Colorado’s Limited Liability Company Act is designed to allow entrepreneurs and small business owners to legally shield themselves from liability in the unfortunate event that their business should fail. Learn how you can create an LLC in Colorado, what benefits you will enjoy, and why forming a limited liability company is a smart decision.
We are going to discuss the steps necessary to form an LLC in Colorado. We’ll also explore the benefits of doing so and why it is such a great idea for your startup or small business.
How Do I Form an LLC in Colorado?
Creating an LLC in Colorado is a simple process. It can be done by yourself or with the help of a registered agent. But you shouldn’t try to go it alone. Colorado is one of the least complicated states when it comes to forming an LLC.
While this makes the process simpler than in other states, it still requires filling out pages of forms and sending them to the state’s Secretary of State office. It’s much easier to appoint a registered agent who will take care of all that paperwork for you as well as ensure that your LLC is formed properly.
Step 1: See if your desired business name is available
The first thing you need to do is make sure that your business name isn’t already taken. You’ll want to check on the Secretary of State website and determine if your desired business name is available. The easiest way to do this is by figuring out what kind of LLC you want to form and entering it in the search box on the Secretary of State’s website.
- You can form an LLC named after a person or animal.
- You cannot form an LLC that is the same as a registered trademark, trade name, pre-existing business name, or name already used by another business
- If you are using a foreign name, it must also be available in English
- The Secretary of State may give you a few days to come up with a different name if your desired business name violates any of these requirements.
- If the name is not available, the Secretary of State will let you know and you will have 30 days to come up with a new one.
Step 2: Register with the Colorado Secretary of State
Regardless of whether you are planning on filing for an LLC by yourself or if you will be using a registered agent to do it for you, you’ll need to get your LLC registered with the Colorado Secretary of State. To do so, go to the Secretary of State’s website. You can either file online or print out a blank application and mail it in.
Fill out all the required fields:
- You’ll need to provide the name and address of the LLC as well as the name and address of each member.
- You’ll need to list the name and address of the registered agent.
- You’ll need to provide a brief description of what will be done with the LLC’s registered office.
- You should also fill out the “certificate of formation” section, which is where you will need to submit vital information about yourself and the business you’ve decided to form. This section will require you to list your state ID or passport number, your date of birth, and your social security number.
- You should also provide the business’s mailing address and the address of its registered agent on the application
- You can save yourself some time by filling out a fillable PDF version of your form. This will let you simply print it out and have everything filled out for you.
The registration process will take up to 5 business days, which is to be expected. You won’t need to wait any longer than that for your LLC to be formed in Colorado. After you have completed everything, mail it in along with a filing fee.
You’ll also need to provide your personal information, such as your signature, your Colorado driver’s license number, and a picture ID showing proof of residence.
The filing fee is $50 for a regular LLC and $1500 for a series LLC. You can pay online or by mail.
Step 3: Secure your business record
Within 30 days of filing your LLC, the Secretary of State will mail you a certificate of formation and a copy of the articles of the organization. This is where your LLC records will be stored. Don’t lose this paperwork!
You will also be required to send a copy of this certificate, along with the LLC’s certificate of formation and articles of organization, to your state tax authority, the Division of Corporations. This is to make sure that the state knows that you are operating as a legal entity.
After forming the LLC, you’ll want to take the following steps:
- For one year after formation, you’ll need to file an annual report.
- After the first year of formation, you will need to pay your annual franchise tax. This is a fee that all Colorado businesses must pay and it takes place every year on January 15th.
- Then you will want to file your annual tax return for the subsequent tax period along with a Schedule C or a schedule D on your form 1040.
- Finally, you will need to file your yearly report with the Colorado Secretary of State.
These steps are necessary to maintain and ensure that your LLC is in good standing with the state.
Create an operating agreement
Although it’s not mandatory that you make one, creating an operating agreement is highly recommended. This agreement will set up how your business is operated, how decisions are made, and how to handle disputes. It’s very similar to the bylaws of a corporation or the articles of incorporation of a non-profit.
An operating agreement is ideal for more complex businesses that have multiple LLC members with multiple roles. For example, if your business has several partners who each want to own a different percentage of the business or there are members with special roles in the company, this type of agreement will be able to spell out their individual rights and responsibilities.
Apply for an EIN
If you plan or want to pay taxes on your LLC profits, then you will need to apply for an EIN. An EIN is an Employer Identification Number that allows limited liability corporations to claim a deduction for their business expenses. The advantage of having an EIN is it allows you to file your federal income tax forms correctly.
