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Where else can you find a diverse landscape of arid desert, river canyons, and snow-covered Rocky Mountains? With a population attracted to the beauty of the outdoors, Colorado boasts one of the best business climates in the country. Its many programs and robust incentives support business owners, a skilled workforce, and an accessible regulatory environment. One common way many small companies and startups establish their professional presence is through a limited liability company, or LLC. Forming a Colorado LLC is relatively easy—and advantageous. And, if you’re ready to start a business in the Centennial State, here’s how to do it.
How to start an LLC in Colorado
What is an LLC?
A limited liability corporation, or LLC, is a business entity designation that provides the business owners with certain legal and financial liability protection. When you form an LLC, you create a separate legal entity that absorbs financial responsibility for legal claims brought against the entity or most business debts instead of putting you and your personal assets at risk.
The owners of an LLC are called “members,” and an LLC with one owner is called a “single-member LLC,” while an LLC with more than one owner is called a “multi-member LLC.” When it comes to taxes, LLCs are considered “pass-through entities,” meaning the business’s profits pass through to the owner(s), who then include those profits when calculating and paying their personal taxes.
Is an LLC right for you?
A Colorado LLC has many benefits, including liability protection and certain tax advantages, though an LLC may not be the right choice for every business. Here are some pros and cons to consider:
Pro: Members enjoy legal protection. Forming an LLC means your personal assets are protected against any defaulted loans or lawsuits brought against your business.
Con: Liability protection isn’t absolute. In most cases, LLC members aren’t liable in lawsuits brought against their business. However, this might not hold true if protocols for separating business and personal finances are not followed.
Pro: Avoid double taxation. Double taxation happens when corporations are taxed on their profits and then those profits are taxed again when distributed as dividends to shareholders. Because LLCs qualify as pass-through entities, you get to skip the corporate tax altogether, only paying taxes based on your personal filings.
Con: Limitations for investors. LLCs that are taxed as pass-through entities require their investors to pay through their personal tax returns. While some angel investors might be OK with this, you may have to change your tax structure to attract venture capitalists.
Pro: More flexibility. Corporations are subject to regulations that do not apply to LLCs. For instance, corporations must have a formal management structure and are required to hold annual shareholder meetings to retain their status. LLCs, on the other hand, are not required to hold these meetings or have a board of directors.
Con: There’s some paperwork. While LLCs are much more flexible than corporations, they do still require more paperwork and filing fees than a sole proprietorship.
1. Name your Colorado LLC
Choosing a name to represent your business can be a fun—but daunting—task. Keep the name short, memorable, and relevant to your products or services, and take note of Colorado’s specific business name criteria:
- Include a term that identifies the business entity type. Colorado requires most business entities to include a term or abbreviation that identifies the entity type of the business in their name. The business entity name of a limited liability company (LLC), for example, must contain the term or abbreviation “Limited Liability Company,” “ltd. liability company,” “limited liability co.,” “ltd. liability co.,” “limited,” “l.l.c.,” “llc,” or “ltd.”
A business entity name must also be distinguishable—i.e., different—from other entity names on record. Terms and abbreviations included in an entity name, such as “LLC,” as well as articles of speech such as “the” and “a,” can make a name distinguishable. On the other hand, periods (.), commas (,), underscores (_), apostrophes (’), and inverted apostrophes (‘), as well as uppercase and lowercase letters, do not make a name distinguishable. For example, “XYZ LLC” is not the same as “The XYZ LLC”, and therefore distinguishable, whereas “XYZ Ltd” is the same as “X.Y.Z. Ltd,” and therefore not distinguishable. The Colorado Secretary of State offers a detailed explanation.
- See if your name is available. Colorado’s Name Availability search tool can help you see if your desired name is available. Another tool, the Business Availability search, can list other businesses with similar names and show their current status (i.e., whether the LLC is in good standing, delinquent, or dissolved), though it won’t tell you if the name itself is available.
- Buy a domain. Once you’ve landed on a name for your LLC, secure a domain name. Buying your domain—even if you don’t plan on using it right away—ensures no one else can snag it before you build your site. Your domain name should be short, memorable, and as close as possible to your business name.
- Reserve a business name. Reserve a business name in Colorado for up to 120 days by filling out the Statement of Renewal of Reservation of Name form. You’ll need to provide your federal employer identification number (EIN), LLC name, name, and mailing address, along with your registered agent’s contact and residence info.
- File for a DBA. A DBA—“doing business as”—also known as a trade name, is the assumed legal name of the business, different from its registered legal entity name—an alias for your company. Sole proprietorships, corporations, LLCs, and limited partnerships must file for a trade name when conducting business under another name.
2. Create a business plan
Before looking for capital or hiring employees, create a business plan to outline the basics of your business and help you understand and identify your business needs, such as financing or your desired customer base. It can describe your business structure, state your mission, outline a profitable business model, determine day-to-day operations (including expectations for leadership and employees), and include relevant market research to optimize your success. Your business plan can also help attract lenders and investors, making it easier to obtain financing such as small business loans. Get started on a business plan with a template you can customize.
3. Get an federal employer identification number (EIN)
Your LLC needs an federal employer identification number (EIN)—a nine-digit number assigned by the IRS—to file taxes, open a business bank account, and hire employees. Apply by filling out the form on the IRS website.
