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Steps To Starting A Business In Colorado
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This post is for informational purposes only. You are responsible for checking and using this information appropriately. This content does not contain and is not intended to provide legal, tax or business advice. Requirements are updated frequently, so it’s worth doing your own research and contacting professional legal, tax and business advisors as needed. Businesses outside of Colorado will have different steps and requirements. To sell products on the platform, you must comply with the laws applicable to your business and your customers, the Terms of Service, the Acceptable Use Policy and any other applicable policies.
Where else can you find a diverse landscape of barren desert, river canyons and snow-capped Rocky Mountains? Colorado, whose population is drawn to the beauty of nature, boasts one of the best business climates in the country. Numerous programs and solid incentives support business owners, a skilled workforce and an accessible regulatory environment. One common way many small businesses and startups establish their professional presence is through a limited liability company, or LLC. Forming a Colorado LLC is relatively easy and beneficial. And if you’re ready to start a business in the Centennial State, here’s how to do it.
A limited liability company (LLC) is a business entity designation that provides business owners with some legal and financial liability protection. When you form an LLC, you create a separate legal entity that assumes financial responsibility for legal claims brought against the entity or most business debts, rather than putting you and your personal assets at risk.
The owners of an LLC are called “members,” and an LLC with one owner is called a “single-member LLC,” while an LLC with more than one owner is called a “multi-member LLC.” When it comes to taxes, LLCs are considered “pass-through entities,” which means that the company’s profits pass to the owner(s), who then include those profits when calculating and paying their personal taxes.
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A Colorado LLC has many benefits, including liability protection and certain tax advantages, although an LLC may not be the right choice for every business. Here are some advantages and disadvantages to consider:
Advantage: Members enjoy legal protection. Forming an LLC means that your personal assets are protected from any defaulted loans or lawsuits brought against your company.
Disadvantage: Liability protection is not absolute. In most cases, LLC members are not liable in lawsuits brought against their company. However, this may not be true if protocols for separating business and personal finances are not followed.
Advantage: Avoid double taxation. Double taxation occurs when companies are taxed on their profits and then those profits are taxed again when dividends are paid to shareholders. Because LLCs qualify as pass-through entities, you can skip corporate income tax entirely by paying taxes solely on your personal returns.
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Disadvantage: Restrictions for investors. LLCs taxed as pass-through entities require their investors to pay personal tax returns. While this may not bother some angel investors, you may need to change your tax structure to attract venture capitalists.
Advantage: Greater flexibility. Corporations are subject to regulations that do not apply to LLCs. For example, corporations must have a formal management structure and must hold annual shareholder meetings to maintain their status. LLCs, on the other hand, are not required to hold these meetings or have a board of directors.
Disadvantage: There are some documents. While LLCs are much more flexible than corporations, they still require more paperwork and filing fees than a sole proprietorship.
Choosing a name to represent your business can be a fun but also daunting task. Keep the name short, memorable and related to your products or services, and pay attention to the specific criteria for a Colorado business name:
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Before you seek capital or hire employees, create a business plan that outlines the foundations of your business and helps you understand and identify business needs, such as financing or your desired customer base. It can describe your company structure, define your mission, outline a profitable business model, define day-to-day operations (including expectations for leadership and employees), and incorporate appropriate market research to optimize your success. Your business plan can also help you attract lenders and investors, making it easier to obtain financing such as small business loans. Start creating your business plan with a template you can customize.
Your LLC needs a federal Employer Identification Number (EIN) – a nine-digit number issued by the IRS – to file taxes, open a business bank account, and hire employees. Apply by filling out the form on the IRS website.
All Colorado LLCs must file Articles of Organization with the Colorado Secretary of State. Registration in Colorado requires certain documents and a $50 application fee. Go to the Colorado business forms page, select your LLC, and then select “Online File” next to the Articles of Organization. (Note: Articles of Association forms are intended for people wishing to form a corporation, not an LLC.)
Anyone starting a business in Colorado needs a registered agent. A registered agent serves as the point of contact between your business and the state, gathering and filing legal documents on your behalf and delivering legal correspondence regarding your business. They must be at least 18 years of age and have a permanent address in Colorado. If you have a home or business address in Colorado, you can act as your own registered agent or you can use an agency that acts as a registered agent. Fees for these types of services vary, but are typically around $125 per year.
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Colorado does not issue or require a general business license. Rather, the city or county dictates licensing and permitting requirements. Before you open a business, you need to get your licenses and permits in order:
Colorado LLCs pay federal, state and local taxes. The national self-employment tax rate is 15.3% and applies in every state. In Colorado, LLCs (including corporations taxed as S corps) are not subject to additional state taxes, although owners pay a flat tax of 4.55% on their net income.
Colorado’s state sales tax is 2.9%, but some cities and counties may impose additional taxes. For example, Denver combines state tax with local sales tax for a total tax of 8.81%, while Boulder charges a total of 8.85%. You can use this website to search for additional jurisdictions and more detailed tax breakdowns. The Colorado taxes website provides important information about business taxes, including how and when to pay them and the minimum income required for payment.
Colorado does not require an operating agreement to form an LLC, but having one helps. The operating agreement outlines the structure of the company, details business goals, defines the roles and responsibilities of members, and outlines the division of shares, profits, and losses. This way, everyone involved is on the same page. A standard Colorado operating agreement requires:
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Once your operating agreement is created, make copies for safekeeping. You don’t have to formally submit the contract, but it’s good to have it on hand in case there are any misunderstandings or questions about the company and its operations.
Certain types of insurance are required to conduct business in Colorado. While most businesses should always purchase insurance, the specific types of insurance you need will depend on your business. Common types of business insurance in Colorado include:
Although Colorado offers a low business tax rate (4.55% starting in 2022), there are other monetary liabilities to consider, such as business registration fees (including all applicable licenses and permits), insurance premiums, inventory costs, marketing and real estate physical spaces. If you need help financing your business venture, you can try taking out a small business bank loan from qualified lenders or applying for capital through alternative financial loan programs.
11. Promote Your LLC Marketing is crucial if you want to give your business the best chance of success. It helps companies develop their brand and reach more people with their products and services. A company’s marketing activities may include creating a website, creating a video marketing campaign, advertising, a social media presence, and using metrics (such as click-through rates or sales growth) to get a complete picture of your target market and how to better reach them effectively.
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Filing documents for a domestic LLC costs $50 and $100 for foreign (out-of-state) LLCs. The annual fee is $10, with a $50 penalty for late payments.
Yes. All businesses registered in Colorado must select a registered agent as the point of contact for their business. Their name, mailing address and consent signature are required to successfully submit the Articles of Organization.
Colorado imposes a local tax of 2.9% statewide, although up to 8.3% local taxes can be added in various cities and counties.
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