A Do-It-Yourself Guide to Form an LLC in Colorado
I’m just going to get this out there right away: I do NOT recommend forming an LLC in Colorado by yourself without the help of an attorney or at least an experienced business person. It is pretty easy to form an LLC in Colorado. It’s inexpensive ($50 currently), fast (only takes a few minutes, usually) and you do not need much information other than your business name and address. Yet, despite how relatively simple it is to form an LLC in Colorado, it is still incredibly rare that I see a client who has done it perfectly. So I am going to walk you through the steps to form an LLC in Colorado and point out some of the biggest mistakes that new business owners commonly make.
Step 1: Finding the right forms online.
Go to the Colorado Secretary of State Business Organizations website. Select “File a business document” under the “Search & File” heading. Then hit the “File a form to create a NEW record” link. Then under “LLCs, Corporations & Trade Names” select the “Limited liability company (LLC)” link.
Step 2: Filling out the Articles of Organization (this is where people screw it up).
Following the links as described above should land you at a page with “Entity Name” at the top. This is the first step in entering the information that will be on the Articles of Organization (the document that is filed with the Secretary of State to create the LLC).
A. Entity Name: Hopefully by now you have thought of the name that you want to use for your business. If you haven’t already done so, go to the Records Search page and see if another company is already using your name or something similar to it. Colorado does not have many rules when it comes to what you can name your LLC. It just basically has to be distinguishable from other already-formed LLC names. If your name is really clever or you think you may eventually want to get it trademarked, it would be beneficial to also do at least a preliminary search of the USPTO Trademark database.
The one rule that Colorado does have, which oddly enough is the thing that is most often missed by inexperienced LLC-creators is that your LLC name must contain some term or abbreviation of “limited liability company.” So you CANNOT create an LLC called “John’s Lawn Care.” It must be John’s Lawn Care with something else indicating that it is an LLC. It can be John’s Lawn Care, LLC, John’s Lawn Care, Limited, John’s Lawn Care, ltd., or any of the other options given at the top of the “Entity Name” page.
B. Principal Office Address: A lot of people use their home address here. This may be because the first step when you decide to start a business may be to form the LLC, so you may not have an office or business location yet. It’s okay to use your home address in that case, or if you are starting a home-based business.
C. Registered Agent Address: Companies are required to have registered agents for service of process. This means that you need to designate a person or company that can be served if the company is ever sued. You can be the agent for your own company, and you can register either your office/business address or your home address. Just keep in mind that if you use your home address, if you ever get sued, a process server will try to serve you at your home. This could disrupt your family, children, neighbors, etc. Similarly, if you operate a business where you commonly have customers or clients in your office, you may not want to have your business address as the registered agent since that may not reflect well on your business if your customers are there to see you getting served. There are companies that will provide registered agent services for a fee, (you can Google “registered agent services” to find some of them) so this may be a good option for some businesses, and many professionals with whom you work to start you business (a lawyer, accountant, etc.) will allow you to use them as the agent.
C. Name and Address of Person Forming the LLC: This is the business owner(s), aka the member(s). For multi-member LLCs, you can add an attachment to include the other members.
D. Management: This is where most people mess it up. So make sure you read this part. 🙂 Thank you. The owners of an LLC are called “members.” An LLC can either be member-managed or manager-managed. Click here for an episode of All Up In Yo’ Business that discusses this in a bit more detail.
Member-managed LLC: This is most common. Select this if all of the members (or only you, if you are the sole member) are going to actively participate in the management and operations of the business. Almost all single-member LLCs will be member-managed, at least in the beginning.
Manager-managed LLC: Select this if some of the owners are only investors providing financial support, and are not going to be involved in the day-to-day operations. Or if you are a sole member and you plan on hiring somebody else to take care of the business while you vacation and play golf all day (then call me and tell me what kind of business you are creating, because I want to do it, too).
E. Delayed Effective Date: If for some reason you do not want the LLC to come into existence right away, you can enter a later date. This is not very common, though.
F. Person Causing the Document to be Filed: This is the person who is typing the information into the computer to file the document to create the LLC and, if applicable, the person instructing that person to do the entering. Basically, this is the person that the State is going to hold responsible if there are lies or misinformation on the Articles of Organization. May be you, may be you and your business partner, or it may be your attorney/buddy/spouse, etc.
Step 3: Submit the form, review it, make sure it is correct, pay the $50, and presto! You have an LLC.
Step 4: There’s a step 4? Yes! You thought all you had to do was file the Articles of Organization with the Secretary of State? You, along with the vast majority of do-it-yourself business starters are wrong. Your LLC needs an Operating Agreement, especially if it is a single-member LLC. Whether you have your lawyer do it or you do it yourself using online legal forms (which I don’t suggest, but I will save that for another time), you must do it. It is also a good idea to draft Organizational Minutes. Click here to download a SAMPLE Operating Agreement for a Single-Member LLC.
Owners of an LLC need to understand that it is an ongoing process that requires consistent upkeep and regular record-keeping. It is almost always a better idea in the long run to have an experienced business attorney help you through the process. Most attorneys will do so for a very reasonable flat fee (My fees start at $500 to form a single-member LLC), and the benefits of starting your business off on the right foot will most certainly outweigh the costs.
What to Watch Next: Avoiding the Risks of a Single Member LLC