Open a business bank account
Your state doesn’t require you to have your own bank account, but it is a good idea. It will help protect your personal assets and keep your business separate from your private finances. Plus it makes things easier when you submit business invoices or need to pay out vendors.
It’s a good idea to open a business bank account well before your LLC is formed. You will need to prove to the bank that you are actually operating, and it can be difficult to do this when your LLC isn’t “official” yet.
Get a business license
While not legally required, getting a business license can be advantageous to your business. It acts as a way of proving that you are operating as an official entity.
The process usually starts by going to your city or county’s website to find the application for businesses looking to obtain a business license. This is usually pretty simple. The fee is usually only a few hundred dollars and you can submit it electronically through the city’s website.
Once you’ve completed all of the necessary steps, you’ll be issued a business license that is good for one year.
Open a wage withholding account
If your LLC operates as a pass-through entity, you may have employees. In this case, you will need to make sure that the proper amount of money is withheld from their paychecks and sent to the state at the end of each year.
This is done through a wage withholding account. Essentially, this is just an account at a bank that will deposit money into it based on payroll. It’s then your responsibility to make sure that this money gets transferred over to the state each quarter. It could also be done automatically through your payroll company, but we recommend opening it with a separate account at your bank.
Get a sales tax license
Most states only require businesses with a physical presence in the state to pay sales tax. However, if your LLC has customers in your state or your business sells products, you will need to obtain a sales tax license.
While you don’t necessarily need a sales tax license to operate in your state, it will help protect you from liability if you are ever audited by the state’s Department of Revenue. Your business may be required to pay back taxes, penalties, and interest on all the purchases that haven’t been taxed.
Remember to file annual reports
Since you haven’t elected to withhold any taxes from your workers’ paychecks, you will need to file an annual report with your state each year. You can also do this electronically by submitting it through the city’s website.
Pros and Cons of an LLC
LLCs are great because they allow you to separate your personal finances from your business finances. However, there are a number of disadvantages to an LLC that you need to be aware of before making the leap.
- Protects personal assets
An LLC prevents creditors from coming after your personal assets if your business gets sued. The only way that they can access your personal finances is if you personally guarantee a loan that your business takes out or if you sign a contract that says you will personally pay out the debt.
- Tax benefits
As a pass-through entity, LLCs are allowed to deduct any and all expenses. This includes things like employee wages and health insurance as well as any money that you spend on advertising or marketing. This is especially great for small businesses that don’t make a lot of money.
LLCs are fairly flexible compared to other business structures. You only have to file one tax return each year and you can choose between taking corporate taxes or pass-through taxes.
- Ease of management
Since there are no formal requirements, LLCs are relatively easy to manage compared to corporations or non-profits.
- Owners are not held liable for business debts
LLC owners (members) are only liable for the amount of money that they personally put into the business. This is called a capital account and is basically the place where all your LLC’s profits and losses go. You can have any amount of capital in your account and you won’t be responsible for any more money after that.
- Only one tax filing
Unlike corporations, LLCs only have to file one tax return each year, no matter how many members you have.
- No formal filing of documents
Unlike corporations, you don’t have to file articles of organization or by-laws with your state.
- Tricky accounting
Since you don’t have to file any formal documents, LLCs are more difficult to keep track of. It can be easy to lose track of who owes money or who has been paid.
- High start-up costs
LLC start-up state fees can cost thousands of dollars depending on the state that you live in and how much work needs to be done. You will also need to get an EIN, open a bank account, apply for a business license, and open a wage withholding account.
- Complicated taxes
Since LLCs are pass-through business entities, you will be responsible for filing taxes on your personal income. A lot of small business owners choose to hire an accountant to help them with this process.
- You can’t expand the company without a formal agreement
Unlike corporations, LLCs don’t have bylaws that layout how new members will be added to the company. This means that you will need to draft up a formal agreement and file it with the state.
- Not always the best option
The biggest disadvantage of an LLC is that they are more complicated than other business structures. While most small businesses can’t afford to hire an attorney to draft up their LLC, they can still opt for a corporation or non-profit
How much does it cost to start a Colorado LLC?
LLCs are often the most cost-effective business structure for small businesses. This is because they are very simple to set up and you only need one state license. Unfortunately, setting one up can cost thousands of dollars, depending on where you live.
LLC Start-Up Fees in Colorado
The fees that you will pay to start and operate your LLC will vary depending on what is needed in your state. States can’t set their own fees and have to follow federal guidelines.
