Forming an LLC in Colorado: Everything You Need to Know
Forming a LLC in Colorado or any other state for that matter is not a difficult process.8 min read updated on February 01, 2023
Forming an LLC in Colorado
Forming a LLC in Colorado or any other state is not a difficult process. An LLC or limited liability company is a very distinct legal entity where members cannot be held personally liable for any of the company’s debts or liabilities.
Name Your LLC
The first step in forming an LLC is to choose a relatable name. The best policy is to make sure that the name chosen is suited for the business itself. That makes the business that much more searchable when clients are researching the business or similar terms online. In order to make sure the name has not already been claimed, you can perform an entity search on the State of Colorado’s website. Once you determine if the name is available, you can reserve the domain name so that it is still available when actually forming the LLC.
There are some words that must be included and some that are restricted when choosing a name. The name itself must include words such as Limited Liability Company, LLC, or L.L.C. There are some words that are restricted and may require licensed individuals to be a member of the LLC. Certain words become restricted because of the tendency to confuse them with federal and state agencies.
Choose a Registered Account
A Registered Agent must be nominated for an LLC formed in Colorado. This is any person or business who agrees to handle legal correspondence on behalf of the business. This agent must reside within the state of Colorado or be authorized to perform business transactions within the state of Colorado. Anyone within the company may be elected to hold this position.
Articles of Incorporation
In order to register an LLC, Articles of Incorporation must be filed with Colorado state. This registration can be done online. When filing these articles, make sure you have determined if the LLC will be managed by members of the LLC or by its manager. If you’re expanding an existing LLC to Colorado, it then becomes a Foreign LLC.
Create an Operating Agreement
An operating agreement is another element that should be considered. This agreement is a document that’s legal and outlines the operational procedures for the LLC. An operating agreement is not required in the state of Colorado, but it is highly recommended.
Obtain an EIN
An EIN must be obtained after the business is formed. The EIN or Employer Identification Number, also known as the Federal Tax Identification Number, is established as a means of identifying a business. It acts just like an individual’s social security number. The EIN is required before filing federal and state taxes. EINs are also necessary when opening checking accounts for businesses.
An EIN may be acquired in one of two ways; either by applying online or by mail. Go to https://www.irs.gov/pub/irs-pdf/fss4.pdf to access the application required for mailing and https://sa.www4.irs.gov/modiein/individual/index.jsp to apply online.
Separate Personal Assets From the LLC
Separating personal assets from an LLC is one of the most important things you can do when acquiring a business. There are several important steps to take when separating your personal assets from your business. The first step is to open a bank account for your business. This will further ensure the separation of your business assets from your personal assets. This also makes filing your taxes at the end of the year a much easier process.
The other way to keep personal assets separate from your business is to apply for a credit card that is solely used for your LLC. The credit card will keep your business and personal expenses separate and will help build a credit history for your business. A good credit history is very beneficial for your business down the road.
Register Your LLC for Colorado State Tax
You will need to register your LLC for certain taxes. You will be responsible for sales tax if your business deals with the sale of taxable services and goods. If you have employees, you will need to pay state taxes, insurance tax for unemployment, and employee withholding taxes.
Accounting is another important aspect when it comes to forming an LLC in Colorado or anywhere else. It’s never too soon for solid financial advice on setting up an efficient and effective accounting system. A strong accounting system will keep track of bills, income, and expenses. This results in a smoother process when filing annual income taxes.
Software also plays an important role when it comes to your accounting system. Software is available that ties in with bank accounts, matches invoices with transactions, and matches bills with purchase orders. The right software will greatly simplify your whole accounting experience.
Obtain Business Licenses & Permits
Certain business licenses and permits are required in order to operate an LLC. These must be obtained to meet certain local, state, and government regulations. It’s important to note that business permits and licenses differ from state to state just as different businesses require different permits and licenses. For example, a restaurant might need a health permit, signage permit, and a building permit.
There is a wealth of information out there on business licenses and permits. The SBA, or U.S. Small Business Administration, offers a guide for licenses and permits on their website. To apply or for more information on Colorado’s licenses and permits, check out Colorado’s Department of Regulatory Agency. Your regional Chamber of Commerce and certain professional services are also great resources for information regarding licenses and permits. Some licensing may require classes and fees depending on what is needed.
