The Centennial State has a great business climate, low business formation and filing fees, and several programs to help you get started.
Benefits like these have led many Coloradans to start their own businesses. And if you don’t live in the state, Colorado just might be the perfect place to form an LLC for your business.
Here’s what you need to know about why an LLC is an attractive business structure, why Colorado is an ideal location, and whether your business (or business idea) is a good fit for an LLC.
Benefits of forming an LLC in Colorado
Forming a limited liability company (LLC) in Colorado gives you certain legal and operational advantages compared to other business structures. That’s why most entrepreneurs, solopreneurs, startups, and small business owners choose this structure.
For most, LLC formation is a good idea no matter where you live. And there are some good state-specific reasons why you might choose Colorado for your LLC (whether it’s home or not).
Limited liability company protection
The name gives this one away: Forming an LLC limits your liability. It’s the simplest way to make a distinction between you as a person and you as a business.
To understand why that matters, we need to back up a step or two. When you start doing business, you’re “automatically considered to be a sole proprietorship,” according to the U.S. Small Business Administration. If you haven’t registered as something else, then you’re still a sole proprietorship.
The trouble is that the U.S. government doesn’t make any legal distinction between you (the sole proprietor) and the business. You don’t have any personal liability protection, so if the business suffers significant losses, you could be compelled to use or turn over personal assets to cover those business debts or liabilities. In other words, your business entity’s liability can become personal liability.
No one wants to lose their house or life savings due to a business-related lawsuit. Forming an LLC puts a wall between your personal assets and your business’s liability. Lawyers and bankers can go after your business assets, but your personal assets are safe.
Pass-through taxation
Tax advantages are the second biggest reason for choosing Colorado LLC formation. Forming an LLC helps you avoid double taxation, where you pay corporate and personal taxes on your business’s income.
The IRS and the Colorado Department of Revenue classify LLCs as pass-through entities. With this approach, any profit your LLC makes can pass through to your own personal tax return. You pay personal income tax (including self-employment taxes), but you pay only once.
Taking advantage of pass-through taxation offers significant savings for most individuals and qualifying businesses.
Operational flexibility
Compared to forming and operating a corporation, forming an LLC is relatively straightforward. LLCs are also simpler to operate, with fewer formal requirements and no mandatory management structures.
If you have the option of establishing an LLC, doing so is usually the best first step. Forming an S corporation or C corporation is a much more in-depth process that creates ongoing overhead.
Unless and until you raise funding, issue stock, or hire dozens of employees, you probably don’t need (or want) to be a C corp. Some business owners (especially solopreneurs) may find some tax savings by becoming an S corp, but they’ll give up some operational flexibility by taking that path.
Credibility with customers and partners
Forming an LLC can boost your business’s credibility and professionalism. It shows you’re serious about your business and that it isn’t just a side hustle.
It’s the same reason many founders and single-member LLCs use a business address for their LLC: You’re legally free to use your home address, but many home addresses (think Meadowlark Lane or Desert Rose Court) don’t sound business professional.
This isn’t just about looks, either. Practically speaking, some business relationships may require you as a vendor or freelancer to have an LLC or employer identification number (EIN).
Stable gives you the ability to set up a professional business address in a matter of minutes — without needing to rent an expensive office (or even live in the state where you register your business). By using our virtual address service for your LLC, you can work remotely or from home without sacrificing privacy or losing credibility.
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Ease of formation and maintenance in Colorado
Colorado makes it easy to form an LLC in the state. It’s a good idea to seek professional guidance on whether this is the right move for your business, but if you decide to move forward, you can complete the entire process online and on your own.
It’s relatively inexpensive to form and maintain an LLC in Colorado. To form an LLC, you’ll need to pay $50 to the state Secretary of State. You’ll pay a $25 fee when you file your annual report (called a periodic report), and that’s just about it in terms of ongoing fees. Other actions, such as changing your LLC address, cost extra, but the fees are reasonable.
Colorado also maintains several state programs that make forming businesses easier, including:
- The Colorado Credit Reserve (CRR): Supports businesses that “typically struggle to get access to a bank loan.”
- Work Opportunity Tax Credit (WOTC): Tax credit for hiring “targeted groups of job seekers.”
- Colorado Startup Loan Fund: Works with mission-driven lenders to support entrepreneurs and startups.
Business-friendly climate
One reason to locate your LLC in Colorado instead of another state is the climate — and we’re not talking about skiing!