These are the current start-up fees in Colorado:
- Business License Fee $40.00
- LLC Formation/Colorado Articles of Organization $75.00
- Secretary’s Check $65.00
- Income Tax Filing Form 1040 $115.00
- EIN/Federal Tax ID Number Application $120.00
- Annual Reporting Form EIR (Estimated Individual Return) $75.00
- Annual Filing Form CS (Certificate of Status) $75.00
- Annual Report Form SC (Statement of Colorado Status) $75.00
- Annual Report Form TH (Tax Information Statement) $75.00
- Federal Tax ID Number Application $120.00
- IRS-806 Colorado LLC Tax Certificate $90.00 (CERTIFICATE OF ORGANIZATION issued by the Secretary of State is not required for this purpose. However, if you are required to file an annual report because your LLC is still active then the Secretary of State will require that you obtain an IRS Tax Certificate.)
Opening a business checking account
You will need to have a business checking account for your LLC. This should be done before you submit your articles of organization. Most banks charge a small fee for business accounts and may require that you deposit a certain amount of money into the account before opening it. Professional Tax Help
Small business owners can get professional tax help from accountants and bookkeepers who specialize in small businesses. This is especially helpful if you want to hire somebody to prepare your taxes each year. In most states, you can file your taxes with a free tax service provided by the IRS.
However, it may not be as accurate as if you hired a certified public accountant/tax preparer or bookkeeper who specializes in small business.
Getting a business credit card
If you want to charge business expenses to your LLC then you will need a credit card. Many businesses choose to get a business charge card that offers unlimited spending and no annual fee. This will make it much easier to track expenses and accurately file taxes.
Business Credit Cards with No Annual Fee:
- Capital One Spark Business Card (the best business card available)
- Bankamericard Rewards Card (this card often carries a 0% interest rate for the first year)
- The Gold Card from American Express (the best business card available)
- Small Business Insight Visa Card (one of the best business cards for consumers)
Business Credit Cards with an Annual Fee:
- Capital One Spark Plus Business Card (the best business card available)
- Synchrony Bank Visa PlatinumCard (it’s the same as Capital One’s Spark card but with a $49 annual fee instead of a $0 annual. The annual fee is waived if you spend over $1,000 a month on the card. This will be more than enough to cover your business expenses.)
- Ink Business Credit Card (this card will give you 3% cashback on gas, 2% cash back on restaurants, and 1% cashback on all other purchases. Given that most small businesses do not have large gas bills and they often eat at restaurants more often than they travel by car, this might be a good credit card to consider for business owners. The annual fee is $0.)
Hiring a business accountant:
You will also need to hire a business accountant to help with things like employee taxes as well as keeping track of what you owe and what you have paid.
There are plenty of good accountants that specialize in small business and would use their expertise to help you represent your small business financially. You can find them through your local chamber of commerce or by asking people you know for referrals.
Business Tax Preparers:
- TurboTax Business (this tax preparation software is designed to help business owners file their taxes and includes a support team that is available by phone 24/7. Some of the other tax software programs have more features but they aren’t very good at helping small business owners get their taxes filed on time. If you have any questions about what goes on your tax return, TurboTax is good at providing fast answers. They also offer free live chat to help you get your taxes filed correctly.)
- Free Business Tax Filing (many states do not require that LLCs file taxes. Instead, you can simply pay a $125 annual LLC fee and be done with it. If you live in one of these states then filing your taxes will be easy. However, the IRS does require that you file some sort of tax return to keep your business active. This is where Free Business Tax Filing comes in handy. It will walk you through the process of filing your taxes quickly and help you file your taxes for free.)
- TaxAct (if you run a small business then TaxAct is one of the better software programs available. It will make it easier for you to get your business taxes done on time. However, the program isn’t as good at answering your questions as TurboTax is and they do not offer live chat to help you file your taxes correctly. The price for this program is $0.)
If you need help with your company’s taxes or you are looking for a good accountant then you can post your job on Indeed.com and get bids from plenty of accountants who specialize in small business.
Colorado Business Permits and Licenses
You will also need to get a few permits and business licenses in addition to the ones for your LLC.
- Employment Tax Filing (Form 4070) $25.00
- Hiring a Nonresident Alien $25.00
- Notice of Termination of Employer/Employee Relationship $10.00
- Affidavit of Organization $10.00
- Engineering Permit $40.00
Licenses you may need:
- Sales Tax License $50.00
- Business and Occupation License $35.00
- Motor Vehicle Registration for business vehicles $10.00
- “Doing Business As” (DBA) Registration $5.00
- Electricity License $90.00
- Telephone License $25.00
- Business License $40.00
- Zoning Permit $15.00
Cities/Counties may also have you apply for additional permits and licenses if you plan on doing any construction in the area. You will need to check with them to see what is required.