Insurance is an assurance that you don’t want to go without. Qualified agents can advise on acquiring necessary coverage. Workers Comp is required for LLC’s who hire employees, but note that this may vary by state. General Liability is highly recommended, as well, but is not a required coverage in most states. It’s important to note that the rate for these coverages vary by state as well. For more information, consult a reputable insurance agent.
Employee Hiring Compliance
With the hiring of employees comes certain legal obligations. There are certain things to consider when hiring employees.
- Job ads posted online are a great way to reach potential applicants.
- Employees must be eligible to work in the United States.
- New hires must be reported to the State.
- Employees should be provided with workers comp insurance.
- The withholding of income taxes.
- Compliance posters should be placed in a conspicuous location.
- Paying employees as required by state.
For more information, check with Colorado’s Department of Labor for resources and additional information.
How to Start a Business in Colorado
Starting a business in Colorado is not as difficult as it seems. Here are five steps to get the ball rolling.
- Brainstorm a viable business idea that you are passionate about.
- Develop and analyze that idea until you can come up with a solid business plan.
- Take that business and form an LLC.
- Acquire any business permits or licenses required, register for required state taxes, and open a bank account for your business.
- Develop a brand by building an appealing website.
Now, you should be off and running.
How to Maintain Your LLC
To maintain an LLC in Colorado, there are certain filings that must be made. One of these is an annual report, which must be filed with Colorado’s Secretary of State. A detailed guide for filing an annual report can be found online. The annual report must be filed within three months starting 1 1/2 months before and after the date in which the LLC was formed. There is a $10 filing fee.
There are certain consequences for filing late. If you do not file on time, there is a $50 penalty, and if the annual report has not been filed for two months, your LLC will be tagged “delinquent,” which will result in a loss of certain privileges. Registered agents are available to remind you of upcoming deadlines in order to avoid such penalties and to help handle some of the paperwork.
Obtain a Certificate of Good Standing
A Certificate of Good Standing is a good reflection of how you conduct your business. It is verification that your business was formed legally and that it is being run properly. This certificate becomes a requirement if funding is needed from banks or lenders, if you need to expand your business into a foreign LLC, or if you need to acquire certain permits or business licenses. A Certificate of Good Standing may be ordered at https://www.sos.state.co.us/biz/BusinessEntityCriteria.do and is free of charge.
Foreign LLC in Colorado
If you already have an LLC established and want to do business in the state of Colorado, a foreign LLC is required. Go to http://www.sos.state.co.us/biz/TrueNameAvailCriteria.do?transTyp=AUTHORITY to file a foreign LLC. There is a $50 fee for filing.
Choose a Name for Your LLC
In order to designate a name for your business, the name must be available and distinguishable, meaning that no other businesses with that name are on file with Colorado’s Secretary of State. Business names are checked by searching Colorado’s Secretary of State’s database. A reservation may be placed on an available name for 120 days simply by executing a Statement of Reservation of Name with Colorado’s Secretary of State. The reservation can be filed online at the SOS website. The filing fee for reserving a name is $25.
Part of the process of forming a LLC in Colorado is an online filing of articles of organization with Colorado’s SOS. Sample articles can be viewed and downloaded for reference on Colorado’s Secretary of State’s webpage. The articles must include certain snippets of information. Some of this information includes the name and address of the LLC, the registered agent’s address and name, the address and name of the individual forming the business, and if the business is run by members or a manager. The filing fee for the articles of organization is $50.
Appoint a Registered Agent
Every LLC formed in Colorado must appoint a registered agent. This can be a business or individual who agrees on behalf of the business to be responsible for the acceptance of any legal communication. This should be mutually agreed upon before the actual designation. The registered agent must meet certain qualifications before being designated. They must reside full time in the state of Colorado, if it’s a business entity then its main location must be in Colorado, or it can be a foreign entity that is authorized to perform business transactions in the state of Colorado.
Prepare an Operating Agreement
An operating agreement is another element of forming an LLC. It should be noted that operating agreements do not need to be filed with the Articles of Organization.
In some states there are specific publication requirements. However, currently in Colorado there are no publication requirements noted at this time.
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