A step-by-step guide to help you form a company in Colorado

How To Form An LLC In Colorado

Choose a name for your LLC

Make sure the name you want for your company is available before forming a Colorado LLC. Businesses in Colorado cannot have the same name, so choose a unique name. According to Colorado law, your company's name should be followed by limited liability company, limited liability co, limited liability co, limited, L.L.C, LLC, or LLC ltd.

Most limited liability companies use the name they were registered with the state. If you intend to operate multiple businesses through your company, you must also register a Doing Business As (DBA). The additional name is usually registered with the Colorado Secretary by filing a Statement of Trade Name of a Reporting Entity and paying the $20 state fee.

File Colorado LLC Articles of Organization

Articles of organization are legal documents used to establish an LLC. If you want to file articles of organization, you can do so through the Colorado secretary's website. Your LLC application will be approved immediately after submitting it to the Colorado Secretary of State. You should budget around $50 for this service.

While filing your articles of organization, you have to select whether you want to start your business immediately or at a later date (which has to be within the next three months). When you file these documents with the Colorado Secretary of State, the management section frequently asks whether your LLC is member-managed or manager-managed. You must also enter your city, zip code, and the street address of your company's first principal office. The address can be either the LLC's physical address or the address where company records are kept.

Get local licenses

Before starting your business, you'll most likely need to register for several business licenses, depending on your company's location and what it does. Here are some of the most common registrations you'd require:

  1. A business license - It is the basic license required before a company can begin operations.
  2. Professional service - Specific services such as accountants, barbershops, and salons must obtain this license.
  3. Wage withholding account - If your company plans to hire employees, you must register for this account with the Colorado Secretary of State and the Colorado Department of Revenue.
  4. Sales tax license - Before you can begin selling certain products and services and collecting sales tax on behalf of the state of Colorado, you must first register with the Department of Revenue.

Open a separate bank account for your business.

It's always a good idea to separate your business and personal finances. If you are forming an LLC in Colorado, you should open a business bank account. However, you must first obtain a Tax ID number (EIN). The Employer Identification Number (EIN) is a unique tax identification number assigned by the Internal Revenue Service to businesses (IRS). Like the social security number, this number identifies firms for tax purposes. An EIN is required when filing federal and state taxes, hiring employees, opening business bank accounts, collecting sales tax, obtaining business licenses and permits, and other activities. Your EIN will be provided at no cost when you register through the IRS.

Choose Your Preferred Registered Agent

When establishing a Colorado LLC, choosing your registered agent is a critical step. To become a registered agent in Colorado, you must meet the following requirements:

  • Be a Colorado resident or a registered agent service that accepts service of process.
  • Have a physical address.
  • Can be available in the state during regular business hours.

Any individual or business entity that meets these requirements can serve as a registered agent. The problem with doing so is that the agent's name and address become public record, compromising their privacy. Many entrepreneurs value privacy, particularly those who work from home, conduct business online, or are employed.

NOTE - Colorado law does not allow for forming Professional LLCs (PLLCs).

Forming A Corporation In Colorado

Select a Corporate Name

Your corporation's name must be different from other names already on file with the Colorado Secretary of State. According to Colorado law, your corporation's name must include "incorporated," "corporation," "limited," or "business," or an abbreviation of these terms. The name cannot indicate or imply that the corporation was formed for a purpose not permitted by state law or its articles of incorporation.

Appoint a Registered Agent

You will be asked to provide the name of your Colorado registered agent when you file your Colorado Articles of Incorporation. This person or organization agrees to take legal documents on behalf of the corporation if it is sued. A company cannot act as its agent for process service. 

The registered agent can be a full-time Colorado resident, a Colorado citizen with their primary place of business in Colorado, or someone from a different state allowed to conduct business in Colorado with a regular place of business in the state. The agent must have a street address in Colorado, not a post office box. Typically, a director or officer of a small business serves as the initial agent. A different agent may be named at a later time. The appointed agent must give their consent to become a registered agent.

Create Your Colorado Corporation's Bylaws

Bylaws are the rules governing how your organization is managed and run. Consider the bylaws to be your corporation's constitution. It clarifies the rules and priorities for all parties involved. Include the following in your bylaws:

  • The role of directors and officers in the corporation's governance
  • Meeting procedures, voting procedures, and the election of officers or directors
  • The method of keeping and managing records.
  • The process of resolving disagreements.
  • How bylaws will be added/modified in the future.