Colorado LLC Tax Filing Requirements
If you were planning on taking money out of your LLC to pay for business expenses then you will need to file a Colorado tax return each year.
- LLC Information Return $75.00
- Loss Limitation Return $75.00
- Employee Business Expenses (Form 4070) $25.00
- Type A Corporation Information Return $80.00
Each form has a Filing Fee that must be paid upfront before you send in your paperwork with the state of Colorado.
If you are going to be the sole member of your LLC, then you will need to pay taxes on your business income. This includes any profit from the sale of products or services as well as any interest and dividends from your bank accounts.
Taxes are due April 15th, June 15th, September 15th, and January 15th of each year for Colorado LLCs that got a profit. Taxpayers that only have one member of the business or only have business expenses will not have to pay any taxes.
Make sure you check with your city and county to find out about local sales taxes. This is a very small area of business for Colorado so most counties only collect between 2-3% in sales tax.
If you are buying items for your business that don’t fit into the category of equipment or supplies, then you will need to pay a use tax on those items.
Colorado LLC Tax Deductions
You are allowed to deduct many different things from your gross income before you calculate your taxable income for the year. However, you will need to file a tax return if you have business expenses that could be deducted from your income. You can claim any of these expenses on your taxes:
- Contribution of capital $5.00
- Dues and subscriptions $20.00
- Insurance premiums $40.00
- Payroll taxes for employees $10.00
- Professional fees and services $50.00
- Travel expenses not reimbursed by employer $100.00
- Resident taxes and fees $10.00
- Advertising $25.00
- Insurance $25.00
- Interest on debt $10.00
- Real estate taxes $20.00
- An administration charge of a restricted partnership $120.
If you pay a lot of money to your employees and they perform services for your business, then you may have to pay some federal taxes.
You will have to file an Employer’s Tax Return with the IRS if the salary and wages paid by your LLC to an employee exceeds $1,000 in 2013 or $500 for a married couple.
Colorado LLC Profits Tax
If you make more than $400 in profit or income every year, then you will need to pay taxes on your profits.
The amount of profit tax you pay can be no more than 25% of your profits.
Colorado LLC Dividends Tax
If you make more than $400 in profit or income every year, then you will need to pay taxes on your dividends. Dividends paid are subject to a maximum tax rate of 10%.
However, any excess over 8% is taxed at the top marginal federal income tax rate. Any profits above $100,000 will be subject to an additional 3.8% tax levy by the state of Colorado.
Federal LLC Tax Filing Requirements
If you are preparing your annual tax return for your LLC, then you can either include the information for only yourself or include a copy of your LLC Articles of Organization.
- Form 1120 (Business Income Tax Return) $705.00
- Form 1041 (Annual Federal Income Tax Return) $638.00
- Schedule SE (Self Employed Contributions Act Report) $110.00
Each form has an associated fee that must be paid before the IRS will accept your paperwork.
If you are planning to hire employees, then you will need to file a W-4 form with the IRS. This is used in order to verify the amount of tax withholding that will be taken out of each employee’s paycheck.
After you have filed a W-4 form, then you must work with your payroll provider to set up a withholding account. This will give you the option to take money from each employee’s paycheck for things like FICA (Social Security and Medicare).
How to Obtain a Certificate of Good Standing in Colorado
In order to start the process of filing for a Certificate of Good Standing in Colorado, you will need to complete several steps. The first step is to get a copy of your Articles of Organization. You will then need to complete the Application for Certificate of Good Standing. Also, fill out and submit an Affidavit of Organization and other related forms that are necessary by your state’s government.
The next step is contacting the Colorado Secretary of State and explaining why you need a certificate from this office. If the secretary of state agrees that you do, then they will send you a Certificate of Good Standing from the Division of Corporations.
Next, have your appointed Registered Agent post an announcement in two local newspapers for three weeks. This is done in order to create protection for your name and business from any sort of financial liability. It also adds legitimacy to your Colorado LLC by letting everyone know that there is a registered agent service overseeing business operations.
As a business owner in Colorado, you will need to follow the guidelines and regulations that are set up by the state government.
However, it is important to stay current on what changes are occurring to your state’s taxes and legal system. That way, you can make sure that your LLC is operating the way it should be.