How to start an LLC in Colorado in 7 steps

Starting a Limited Liability Company (LLC) in Colorado can be a good decision for any new entrepreneur. This article is designed to guide you through the process of forming an LLC, from choosing a business name to understanding the costs and benefits involved. Knowing your way around the LLC creation process is essential, regardless of your level of experience as a business owner.

As we delve into the details of starting a business, remember that starting an LLC is about creating a stable and profitable business, not just filing papers and getting it registered.

Still not 100% sure about your business idea? Try out the Wix Business Launcher. Simply chat with AI to receive new business ideas based on skills match and profitability. Each idea comes with a full market analysis, earning strategies and launch kit, so you can get started with confidence. 

To start a business in Colorado, your first step is to select a name for your LLC. Your business name should be unique and must not be the same as or too similar to other names on record with the Colorado Secretary of State. You’ll want to make sure your chosen name ends with “LLC,” “L.L.C.,” or “Limited Liability Company” to comply with state requirements.

To come up with a business name that’s both unique and compliant, consider these tips:

• Check for availability: Use the Colorado Secretary of State’s online database to search for existing business names. You need to avoid choosing a name that’s already in use or trademarked by another business.
  
  

• Follow naming guidelines: Avoid restricted words that could confuse your LLC with a government agency (e.g., FBI, Treasury).
  
  

• Consider your website and domain name: You’ll also need to check domain availability if you plan on making a website for your business. For branding purposes it’s important to make sure your business name and domain are highly similar if not identical.

Every LLC in Colorado must have a registered agent which is an individual or company that agrees to accept legal papers on behalf of your LLC. Your registered agent must be available during regular business hours and have a physical address in Colorado. They must also be able to be trusted with confidential documents and be available at their listed address during business hours.

Need help setting up your LLC? Wix has partnered with LegalZoom, the No. 1 choice for online business formation to help you start, run and grow your business.

Depending on the nature of your business, you may need specific permits or licenses to operate legally in Colorado. These could range from general business licenses to industry-specific permits required to register your business. The first step is to check with your local and state agencies to determine what permits you need. The second step is then to complete and submit the required paperwork accurately. The final step is usually paying the required fees.

Let’s say you want to start a car wash business in the state.  First, you’ll need a General Business License from the Colorado Secretary of State. You may also need additional permits such as an Air Quality Permit if your car wash uses chemicals or recycles water.

The Articles of Organization is a critical document that officially creates your LLC in Colorado. You’ll file this with the Colorado Secretary of State, either online or by mail, along with the required filing fee. This is the specific form used for filing an LLC’s Articles of Organization in Colorado. Filing costs $50.

Although not legally required in Colorado, creating an operating agreement is highly recommended for any LLC. This internal document outlines ownership, member roles and operational procedures for almost any type of business. 

Here’s why an operating agreement is important even though it’s not a legal requirement:

• Clarifies business rules and guidelines: It sets clear expectations for members regarding operations and conflict resolution.
  
  

• Protects LLC status: Helps maintain limited liability status by proving that your LLC is a separate business entity.
  
  

• Prevents misunderstandings: Reduces potential disputes among members by explaining the policies and procedures for how the business should be run.

An Employer Identification Number (EIN) is necessary for hiring employees, opening bank accounts and filing taxes for your LLC. The IRS provides free EIN registration through their website or via mail submission.

You’ll also need to understand all of the state-specific taxes that apply to your LLC, such as franchise tax or sales tax. In Colorado for an LLC owner this includes a 15.3% self-employed tax (12.4% social security, 2.9% Medicare). For more information, visit the Colorado Department of Revenue website. 

Colorado requires LLCs to file annual reports (also called a Periodic Report) to keep their information up-to-date with the state. These reports include current contact information and details about your business operations over the past year.

To ensure you’re compliant with this very important LLC requirement make sure to: 

• Know due dates: Your Colorado Annual Report is required annually. The filing window spans three months, starting from the anniversary month of the your LLC’s establishment and closing on the last day of the third month after the anniversary month.
  
  

• Maintain proper records: Keep accurate records throughout the year to simplify report preparation when due dates approach.
  
  

• Submit and pay fees: Complete the submission process by paying the $10 filing fee.

Starting an LLC in Colorado is relatively cost-effective, but it’s important to be aware of all the potential fees involved. Here’s a breakdown of the costs you can expect:

• Filing fee for Articles of Organization: The state of Colorado requires a fee when you file your Articles of Organization. This is a one-time cost that is mandatory for all new LLCs. For an LLC it costs $50.
  
  

• Registered agent fee: If you choose to hire a professional registered agent, you’ll need to pay for their services. Fees vary depending on the agent or service company you select.
  
  

• Business permits and licenses: The cost for permits and licenses can vary widely depending on the type of business you’re starting and the specific regulations that apply to it.
  
  

• Annual report fee: Colorado requires LLCs to file an annual report, which comes with a filing fee of $10. This is an ongoing cost that must be paid every year to keep your LLC in good standing.
  
  

• Employer Identification Number (EIN): Obtaining an EIN from the IRS is free of charge.
  
  

• Operating agreement: While drafting an operating agreement doesn’t have a direct state fee, if you hire an attorney or use a professional service to help draft the document, there will be associated costs.
  
  

• State taxes: Depending on your business activities, there may be additional state taxes required by Colorado. It’s important to consult with a tax professional to understand what taxes your LLC will need to pay.

Additional costs may include:

• Legal or financial consulting fees: If you seek professional advice during the formation process, these services will add to your startup costs.
  
  

• Domain registration and website creation: Specific costs include include domain registration and potentially hiring a web designer or using a website builder like Wix.
  
