.
If your business hires employees, you will need to withhold and pay employee income taxes. This requires registering online or through the mail with the State of Colorado. You will also need to pay unemployment insurance taxes. This requires registration with the Colorado Department of Labor and Employment. For more information, visit their website: https://www.colorado.gov/cdle/unemployment.
For information on tax requirements for LLCs, visit the Colorado Department of Revenue website.
The Business & Licensing Division of the Secretary of State’s office does not issue licenses. Required licenses vary depending on the type of LLC being formed. The Colorado Department of Revenue (DOR) or Colorado Department of Regulatory Agencies (DORA) issues some licenses. Other licenses are issued through local city or county offices.
A periodic (annual) report needs to be submitted to the Secretary of State’s office each year. The report helps keep an LLC’s information current and maintain “good standing” status.
To determine the month that your LLC needs to file the report, check your entity’s summary page. See the directions from the Secretary of State’s website below.
In addition, if you would like to have an email reminder sent, register on the Business and Licensing Division’s email notification service.
The periodic report can be filed up to two months prior to your periodic report month. If late filing the report, you can file a late periodic report for an additional two months following your report month.
If the LLC fails to file the periodic report within this three-month time frame, the entity’s status will change from “good standing” to “noncompliant,” and a $50 late fee will be added.
If the LLC remains noncompliant for 60 days or more, the status changes to “delinquent,” and a statement curing delinquency must be filed to return to good standing.
The periodic report needs to be completed online and costs $10 for filing.
When all of the mechanics of setting up an LLC in Colorado have been completed, someone like Fanny can get down to the business of setting up a website, creating a logo…or purchasing flowers!
Need Help Creating Your Colorado LLC?
We recommend LLC formation services because it allows you to knock off an important thing from your checklist so you can focus all your energy on actually starting a small business in Colorado.
Can you do it yourself? Absolutely.
However, a service that create an LLC for you will help with ongoing maintenance and keep you notified of any requirements you should adhere to.
As we mentioned earlier, IncFile and Northwest Registered Agent are the top LLC services available. If you’re not familiar with them, as a point-of-reference many of our readers like to compare them to the most well known business incorporation service, LegalZoom.