How To Start an LLC in Colorado 2024: Step-by-Step Guide
Updated April 25, 2024 at 3:18 pm
Starting a business is an exciting venture, but uncertainty about entity formation and what paperwork to file can hinder your progress. If you’re considering starting a business in Colorado, specifically an LLC, you’re in the right place. Our experts have put together the ultimate resource for determining if a limited liability company (LLC) is best for you, covering everything you need to know about setup and execution.
Read on to learn more about the various business entities available and how to start an LLC in Colorado.
Our Methodology Our research is designed to provide you with a comprehensive understanding of personal finance services and products that best suit your needs. To help you in the decision-making process, our expert contributors compare common preferences and potential pain points, such as affordability, accessibility, and credibility.
Vault’s Viewpoint
- An LLC is ideal for a business owner hoping for taxation flexibility while protecting their personal assets from company debts.
- Starting an LLC in Colorado can easily be done online.
- To do so, you will need to file Articles of Organization with the state of Colorado, as well as obtain an EIN and file a BOI report with the federal government.
Is an LLC the Right Business Entity for You?
When starting a business, you have several entity options to choose from. Each offers advantages and disadvantages over others.
LLCs are a popular choice for their “middle of the road” approach to taxation and structural flexibility. They offer the pass-through taxation option similar to sole proprietorships, but they do more to protect the owner(s). They are not taxed as corporations, despite offering the flexibility to opt into corporate tax structure.
An LLC is likely the right entity choice for you if you answer “yes” to the following questions:
- Do you want to legally protect your personal assets from the liability of your company debts?
- Do you have more than one owner?
- Will you have more than one person managing the business?
- Are you willing to spend more time on paperwork than a sole proprietorship requires?
- Do you want pass-through taxation with the option to change to a corporate tax structure?
- Are you funding your business without investors?
If you want the simplest business structure possible—and if you plan on having few-to-zero employees—a sole proprietorship may be the way to go. Alternatively, if you intend to leverage investors or if you want to avoid self-employment taxes, you’ll likely need to file as a corporation depending on the laws of your state.
While LLCs typically involve more paperwork and cost than sole proprietorships, starting an LLC in Colorado is less complex and expensive than in other states.
How to Start an LLC Business in Colorado in Five Steps
Ready to start? We’re here to help. Our experts have summarized everything you need to know about launching your Colorado LLC in five simple steps. We also want to note that the Colorado Secretary of State’s office provides a number of online resources to support your application process. You may also begin your process starting today on the LLC section of the Secretary of State’s website.
Step 1: Choose a Name for Your Colorado LLC
The first step to formation is to select an LLC name that’s different from any other business listed in Colorado, no matter which entity you choose.
Many start by searching for an available name on the state’s name availability search function, which will tell you whether a specific name is available. As you ideate for your name, we do want to suggest that you choose a name that includes a permutation of the abbreviation “LLC.” Colorado law stipulates that “the entity name of a limited liability company shall contain the term or abbreviation ‘Limited Liability Company’, ‘Ltd. Liability Company’, ‘Limited Liability Co.’, ‘Ltd. Liability Co.’, ‘Limited’, ‘L.L.C.’, ‘LLC’ or ‘Ltd.’”
Step 2: Appoint a Resident Agent
A resident agent—or registered agent—is the person or entity who assumes responsibility for accepting legal documents on behalf of your LLC. You must select this person or entity before you proceed because you’ll need their name, addresses and consent to be included in your Articles of Organization.
You have several different resident agent types you can consider prior to forming your LLC. We’ve summarized each, as well as relevant stipulations, below.
- Individuals as registered agents: This person can be the owner of the LLC, yourself or any other person over the age of 18 who has a primary residence in Colorado.
- Businesses as registered agents: If you choose a business entity, that entity must “have a usual place of business in Colorado,” per state law.
- Foreign entities as registered agents: If you choose a foreign entity, they must have the authority to transact business in Colorado.
Colorado places an emphasis on consent regarding resident agents, requiring they provide consent on your Articles of Organization. Our experts do want to reiterate that consent is required even if you hire a third-party organization to serve as your registered agent for an annual fee.
Step 3: Submit Articles of Organization
Colorado requires you to file Articles of Organization online. The Articles of Organization form asks for several details, including your entity name, street and mailing addresses, the same of your registered agent, management information and more.
Our experts recommend using the checklist provided by the Secretary of State to get all your details in order before filling out the form online. They also recommend that you be prepared to pay $50 at submission using a credit card, debit card or prepaid account.
Step 4: Obtain an Employer Identification Number (EIN)
Your EIN is a nine-digit number that identifies your business to the Internal Revenue Service (IRS). While a Federal Employer Identification Number (EIN) is not required by the state of Colorado for a single-member LLC, you need to obtain one in order to file a Beneficial Ownership Information (BOI) report in step five. You also need an EIN if you intend to have any employees.
You can file for your EIN on the IRS website.
Step 5: File a Beneficial Ownership Information (BOI) Report
The U.S. Financial Crimes Enforcement Network (FinCEN) requires all new LLCs to file a BOI report as of January 1, 2024. This newly instated law is designed to prevent bad actors from using LLCs as shell companies.
You must file the report within 90 days of your LLC’s registration with the state. While it is free to do so, failure to file a report may result in hefty fines or even jail time.
Optional, Highly Recommended Steps
Draft an Operating Agreement
It’s strongly advised by the state and U.S. Small Business Administration to create an operating agreement—or a document that details information about your business structure. If you are a multi-member LLC, this document may contain descriptions of the hierarchy of your business managers and their roles. It may also contain information regarding operational and financial decisions, voting procedures and protocols, how the business will be taxed, the purpose of the company and more.
Your agreement serves as an essential guide and reference for how to operate within your LLC. While it’s not required, it can be useful in helping your business remain compliant and limited in its scope of liability as it operates.
Setup Secure Business Filing
Colorado advises new business owners to secure their entities after creating business records so that no one can make changes to the entity. Per the state, “Secure Business Filing provides optional password protection for your business record. By creating a Secure Business Filing account, you can control who is able to make changes to your business records.”
Once you pay for your application, you’ll be brought to a screen that offers the option to create a Secure Business Filing. Walking through the steps establishes a person with an email address as the authorized individual to file documents for your business record.
It’s also a good idea to invest in a password manager to further secure your access or the access of those parties you wish to authorize.
Frequently Asked Questions
What Is an LLC?
A limited liability company (LLC) is a business entity that offers pass-through taxation benefits and protection of the owner’s personal assets should the company’s debts fall into a lawsuit or other legal prosecution. The LLC offers more protection in this way for owners in exchange for a bit more complicated paperwork and yearly reporting compared to a sole proprietorship. An LLC also has the option to be taxed as a corporation, however it’s typically not a business structure that appeals to investors like that of a corporation.
What Are the Downsides of an LLC?
While an LLC has plenty of benefits, a few potential downsides should be on your radar as you make your final formation decisions:
- Owners need to clearly distinguish between personal and business transactions to truly maximize the limited liability part of an LLC’s structure.
- The owner(s) are taxed as self-employed individuals.
- You have to pay a yearly fee to maintain your LLC—however in Colorado, that fee is quite low compared to other states ($10/year).
- LLCs don’t require leaders to have specific functions, which is why it’s highly recommended to create an operating agreement that details roles such as directors, managers and employees.
What Paperwork Is Involved in Starting an LLC in Colorado?
If you’re starting an LLC in the state of Colorado, you will need to file Articles of Organization online with the state. You’ll also need to fill out forms to obtain an EIN and submit a BOI report with the IRS and federal government respectively.
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