  

• Business insurance: Depending on your industry, you might need various types of insurance to protect your LLC.

To form an LLC in Colorado, there are criteria that need to be met. It’s crucial to understand who can start an LLC in the state before starting the process.

• You must be at least 18 years old to form an LLC in Colorado.

• There is no residency requirement to start an LLC in Colorado. You don’t have to live in the state or even in the United States to form an LLC here.

• Individuals, including non-U.S. citizens and people without permanent residency, can form an LLC in Colorado. However, your legal status may affect your ability to personally work for the LLC or receive income from it. for this you may need to seek legal advice.

• Colorado does not require a minimum number of members to form an LLC. You can start a single-member LLC or have multiple members.

• Your LLC must be formed for a lawful business purpose. This means that the business activities you engage in must be legal under Colorado and federal law.

Business owners often find that forming an LLC in Colorado offers a number of benefits. These advantages, which include tax savings and legal safeguards, make it a popular option for many new or small business owners.

As the name suggests, an LLC provides its owners with limited liability. This means your personal assets are typically protected from business debts and lawsuits.

LLCs often benefit from pass-through taxation where the business profits pass through to the owners’ personal tax returns, avoiding the double taxation that corporations can face.

LLCs have fewer formalities and can be managed by the members or appointed managers, providing flexibility in how the business is run. Compared to other business structures, forming and maintaining an LLC in Colorado is relatively straightforward with fewer formalities and paperwork.

Having ‘LLC’ after your business name can help you build instant trust potential customers, suppliers and financial institutions. You can also consider an .llc domain to accompany your domain name, to reinforce this credibility. 

When considering incorporating an LLC in Colorado, it’s critical to examine the pros and drawbacks. Understanding these disadvantages will allow you to make an informed choice about whether an LLC is the best business structure for you.

Here are some potential challenges associated with starting an LLC in Colorado:

Members of an LLC are considered self-employed and must pay self-employment taxes on their share of the profits.

An LLC may not be suitable for businesses that plan to go public or seek investments from venture capitalists as it doesn’t allow for the issuance of stock.

To keep your LLC in good standing, you must file an annual report and pay the associated fee each year.

Transferring ownership interests in an LLC can be more complex than with a corporation, often requiring approval from other members.

While this articles focuses on Colorado, it’s important to note that if you do business in other states, they may have different rules and tax treatments for LLCs.

Choosing the right business structure is an important decision as a business owner. In Colorado, forming an LLC is often the business entity of choice due to its unique advantages. It’s always important to compare it with other types of business structures to understand why an LLC might be the best choice for your situation.

Here’s how an LLC stacks up against other business entities:

• Sole proprietorship: Unlike a sole proprietorship, an LLC provides personal asset protection, separating your personal liabilities from those of your business.
  
  

• Partnership: An LLC offers more protection for each member compared to a partnership, where each partner can be personally liable for the debts of the business.
  
  

• Corporation: While corporations also provide limited liability protection, they’re also subject to double taxation (taxes on both corporate profits and shareholder dividends). An LLC avoids this with pass-through taxation. Corporations are also strictly bound by their need for a formal structure with directors and officers, while an LLC can be managed by its members or managers, which means more flexibility with its management. An LLC also has less stringent requirements for record-keeping and reporting compared to a corporation. Profits in an LLC can be distributed in any manner agreed upon by the members, unlike corporations that distribute profits according to the number and type of shares held.

After successfully forming your LLC in Colorado, it’s time to focus on the next steps to ensure your business thrives. These include some of the following:

• Keep your personal and business finances separate by opening a bank account solely for your LLC. This will simplify accounting and tax filing and help maintain your liability protection.

• Protect your LLC with the right insurance policies. Depending on your business, this may include general liability insurance, professional liability insurance or product liability insurance.

• To remain in business as an LLC its essential to be compliant with ongoing legal requirements such as renewing licenses and permits, filing annual reports and paying necessary taxes.
  
  

The tax obligations for a Limited Liability Company (LLC) in Colorado depend on various factors, including the LLC’s structure and its income. You’ll need to consider the following business taxes:

• Pass-through taxation: By default, an LLC is treated as a pass-through entity for federal tax purposes. This means the LLC itself does not pay income taxes. Instead, the income or losses are passed through to the owners (members), who report them on their personal tax returns.

• Single-member LLC: Treated as a sole proprietorship, owners report income on Schedule C of their personal tax return.

• Multi-member LLC: Treated as a partnership, LLC owners file Form 1065, and members receive a Schedule K-1 to report their share of income on their personal tax returns.

• Self-employment tax: Members of an LLC must pay self-employment tax on their share of the LLC’s earnings, which covers Social Security and Medicare.

• State income tax: Colorado has a flat income tax rate of 4.4% as of 2023. LLC income passed through to members is subject to this rate on their personal tax returns.
  Members report their share of the LLC’s income on their Colorado state income tax return.
  
  

• State business income tax: If an LLC elects to be treated as a corporation (C-corp or S-corp) for tax purposes, it will be subject to Colorado’s corporate income tax.
  
  

• Sales tax: If the LLC sells goods or taxable services, it must collect and remit sales tax. The state sales tax rate is 2.9% but local counties may impose additional sales taxes.

• Franchise tax: Colorado does not have a franchise tax but LLCs must pay a $10 annual periodic report fee to the Colorado Secretary of State.

• Employment taxes: If the LLC has employees, it must withhold and pay state income tax, unemployment insurance tax, and other applicable payroll taxes.

• Local taxes: Depending on its precise location, the LLC might also be subject to local business taxes and licensing fees.