Appoint Directors

Create a board of directors. If you decide to go public, your shareholders will elect a board of directors. However, when you're just starting, you'll need to pool your resources to determine who will serve as the initial directors of your company.

Issue Stock

If desired, issue stock. As the first stockholders in your company, give the initial shares of stock to your board of directors, and you'll be able to issue more shares as time goes on.

Prepare for taxation and regulation.

Corporations must be prepared to interact with government entities such as the IRS (Internal Revenue Service) and the SEC (Securities and Exchange Commission). Prepare to follow all applicable corporate taxes and regulations while keeping meticulous records in the event of an audit.

Starting a Nonprofit Organization in Colorado

1. Give Your Non-Profit a Name

The first step in establishing a nonprofit is selecting a name. Your name should be memorable and hint at what your organization hopes to achieve. The legal titles are not required in Colorado but may be included.

2. Choose Directors and Incorporators

Every nonprofit in Colorado must have at least one Incorporator and one director. The person who files the Articles of Incorporation with the state of Colorado is an Incorporator. Directors are members of your Board of Directors and will serve as the nonprofit's leadership team for many years.

3. Name a Registered Agent

Registered Agents are in charge of receiving all legal notices for the organization. An individual or a company can hold this position, but they must reside in Colorado and have regular business hours.

4. File Colorado Articles of Incorporation

In Colorado, Articles of Incorporation must be filed online. You must provide the name, address, and name and address of your organization's Registered Agent, as well as indicate whether it will have voting membership. The filing fee is $50, and the turnaround time is immediate.

5. 501(c) Federal Tax Exemption

Your nonprofit can apply for tax-exempt status with the IRS by submitting Form 1023 or 1023EZ. Form 1023EZ is intended for organizations that will raise no more than $50,000 in the first three years. The eligibility worksheet contains a list of the form's other requirements. The filing fee for this form is $275, and your letter of determination should arrive within a month. Form 1023 is for all other businesses. This form costs $600, and you will receive your determination letter within three to six months.

6. Apply for Colorado State Tax Identification Numbers/Accounts

To apply for a charitable license, you must first open a sales tax account with the state. A charitable license with the state requires a copy of your 501(c)3 application and an $8 fee. A $50 deposit is needed to get a retail sales tax license. You will, however, receive your $50 deposit back once your organization has paid $50 in sales taxes.

7. Apply for Colorado State Tax Exemption

You must file a state tax exemption application. Your federal determination letter, most recent financial statements or projected statements for new organizations, your Colorado Articles of Incorporation, your organization's specific purpose and function, and a copy of your most recent Colorado Secretary of State's "Certificate of Good Standing" are all required.

8. Register for Charitable Fundraising

Before soliciting funds, most nonprofits must register with the Colorado Secretary of State's office. Organizations that do not intend to raise or receive more than $25,000 per year, excluding grants, or that will accept donations from fewer than ten people are exempt from filing a registration statement.

Do You Need A Lawyer To Start A Business?

When starting a business, many people make the mistake of doing everything themselves, and it not only takes time away from their business objectives but also slows their progress. Successful business owners, on the other hand, understand their strengths and the tasks that can be delegated.

This is where a lawyer can help. A business attorney's best legal advice is correctly setting up your company to minimize your taxes and business liabilities. An attorney can show you the benefits and drawbacks of various business formations to choose the best one for you.

A lawyer can help you:

  • Choose the best business structure
  • Draft partnership agreements
  • Safeguard intellectual property
  • Draft contracts and agreements
  • Create employment and independent contractor contracts
  • Examine lease agreements
  • Keep your assets safe from business liabilities
  • Stay away from lawsuits
  • Explain tax benefits
  • Extend your operations to other states and countries
  • Maintain compliance with federal and state laws

Conclusion

Choosing the appropriate legal structure is an essential part of running a business. Whether you're just starting out or your company is expanding, it's critical to understand your options. Your company's legal structure determines your tax rates, management, and paperwork requirements, fundraising abilities, and more.

Sole proprietorships and partnerships are simple to establish, but they do not provide liability protection.

A limited liability company (LLC) is a hybrid structure that enables owners, partners, or shareholders to limit their liabilities while reaping a partnership's tax and flexibility benefits. Members of an LLC are protected from personal liability for the business's debts if it cannot be proven that they acted negligently or wrongfully in carrying out the business's activities, resulting in injury to another.

Corporations may be hard to set up, but their advantages include limited personal liability, easy ownership transfer, business continuity, improved access to capital, and (depending on the corporation structure) occasional tax benefits.

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