Colorado boasts a robust business community with opportunities for support at every turn. The state is home to several startup incubators, and tech centers in Denver and Boulder support tech-driven startups.
The Small Business Development Center Network can be another valuable resource. The only nationally accredited statewide program of its kind, the SBDC has 14 full-time service centers and 25+ satellite centers that provide low- or no-cost business training. You can even book an advising session from the state’s website.
When a Colorado LLC might not be the best fit
LLCs are popular and easy to form in Colorado, but they aren’t right for every type of business. Here are a few scenarios where an LLC may not work:
- Raising capital: While it’s not impossible to raise capital, many venture capital firms will not work with LLCs.
- Issuing stock: LLCs cannot issue stock. S corps can offer one type, while C corps can issue multiple types.
- Forming a partnership: If your business has multiple partners or owners, an LLC may not be feasible.
- Higher than usual liability risk: High-risk industries may need the greater protections that come from incorporation.
- Working in regulated industries: Some industries (such as finance) prohibit LLC formation.
Other structures to consider
If an LLC isn’t the right approach, consider one of these other structures.
- Sole proprietorship: Default/automatic structure. Good for simple businesses with very low liability and those still in the testing phase.
- Partnership: Simplest structure when two or more people own the business. Common for law firms and certain finance companies.
- S corp: A special type of corporation with fewer requirements but more limitations than a C corp. S corps are not subject to Colorado income tax but operate as a pass-through. Ideal for businesses that need incorporation and qualify.
- C corp: A legal entity separate from owners. Requires extensive record-keeping and paying business income tax. Ideal for companies that intend to go public, sell multiple classes of stock, or raise capital.
How to get an LLC in Colorado
Setting up an LLC in Colorado is a straightforward process, and most business owners and business types can get started quickly.
Just follow these five steps to open your LLC:
Choose a name and check availability
Step one for a successful business is picking the right name. But that name needs to be unique in the state. To use a business name in Colorado, you first need to make sure no one else is using it. Go to the Colorado Secretary of State’s name availability search and see if the LLC name you want is available.
If not, keep brainstorming until you find a business name that suits you and isn’t taken. Once you have a name, you’re ready to file your first documents.
File Articles of Organization online
Businesses in Colorado must file their initial documents online from the File a Form page. On that page, select “limited liability company (LLC)” and follow the steps. This is a fast, low-cost step that officially establishes your LLC in the state.
An articles of incorporation template can help you file quickly and make sure you include all the information necessary.
Designate a registered agent
Colorado requires every LLC to appoint a registered agent. This can be you, an employee, or a vendor. Your registered agent acts as your representative, receiving legal and tax documents for your business.
To qualify, your registered agent must have a physical address in the state. If you’re setting up an LLC in a state other than your home state, getting a registered agent can be a little challenging — but not with Stable. We offer registered agent services in all 50 states, along with our virtual mail solution.
Create an operating agreement
State law in Colorado doesn’t require an LLC operating agreement, but creating one is still a good idea. This document defines various roles within your LLC, clarifying who owns and manages the business.
If you’re a solopreneur with no plans to hire employees, an operating agreement is less important. But if you’re a multi-member LLC or plan to grow or scale your company, an operating agreement can save you legal hassle later on.
Apply for an EIN
Next up is applying for an EIN. This is a simple process with the IRS. In most cases, you can get an EIN in a few minutes.
Technically, you can create an LLC without an EIN. But functionally, you’ll still need one to do many basic business functions. For example, an EIN makes it possible to handle business taxes, hire employees, and open a business bank account.
Ready to form your Colorado LLC? Let Stable help
Forming an LLC in Colorado is the smart choice for many solopreneurs and businesses — whether you’re located in the state or not. And once you’ve formed your LLC, take the next steps to set up business operations with Stable.
Our virtual address helps you stay compliant, giving you a real physical address you can use for tax, business formation, and banking purposes. And the accompanying professional virtual mailbox service keeps your everyday business operations running smoothly. We digitize all your paper mail so you can access your mail from anywhere, taking action on your mail (even depositing checks) no matter where you’re working.
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Ready to streamline operations with compliant virtual mail?
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Now Stable is an even stronger choice for Colorado LLCs, offering virtual address service in the heart of Colorado. Sign up today to choose Denver (one of our newest locations) for your LLC’s virtual address.
*Disclaimer: Stable is not a legal or accounting firm, therefore we cannot provide tax or legal advice. You should consult legal and tax professionals for advice on how to meet ongoing obligations that apply to you and your company.