4. File Colorado Articles of Organization
All Colorado LLCs must file Articles of Organization with the Colorado Secretary of State. Incorporating in Colorado requires some paperwork and a filing fee of $50. Navigate to the Colorado business forms page, choose limited liability company, then select “File online,” next to Articles of Organization. (Note: Articles of Incorporation forms are for those looking to form a corporation, not an LLC.)
To file your papers, you need the following information:
- Your LLC name
- Your registered agent’s mailing address
- Your office address
- People responsible for managing the LLC (manager or member)
- Signatures of all consenting parties involved in forming the LLC
5. Choose a registered agent in Colorado
Anyone starting a business in Colorado needs a registered agent. A registered agent serves as a point of contact between your business and the state, collecting and filing legal documents on your behalf, and delivering legal correspondence regarding your business. They must be over 18 and have a permanent address in Colorado. If you have a home or work address in Colorado, you can serve as your own registered agent, or you can go through an agency that acts as a registered agent. Fees for these types of services vary but are typically around $125 per year.
6. Obtain business licenses and permits
Colorado does not issue or require a general business license. Rather, the city or county dictates licensing and permitting requirements. Before you can open for business you’ll need to have your licenses and permits in order:
- Register with DORA. Owners must register with the Department of Regulatory Agencies (DORA) for industries like financial institutions, transportation, or real estate. You can view a list of all departments that require regulation and apply for or renew your license on the department’s website.
- Check locally. Check the local county or city rules to see if there are any additional business licensing and permits you need in your area. For example, any company operating within Fort Collins, Colorado, needs a City Sales and Use Tax license. If your business needs a liquor license, you must first apply at the local government level before receiving state certification. Other permits may be subject to additional terms and fees. Contact the city or your county clerk for more information.
- Apply for a retail sales tax license. Goods, not services, are subject to a retail sales tax in Colorado. A retail sales tax license covers standard and wholesale transactions. However, you can obtain a separate license if you only wish to sell wholesale goods.
7. Understand Colorado state tax requirements
Colorado LLCs pay federal, state, and local taxes. The national self-employment tax rate is 15.3% and applies to every state. In Colorado, LLCs (including those taxed as S corps) are not subject to additional state taxes—though owners pay a flat tax of 4.55% on their net income.
Colorado’s state sales tax is 2.9%, but some cities and counties may impose additional taxes. For instance, Denver combines the state tax with its local sales tax for a combined tax of 8.81%, while Boulder charges a total of 8.85%. You can use this site to look up additional jurisdictions and more specific tax breakdowns. Colorado’s state tax site contains important business tax information, including how and when to pay them, and income minimums for payments.
8. Prepare an operating agreement
Colorado does not mandate an operating agreement to form an LLC, but it helps to have one in place. An operating agreement outlines your company’s structure, details the business’s goals, defines member roles and responsibilities, and determines share, profit, and loss distribution. This way, everyone involved is on the same page. A standard Colorado operating agreement requires:
- The LLC’s name
- The name, mailing address, and percentage ownership of each managing member (if there are multiple)
- The LLC’s date of formation
- The business’s physical address
- Signatures from all involved members (including the registered agent)
Once you’ve created your operating agreement, make copies for safekeeping. You do not have to officially file the agreement, but it’s helpful to have it on hand in case disagreements or questions regarding the business and its operations arise.
9. Examine business insurance options in Colorado
Certain types of insurance are required to run a business in Colorado. While most companies should always take out insurance, the specific types of insurance you need depend on your business. Common types of business insurance in Colorado include:
- Workers’ Compensation. All Colorado businesses must provide workers’ comp coverage to their employees, whether full time or part time. Workers’ comp covers most workplace-related injuries and illnesses and may provide workers with up to two-thirds of their weekly pay.
- General liability insurance. Businesses with a physical location might need general liability insurance—some commercial lease agreements mandate it—which can protect against injury claims or property damage, as well as copyright infringement, libel, or advertising injuries.
- Professional liability insurance. Professional liability insurance can protect owners from errors in their service. It’s a necessary coverage for doctors, designers, accountants, or other jobs where people can be physically or monetarily harmed by your decisions, consultations, or actions.
- Commercial vehicle insurance. All commercial automobile owners in Colorado must carry liability insurance for property damage or bodily injury.
10. Understand financial considerations
While Colorado offers a low tax rate for businesses (4.55% as of 2022), there are other monetary commitments to consider, like business registration fees (including all relevant licenses and permits), insurance premiums, inventory costs, marketing, and real estate for physical spaces. If you need help funding your business venture, you can try taking out a small business bank loan from qualified lenders or applying for capital through alternative financial lending programs.
11. Market your LLCMarketing is critical if you want to give your business the best chance of success. It helps companies expand their brand and reach more people with their products and services. Business marketing efforts may include building a website, creating video marketing campaigns, advertising, establishing a social media presence, and using metrics (like click-through rates or sales growth) to get a complete picture of your target market and how to reach them more effectively.
Starting an LLC in Colorado FAQ
How much does it cost to start and maintain a Colorado LLC?
It costs $50 to file the paperwork for an in-state LLC and $100 for foreign (out-of-state) LLCs. The yearly fee is $10, with a $50 penalty for late payments.
Do you need a registered agent for your Colorado LLC?
Yes. All businesses registered in Colorado must elect a registered agent as a point of contact for their business. Their name, mailing address, and signature of consent are required to submit Articles of Organization successfully.
How do state taxes work for Colorado LLCs?
Colorado imposes a statewide tax of 2.9%, though various cities and counties can add up to 8.3% local taxes.