How to Start an LLC in Colorado

One of the first decisions you'll need to make as a new business owner is which type of entity you will form for your business. While each business type offers its own benefits, forming an LLC (limited liability company) is one of the most popular choices made by new business owners across the United States. An LLC is a relatively new type of legal business formation, considered a hybrid entity, combining the pass-through taxation and simple operation of sole proprietorship with the limited liability protection provided by a corporation.

One of the main reasons for the growing popularity of the LLC in Colorado is its simple setup and flexible structure. An LLC is also considered the easiest type of entity to maintain with the fewest recurring/annual requirements. Plus, income from the business is passed directly to its owners as regular income, making taxes much easier for an LLC, which can help you lowering your tax preparation costs each year.

The Benefits of an LLC

• Protect your Personal Assets
  Starting a business designates your business as a separate legal entity, preventing you from being personally responsible for the debts of your business.
• Build Credibility
  Establishing a professional identity provides the benefit of showing potential customers and investors that your business is legitimate and here to stay.
• Simple Management
  Limited liability companies are less formal and require fewer annual / maintenance requirements than other common entity types, making it a popular choice for small business owners.

Compare the main entity types below

The first step will be to decide on a name for your business. Choose a name that is memorable and unique, easy to understand and pronounce, and accurately represents your business. You'll want to search your name choices on the web to quickly find out if they are already taken. It's also best to jot down one or two alternatives, in case the name you settle on is not available for registration in Colorado.

There are a few rules that Colorado limited liability companies must follow in order to register a name.

• The name you choose must be unique and not "confusingly similar" to the name of any other Colorado business. This is to prevent fraud or misrepresentation and is a common rule in all 50 states.

  You can find out whether a name is available in Colorado by using the name availability search on the Colorado Secretary of State Opens in a new tab website. This search function reflects current information on record about business names registered with the Secretary of State. Be sure to check variations or alternate spellings as well, otherwise your filing may be rejected.

  In a pinch, you can use MyCorporation's business name search service, where we will conduct a more thorough search on your behalf and report back our findings. Plus, MyCorporation includes a business name search for free when we complete your LLC filings on your behalf!

• Your business name must include the words "limited liability company," or its abbreviations "l.l.c." or "llc," "ltd.", "liability company," "limited liability co.", or "ltd. Liability co."

There are two options to choose from when it comes to setting up your limited liability company in Colorado. "Member managed" or "manager managed". The first thing you need to know is that owners of any LLC are referred to as "members". A single member LLC has just one owner, while a multi-member LLC is an LLC owned by 2 or more members. Pretty simple, right?

Colorado LLCs also must also designate one or more individuals to manage the day to day operations of the business. This can be handled by one of the members of the business (member managed, the most popular choice and the default in most states), or a professional manager appointed by the members to act on their behalf (manager managed).

While the differences are subtle, what you really need to know is that each member in a member managed LLC has the power to make decisions for the business. However, in a manager managed LLC, the members choose who will manage the business and relinquish all of the decision making to the manager chosen. The person chosen can be one of the members of the business as well, or it can be someone else entirely.

Most states require that you designate a registered agent for your business, and Colorado is no exception. A registered agent acts as the state's means to communicate with a business and is responsible for receiving legal and official documents related to the business.

In the state of Colorado, most entities on record with the Secretary of State must maintain a registered agent and address in Colorado. A P.O. Box is not accepted as a registered agent address. A member of the LLC can act as the registered agent if desired, or you may also use a third-party registered agent service like MyCorporation.

Why designate a third party to act as my registered agent?

It should be noted that registered agent information is made publicly available. This can cause privacy concerns for business owners who do not wish to list their personal contact information on the internet for everyone to see. It is also common for the registered agent to become a target of spam or robocalls since this private information is relatively easy to obtain.

Another issue that may arise is that in the case of a lawsuit, these documents would be hand delivered directly to the registered agent, and in the case that you used your business location for this purpose, this could occur in front of your customers. This is why many business owners opt for a third-party registered agent service such as MyCorporation to act as a registered agent on behalf of their business.

Another issue that may arise is that in the case of a lawsuit, these documents would be hand delivered directly to the registered agent. In the case that you used your business location for this purpose, this could occur in front of your customers. This is why many business owners opt for a third-party registered agent service such as MyCorporation to act as a registered agent on behalf of their business.

You will need to file Articles of Organization in Colorado Opens in a new tab to order to form an LLC. This document includes basic information about the Colorado LLC you wish to form.

What information should be included in the Articles of Organization?

Your Articles of Organization will include the following:

• Name of the limited liability company
• Principal office street address and principal office mailing address
• Registered agent name, street address, and mailing address
• Name and mailing address of the person forming the LLC
• Select whether the LLC will be managed by managers or members
• Statement regarding members (check off to confirm at least one member of the LLC)
• Delayed effective date (optional)
• True name and mailing address of the individual causing the document to be delivered for filing

A filing fee of $50 is also required when submitting the Articles of Organization. Payments must be made payable when filing online. At the present time, paper forms are not accepted when filing Articles of Organization.

After formation, the state of Colorado requires an LLC to create an operating agreement. This agreement needs to be written, and should be kept with the company's records. To open a bank account for your business, you will often be required to submit both your operating agreement, and your EIN number.

What kind of information needs to be included in a Colorado operating agreement?

Operating agreements are required in Colorado and are important to laying the foundation of a properly run business. An operating agreement sets guidelines for the way your business operates now and into the future. Common details in an operating agreement include the following:

• Basic contact details: The name of the LLC, the address of the principal business location and often, the registered agent address.
• The business purpose: This is a basic one sentence description of what kind of business your LLC will do, and is often a very general description, which creates a bit more flexibility as the business matures.
• Tax structure: Often this indicates the way the LLC will choose to be taxed. The main options are to be taxed as a sole proprietor or a partnership ( both pass through options ) or to be taxed as a corporation ( which requires an S Corp Election to be filed )
• Ownership and management: This section lays out the general rules about how the business will operate day to day. This refers to step 3, where you determined whether your business would be "manager managed" or "member managed". As mentioned before, member managed is the default and the most common choice. If you are unsure, member managed is a pretty safe bet.

Which licenses and permits are required to operate a business in Colorado? Check in with the Colorado Secretary of State's city hall or county clerk to obtain necessary licenses for your business. You may also learn about special licenses, like liquor licenses, your small business may need to obtain as well.

In the event that you need a bit of help, you may also turn to MyCorporation's business license compliance package. Our skilled professionals will do the work for you. We identify all of the licenses required by your business and provide you with the information you need in order to file.

An EIN (also called a Federal Tax Id) is a nine-digit number that is issued by the IRS and used to uniquely identify your business for tax purposes. Think of it as a Social Security Number (SSN) for your business, except an EIN is far less sensitive. It is important to wait until the LLC has been approved by the state before applying, and for that reason, filing for an EIN is one of the last things to do when you are setting up a business.

Like a social security number, the EIN allows you to:

• Open business checking, savings, or investment accounts
• File taxes for the business
• Complete payroll for employees if applicable
• Obtain lines of credit and credit cards, as well as "build credit" for your business
• Apply for applicable business licenses when required.

You only need a few pieces of information to file including your mailing address and legal business name. You can apply online with the IRS by downloading IRS Form SS-4 (PDF)(116 KB), or work alongside a third party organization like MyCorporation to complete an EIN application.