Steps to Forming an LLC
How to Form a Colorado LLC
Forming an LLC in Colorado will help protect your personal assets from lawsuits and judgments against your business. An LLC is a legal structure that separates your business and personal assets. By not having your business in a separate legal structure, you can be held personally liable for certain debts and lawsuits incurred by the company. Forming a Colorado Limited Liability Company does not require an attorney and you can save a lot of money if you do it yourself with the six simple steps below.
How Much Does It Cost to Get an LLC In Colorado?
The filing fee for a Colorado Limited Liability Company is $50, payable to the Colorado Secretary of State.
Colorado Annual Report and Annual Fees
Colorado requires all LLCs to file annual reports, which is called a Periodic Report. The filing fee for a Colorado LLC Periodic Report is $100.
- Minimum Number – one or more.
- Members/Managers- If there are multiple members, you need to file the additional member form
- Residence Requirements – none specified
- Age Requirements – none specified
In addition to forming your Colorado LLC, you will need to check for Colorado business licenses and permits
Steps to Forming a Colorado LLC
Step 1. Naming Requirements
Colorado LLC Name Search
Before settling on a name, you want to be sure nobody else is using it as each LLC must have a unique name. Here’s how to search available LLC names in Colorado. You can also visit our page to do a free Colorado LLC name search.
Your corporate name must end with the words Limited Liability Company or an abbreviation of these words (“LLC,” “L.L.C.,” “Limited,” “LTD.,” “LTD”.). Check out our article on naming your LLC for all of the requirements that you must follow when naming an LLC.
Also, there are some words that aren’t allowed to be used in the state, like those that could refer to a state agency or that require licensing from the state.
Step 2. Choosing a Registered Agent
What is a Registered Agent?
The registered agent must have a physical presence in Colorado but may be an individual resident, domestic or foreign corporation authorized to transact business in Colorado. The registered agent must also have a physical address in Colorado and a Post Office Box is not acceptable.
Registered Agent Requirements
The registered agent must have a physical presence in Colorado must have a physical address and be available during normal business hours to accept delivery of documents. A Post Office Box or personal mailbox is not acceptable. If the registered office includes a suite number, it must be included in the registered office address.
Who can be a Registered Agent in Colorado?
A registered agent in Colorado can either be a resident of the state or a corporation authorized to do business in the state.
Provided you as the business owner have a physical presence in Colorado, you can be the registered agent however, there are some privacy benefits to having a third-party registered agent.
Check out our article on LLC Registered Agents for more details.
Step 3. Filing the Articles of Organization
The Articles of Organization is the paperwork used to form an LLC with the state. This is the most important step and many people believe that you need an attorney to file.
While we don’t discourage having an attorney, filing for a Colorado LLC can be done by most people, but you can save considerable money over an attorney and make sure everything is filed correctly by using a formation service such as Swyft Filings.
Step 4. Creating an Operating Agreement
An operating agreement is not required in Colorado but is typically a good idea, especially for an LLC owned by multiple people. The primary function of the operating agreement is to govern the relationship between the owners of the business, but also outlines who makes what decisions, how profits or losses are distributed and the operating procedures of the LLC.
Step 5. Getting an EIN
What is an EIN?
The Employer Identification Number (EIN), or Federal Tax Identification Number (FEIN), is used to identify a business entity. It is essentially a social security number for the company.
In addition to the EIN being an identifying number for the LLC it serves a few other purposes such as:
- Opening a business bank account
- Federal and State tax purposes
- The business account to pay payroll taxes for employees paid by the company
How to Register an EIN for a Colorado LLC
To file an EIN for your LLC, visit the Internal Revenue Service (IRS) or obtain the SS-4 form. They show the steps on how to apply, but here is a video on how to apply for an EIN for more details. In about five minutes, you will have your number free of charge. Be sure to wait until your LLC is approved before applying for your EIN as the name that is registered for the LLC must be the same as the EIN.
Step 6. Selecting the Tax Status of the LLC
One of the advantages of an LLC is the flexibility in taxation as there are four ways an LLC can be taxed, compared with two ways for a corporation.
- Single Member LLC – An LLC with one member automatically becomes a single-member LLC with the IRS. The owner simply files their Schedule C with their 1040 at the end of the year. Filing as a single-member LLC means the entity does not pay sales tax and goes to the owner which is called pass-through taxation. The owner pays self-employment taxes on the net profit of the LLC, which while simpler to handle taxes, may be more costly.
- Partnership LLC – An LLC with two or more members is automatically considered a Partnership with the IRS and will file Form 1065. Like the sole-proprietorship as a pass-through entity, the LLC taxed as a Partnership pays no income tax and profit and losses flow to each member’s Form 1040s via Schedule K-1 of Form 1065.
- C Corporation LLC – An LLC can elect to be taxed as a C Corporation by filing IRS Form 8832. The major difference as an LLC that is taxed as a C corporation is that now the LLC pays tax on the profits and losses and are not directly passed down to the members. Most, but not all will find filing as a C Corporation will cost more in taxes as now the LLC has double taxation where there is a tax on the profits and dividends.
- S Corporation LLC – To get S Corporation status, you will file Form 2553 with the IRS. What makes the S Corporation attractive unlike the sole proprietorship or partnership is that you can potentially shield some of the profits from being subject to self-employment taxes. Dividends aren’t typically subject to self-employment taxes which is a large potential savings. There will be more work in accounting an LLC that elected S Corporation status.
Each of the four ways for an LLC to be taxed in Colorado can have a major impact on the taxes that are charged depending on the business and the member’s personal finances. It’s a very good idea to work with an accounting professional to see which one is most efficient for the business and members.
Don't want to go it alone but don't want the expense of an attorney? Another alternative is to use an LLC formation service that will do the formation at a low cost. Take a look at our comparison page of popular LLC formation services.
Incfile has a special offer right where for only $49, they form your LLC and a registered agent is included at no cost for the first year.