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Whether you’re renting skis in Vail or hiking gear for the Rockies, Colorado entrepreneurs should form LLCs for their tax and liability benefits.
4 QUICK, EASY STEPS TO FORM YOUR COLORADO LLC
- 1. Decide What to Name Your LLC
Before filing your LLC with the Colorado Government, you need to decide what to call your LLC. This name must be distinguishable from every other business entity formed or authorized to do business in Colorado, and must contain one of the following designators: “limited liability company,” “ltd. liability company,” “limited liability co.,” “ltd. liability co.,” “limited,” “l.l.c.,” “ltd.,” or “llc.”
- 2. Filing With the State
After choosing a name, the LLC must then have a person over 18 years old file Articles of Organization with the Secretary of State. These must include: the LLC name, the principal office address of the LLC, the name and address of the Registered Agent, the name and address of the person forming the LLC, whether members or managers will manage the LLC, and a statement if there is at least one member of the LLC. When these Articles of Organization have been completed, they are submitted to the Secretary of State for approval with a $50 filing fee.
- 3. Executing an Operating Agreement
The Operating Agreement, which does not have be in writing, will be the LLC’s governing document. While it is not explicitly required by Colorado law, it is a good idea to have a written Operating Agreement to set forth rules for the LLC’s internal and external affairs.
- 4. Continued Compliance
Annual Reports: Colorado LLCs must file annual reports with the Secretary of State to maintain their status. These reports are accompanied by a $10 filing fee, and must include the LLC name, the name and address of the Registered Agent, and the address of the LLC’s principal office.
EIN: Employees and members of a multi-member Colorado LLC will need the LLC to obtain an EIN for tax purposes. This can be done directly by requesting it from the IRS, or an incorporation service like Incnow® can do it for you.
WHY FORM AN LLC IN COLORADO?
The Benefits and Advantages of Creating a Colorado LLC
The Colorado LLC Act expressly endorses the freedom of contract. It gives LLC members contractual freedom to customize their contributions, rights, duties, and distributions of profits and losses. In addition, it gives members contractual freedom to customize the duties each party to the LLC agreement owes to the other parties, and it allows members to protect their control of an LLC.
Colorado Is a Leader in Entrepreneurship and Innovation
Each year, Colorado forms over 50,000 new LLCs. Colorado has over 175,000 active LLCs. The U.S. Chamber of Commerce ranks Colorado second on its list of the top ten states for entrepreneurship and innovation. It also ranks the state third in business birth rate and seventh in median family income.
- Advantages of Forming a Colorado LLC
The Colorado LLC Act expressly endorses the freedom of contract. It states its policy is “to give the maximum effect to the principle of freedom of contract and to the enforceability of operating agreements.” Moreover, section 7-80-108 provides “an operating agreement governs the rights, duties, limitations, qualifications, and relations among the managers, the members, the members’ assignees and transferees, and the limited liability company,” and with only three narrow exceptions, “[s]uch provisions shall control over any provision of this article to the contrary.”
The Act enables members to create classes of membership. Under section 7-80-706, an LLC agreement may establish classes of membership interests with different rights, powers, and duties, including Voting and non-Voting interests. These provisions facilitate everything from complex, high-dollar-volume transactions to succession planning in family businesses and estate planning by gifts of non-Voting interests.
The Colorado LLC Act gives members contractual freedom to customize their capital contributions and their shares of profits and losses. The Act provides a default rule that allocations of profit and loss and distributions will be based on the value of each member’s contribution to the LLC. Under the freedom of contract provision in section 7-80-108, however, members may choose any method of allocation to govern through an LLC agreement. This gives members contractual flexibility to adapt their income streams and risks of loss to further their broader asset management plans.
The Act does not require filing of members’ names. A “person” may form an LLC by filing its Articles of Organization with the Colorado Secretary of State, and the definition of “person” includes almost any kind of business or legal entity. Section 7-80-203 expressly states an LLC’s members may have an entity or person who is not a member file the LLC’s Articles of Organization.
Dealing with Business Partners
The Act gives members and mangers contractual freedom to “opt out” of default fiduciary duties by including a provision in an LLC agreement. Section 7-80-108 provides an LLC agreement may eliminate or restrict a member’s or manager’s duties “as long as any such provision is not manifestly unreasonable.”
Preventing Unwanted Business Partners
The Colorado LLC Act allows members to protect their control of an LLC. An LLC agreement may prohibit members from assigning their membership interests. But if an LLC agreement does not prohibit it, an assignment does not dissolve the LLC or entitle the assignee to become a member. Instead, the assignee may receive only the distributions to which the assignor would have been entitled.
Creditors Only Get Passive Rights, Not Control Rights
If a judgment creditor of a member obtains a charging order against the member’s membership interest, “the judgment creditor has only the rights of an assignee or transferee.” Although a judgment creditor may foreclose on the membership interest, any one or more of the other members or the LLC itself may purchase the foreclosed membership interest.
- Colorado Registered Agent
A Colorado LLC must continuously maintain an agent for Service of Process in the state. A Commercial Registered Agent service may act as a Colorado Registered Agent.
Because of the advantages of forming an LLC in Colorado, over 50,000 new LLCs are formed in the state each year. Should you wish to have more flexibility and protection, you may instead form a Delaware LLC even if you operate in Colorado. What are the advantages of a Delaware LLC? (Delaware LLC) We can then help you file an application for registration to do business in Colorado with your Delaware LLC.
- Colorado LLC Act Statutory References
§ 7-80-102 “Definitions” § 7-80-108 “Effect of Operating Agreement—Nonwaivable Provisions” § 7-80-203 “Formation” § 7-80-204 “Articles of Organization” § 7-80-301 “Limited Liability Companies—Registered Agents—Service of Process—Periodic Reports” § 7-80-404 “Duties of Members and Managers” § 7-80-503 “Sharing of Profits and Losses” § 7-80-504 “Sharing of Distributions” § 7-80-702 “Interest in Limited Liability Company—Transferability of Interest” § 7-80-703 “Rights of Creditor Against a Member” § 7-80-706 “Voting” § 7-80-901 “Foreign Limited Liability Companies” § 7-80-902 “Registered Agent—Service of Process” § 7-90-501 “Periodic Reports” § 7-90-701 “Registered Agent” § 7-90-707 “Commercial Registered Agent” § 7-90-801 “Authority To Transact Business or Conduct Activities Required” § 7-90-802 “Consequences of Transacting Business or Conducting Activities Without Authority”
Colorado vs. Delaware LLC's: Which State Is Better?
|States||LLC Filing Fee||Required to Name Members or Managers||Report Frequency||Annual Fee?||Reduce Fiduciary Duties?||Series?||Charging Order as Exclusive Remedy||Maximum Freedom of Contract||Separate Equity Court?|