Colorado provides a favorable landscape for incorporating your limited liability company (LLC) with a supportive and collaborative community combined with lax regulations and adequate taxes.
Did you know that Colorado is nicknamed the Centennial State? Because it was admitted to the Union in 1876. And since then, the population has exploded, partly due to its natural beauty but also because of its business-friendly policies.
And since you’re probably wondering what’s involved and how much it’ll cost to get your new small business entity up and running, we put together this simple guide covering everything you need to know for forming an LLC in Colorado.
Steps to Start an LLC
- Step 1: Secure a business name for your LLC
- Step 2: Designate a registered agent
- Step 3: File the Colorado LLC Articles of Organization
- Step 4: Obtain an EIN (Employer Identification Number) from the IRS
- Step 5: Register with the Colorado Department of Revenue (DOR)
- Step 6: Prepare an LLC operating agreement
- Step 7: Open a Colorado business bank account
Step 1: Secure a business name for your LLC
The first thing you’ll need to do is select a legal name for your LLC. Apart from being memorable and marketable, it also needs to comply with the state naming rules.
Colorado LLC naming rules
Colorado law requires that LLC names comply with its naming requirements, which include:
- The LLC name must include the term or abbreviation “limited liability company,” “LLC,” “Ltd.,” etc.
- The name doesn’t have to be in English so long as it uses English letters and numbers or Roman numerals.
- Names must be distinguishable from all other registered or reserved names in the state.
Name availability search
After you’ve brainstormed and come up with several naming ideas, you’ll have to verify that no other Colorado company is using it.
You have two options to complete a name search online in Colorado.
- Use a name availability search tool on the Colorado Secretary of State (SOS) website:
- It will let you know if a specific name is available.
- It won’t show you similar names.
- Or run a business database search on the same website:
- It won’t show you if a name is available.
- It will display similar names to the name you searched for.
Searching these databases for a few keywords and leaving out the required terms (e.g., LLC) will give you useful results if you’re trying to narrow down your LLC name.
After you’ve settled on a name that’s available and meets Colorado’s naming requirements, you can reserve it by submitting an application and paying a $25 fee. You’ll then receive a statement of reservation of name.
Reservations are valid for 120 days and can be renewed for another $25 if you need more time before filing for company formation.
A reserved name is held for your future use. It doesn’t start a business.
Name reservations aren’t required to form your LLC. However, they come in handy when you need to prepare other formation documents or clarify operational details.
If you decide to conduct business using a name that’s different from your official business name, you’ll need to register a trade name. Sometimes trade names are also called “doing business as,” DBA, or assumed names.
Sole proprietorships use a trade name when they don’t want to use their legal first and last name to do business in Colorado.
And LLCs might want to use a trade name when:
- Its legal name is vague and doesn’t easily identify what the company does (e.g., Rocky Mountain Enterprises, LLC).
- It wants to operate multiple product lines (e.g., a rental real estate company that offers short-term vacation rentals and commercial office space).
In Colorado, trade names aren’t unique. So more than one person can register the same trade name.
Registering a trade name in Colorado
When you’re ready to file your trade name and make it official, you’ll complete the Statement of Trade Name form and pay a $20 filing fee for each name you wish to register.
The great news is that when you use a trade name for your LLC, you don’t have to renew it as long as your LLC remains in good standing with the state.
Step 2: Appoint a registered agent
Another hugely important step to form your LLC is to appoint your registered agent because you’ll need to include their contact information on your company registration documents. There’s no fee for this initial appointment, but if you need to change it post-incorporation, the cost is $10.
Don’t make this decision lightly because a registered agent is a crucial job with responsibilities such as receiving service of process for important legal and tax notices for your company.
Who can be a registered agent in Colorado?
While the small business owner itself can be the registered agent, that isn’t the only option. In Colorado, a registered agent can be anyone that meets the state’s requirements of:
- Be over age 18
- Have their primary residence in Colorado
- Have a physical address in Colorado (not a P.O. box)
- Be available during regular business hours
If you plan to use a professional service, which is allowed, it must be registered to do business in Colorado.
Why use a professional registered agent service?
Using a professional service comes with many advantages, and it might be a necessity for some LLCs.
Advantages of a professional service include:
- Maintain privacy by not listing your personal address on company documents.
- Take time off or vacation since you won’t have to be available year-round during regular business hours.
- Provides peace of mind that you won’t miss or overlook any important company notices.
Professional registered agent service is likely necessary for foreign LLCs. Contrary to what the name may suggest, foreign LLCs are U.S. companies headquartered in a different state.
For example, an LLC is registered and headquartered in Missouri but wants to do business in Colorado will need to register as a foreign LLC.
And since foreign LLCs probably don’t have a physical street address in Colorado (at least before incorporation), they’ll need to hire a Colorado company to act as their registered agent.
Using a professional service will cost up to $100-$300 per year, depending on the service package you select.
Step 3: File the Colorado LLC Articles of Organization
When you’re ready to form your Colorado LLC, you’ll need to file your Articles of Organization online with the Secretary of State (SOS) to start doing business.
It’s the legal document that creates your company. The cost of forming a domestic Colorado LLC is $50.
Foreign LLCs wishing to register in Colorado will need to file the Foreign Entity Authority Statement and pay a $100 fee.
Colorado has an exhaustive checklist of what you’ll need to file your Articles of Organization, such as:
- LLC name
- Principal office address
- Mailing address
- Registered agent contact information
- Managers of the LLC
- Founders of the LLC with contact details
All new LLCs must be filed online since Colorado no longer accepts paper applications. Payments are accepted by debit/credit cards.
Step 4: Obtain an EIN (Employer Identification Number) from the IRS
Also known as a tax ID number or a Federal Employer Identification Number (FEIN), the EIN is like a social security number for your business. It’s a unique nine-digit identifier that the Internal Revenue Service (IRS) assigns to your business.
The IRS issues an EIN for federal tax purposes. However, local state tax authorities may also require this number when filing for state employment taxes, among others.
The fastest and easiest way to apply for an EIN is to use the IRS website. Although you can apply using a paper Form SS-4, it can take up to eight weeks for the IRS to process your application.
Applying online immediately generates your EIN. And best of all, it’s free.
Step 5: Register with the Colorado Department of Revenue (DOR)
Some businesses will need to register with the Department of Revenue (DOR) to obtain a sales tax license.
Colorado imposes a sales tax on retail sales of goods, but most services are non-taxable. So if you’re opening up a retail store, food truck, or selling anything online, you’ll need to collect sales tax from your customers.
You’ll want to obtain your sales tax license before you make your first sale. This license will allow you to make tax payments to the state.
You can quickly apply online, pay the $16 application fee, and make the required $50 deposit through My Biz Colorado.
Sales tax licenses are valid for two years and must be renewed to keep your company in good standing.
Step 6: Prepare an LLC operating agreement
Although an operating agreement is not a required part of the state’s formation process, all LLCs should prepare one. This legal document lays out how your company will operate and be managed.
An operating agreement is an essential business document for multi-member LLCs because, without it, you’ll be subject to the default Colorado LLC laws which might not be ideal or in line with your intent.
Operating agreements can be as in-depth as you like but, at a minimum, should include:
- LLC’s name and business address
- Purpose of the company
- Member’s names, contribution, and ownership percentage
- Procedures on how new members are added and how members can leave
- Profit and loss allocation between members
- Management structure
- Process for how the LLC can be dissolved
You can find templates online for free or for a small fee. If you decide to have an attorney prepare a customized agreement, expect to spend $1,000 or more.
Step 7: Open a Colorado business bank account
Next, you’ll want to open a business bank account, so you can start keeping track of your company finances.
A business bank account is essential to:
- Prevent commingling of personal and company funds
- Prove the legitimacy of your business
- Make tax preparation easier
To open an account, you’ll need a copy of your approved Articles of Organization and an EIN if you have employees. You may also need to provide your personal identification (e.g., driver’s license).
In Colorado, you’ll have numerous options of banks to choose from.
Wells Fargo or Bank of the West are plentiful, so you’ll have little trouble finding a branch. They’ll offer a vast variety of services but also come with higher fees.
Monthly account fees can be up to $20 per month, and they may charge extra for things like wire transfers or cash deposits.
Local community banks or credit unions
Credit Union of Colorado or Community Banks of Colorado have locations around the state. You may get better rates, and borrowing may be easier since local banks want to help local businesses.
Monthly maintenance fees can vary, with some banks offering free accounts. But check for add-on costs for things like bill payment or credit card processing.
Important Colorado LLC taxes, costs, and fees
The filing fee for your Articles of Organization isn’t the only expense you’ll incur with your LLC. There are other taxes and costs you should consider, such as the following.
Annual report filing
In Colorado, an annual report is called a periodic report. All LLCs must file one and pay a $10 fee. These reports let you update any of your company information that changed. But even if you had no changes in your business structure, you’ll still have to file a report and pay the state fee.
Colorado LLC taxes
Generally, LLCs don’t pay any corporate income tax, sometimes called franchise tax, in Colorado. Instead, the company profits flow through to the owner’s personal tax return and are taxed at an applicable personal income rate.
However, should your LLC elect another federal tax classification class such as an S-corporation or C-corporation, you may be bound to pay extra state taxes. It’s, however, an unlikely option for a single-member LLC.
As we discussed above, if you sell taxable goods, you’ll need to collect sales tax from your customers and send it to the state.
In 2021, the state-wide Colorado sales tax rate is 2.9%. But depending on where your company operates, rates can be higher since cities and municipalities can charge a local sales tax.
For example, the sales tax rate is the highest in Winter Park at 11.2%, while dozens of cities don’t charge any local sales tax and only collect the 2.9% state rate.
There are several other state businesses taxes your company may need to pay depending on the type of your operations and whether you have employees or not. These include:
- Unemployment tax
- Excise and fuel tax
- Severance tax (for businesses in the mining and extraction industry)
Colorado business permits and licenses (optional)
Luckily, Colorado doesn’t require a state general business license to operate.
But certain regulated professions like doctors, lawyers, and accountants may need a specialty license from the Colorado Department of Regulatory Agencies.
And let’s not forget about local licenses you may need. Restaurants and food trucks will need permits for retail food sales, and child care centers will need health licenses and permits.
Regardless of your industry, check with your local government offices to learn if you need any local specialty permits to operate.
License costs vary but expect to spend up to a few hundred dollars on a specialty license.
Pros and cons of getting an LLC in Colorado
Whether you’re starting your business in the Rocky Mountains or out on the Eastern Plains, Colorado offers attractive perks with few downsides. Here’s a quick recap:
- Relatively low state sales tax
- Low LLC formation costs
- Inexpensive annual report fee
- No state income tax for most LLCs
- Annual report filings are required even if nothing has changed
- High demand for commercial space
- Local banks are not very friendly towards startups
Frequently asked Questions
Below, we’ve answered your most commonly asked questions (FAQs) about forming an LLC in Colorado.