Are you looking to form a professional limited liability company (PLLC) in Colorado, but you’re not sure how the formation process works? There are several important steps when it comes to creating a Colorado PLLC that is compliant and able to do business in the state.
What is a Colorado Professional LLC?
The professional limited liability company (PLLC) is a specialized type of LLC that is intended for licensed professionals to offer their unique services. In Colorado, a PLLC is an LLC that is formed solely for the purpose of providing a professional service to the public. Certified public accountants, architects, attorneys-at-law, chiropractors, dentists, engineers, land surveyors, optometrists, physical therapists, physicians and surgeons, podiatrists, professional counselors (including marriage and family therapists and addiction counselors), psychologists, social workers, and veterinarians are all able to organize PLLCs in Colorado.
The Colorado PLLC is typically more popular than a professional corporation (PC) because it’s a more flexible business type, but it still includes the personal asset protection and professional qualifications that make the PSC valuable.
PLLCs in Colorado have relatively simple formation and maintenance requirements, several options for how they want to be taxed, and flexible management. From one-person businesses to multi-member PLLCs with several owners, the PLLC is a popular choice for a reason.
An important detail of the PLLC that differs from a traditional LLC is that liability protection is not shared across all members of the company. For example, if you operate a PLLC for physicians, your business structure does not shield each individual member from malpractice suits. Instead, each member is liable for their own malpractice insurance, and no member is liable for another member’s malpractice.
Forming a PLLC in Colorado (in 6 Steps)
Step One) Choose a PLLC Name
Your PLLC’s name is often the first impression you get to make on potential customers, and therefore it goes without saying that this is an important step. There are a few different aspects to take into consideration when selecting a name for your business:
Legalities
Colorado permits professional limited liability companies to use the following words in their names: "professional service corporation," "professional service company," "P.l.l.c.,” or "pllc." You can also use "limited liability company,” "ltd. liability company," "limited liability co.," "ltd. liability co.," "limited," "l.l.c.," "llc," or "ltd." You cannot include words that indicate other business types, such as “corporation” or “incorporated.”
Explanatory Naming
Another aspect to consider is including language that explains what your business does. For example, if you’re a doctor, put the word “physician” or the initials “MD” in your PLLC name. Additionally, if your business has strong values like being environmentally friendly, you can indicate that by including the word “green.”
Do You Like It?
At the end of the day, this is your business, and you should choose a name that makes you proud. You should also make sure your PLLC name both sounds good when spoken out loud, and looks good when written down.
Name Availability
The most important consideration for naming a PLLC is to not get too attached to any one business name until you know that it is available for use. To confirm whether your chosen name is available, you should conduct a search using the Colorado Secretary of State’s Name Availability Search tool. For a $25 fee, you can reserve your business name for 120 days by submitting a name reservation request online.
Step Two) Designate a Registered Agent
Every PLLC in Colorado is required to designate a registered agent, which is the individual or business entity that receives government correspondence on behalf of your business, then forwards those documents to you.
In Colorado, some restrictions are placed on who can be appointed as your PLLC’s registered agent. A domestic entity can serve as your registered agent if its usual place of business is in Colorado. A foreign entity can be appointed if it has authority to transact business in Colorado and a usual place of business in Colorado. An individual can also be appointed if he or she is at least 18 years of age and has his or her primary residence is in Colorado. You can only appoint one registered agent, and your registered agent must consent to the appointment. A company can also serve as its own agent.
Without a registered agent, you could lose your good standing with the state of Colorado, and the state also has the right to dissolve your PLLC if they decide to. In a worst-case scenario, the state could fail to alert you regarding a lawsuit against your company, which could even lead to a judgment against your business because you didn’t defend yourself.
Our Recommendation
At the end of the day, we recommend hiring a dedicated registered agent service to handle these requirements. Doing so will help eliminate junk mail and more importantly, keep your personal and/or business address off public record.
Step Three) File Formation Documents with the State
Once you are ready to form your Colorado professional limited liability company, you will fill out the Articles of Organization.
This is THE document that will register your PLLC with the state. You’ll want to ensure all of the following information is correct on the form:
- Name of your PLLC
- Principal office address of your PLLC
- Mailing address of your PLLC, if different from the street address
- Name and address of your PLLC’s registered agent
- Confirmation that the registered agent has consented to appointment
- Name and mailing address of each person forming the PLLC
- Confirmation of whether your PLLC is member-managed or manager-managed
- The delayed effective time of the Articles of Organization, if applicable
- Name and mailing address of each person causing the Articles of Organization to be delivered to the Secretary of State
The form must be completed and submitted online through the Colorado Secretary of State’s website.
Cost to Form a PLLC
The Colorado Secretary of State charges a fee of $50 to file the Articles of Organization.
Processing Time
The Articles of Organization may only be filed online and will be processed immediately after being submitted.
Step Four) Create an Operating Agreement
After you register a PLLC in Colorado, create a detailed outline that explains how you will run and manage your new business. Even though it doesn’t need to be filed with the state, put one together and keep it for your records.
When you open a bank account, you may be asked for a copy of this document. You’ll also want to keep in mind that any future business partners or managing members may also be interested in seeing your operating agreement before joining your company. After all, this document essentially serves as your overall plan for success.
An attorney can help you outline your operating agreement, or you can create one from a free template online. You can read more about operating agreements here, but some of the basic information you’ll want to have includes:
- Individual members' ownership percentages
- Rights and responsibilities
- Voting powers and meeting guidelines
- Allocation of profits and losses
- Management rules for the PLLC
- Provisions for buying a member owner out, or transferring their shares in the case of illness or death
Step Five) Handle Taxation Requirements
Federal Requirements
The vast majority of PLLCs require a federal tax ID number, or EIN. An EIN is basically the business version of a social security number, and it’s used for a variety of important PLLC functions.
For instance, you’ll need an EIN if you want to hire any employees, and many banks require them to open business bank accounts as well. You’ll also need one for tax purposes, hence the name federal tax ID number. Get an EIN for your LLC for free through the IRS.
State Requirements
PLLCs in Colorado are pass-through entities, meaning that the income is distributed to the PLLCs members, who then pay individual income tax. You may also elect for your PLLC to be treated as a C corporation for taxes purposes, in which case it will be subject to Colorado corporation income tax. Other taxes, such as the sales & use tax, may also apply to your PLLC.
For more information on taxes in Colorado, you can visit the Colorado Department of Revenue Taxation Department’s website. The Colorado Department of Revenue also maintains a free, one-stop online portal, Revenue Online, where you can file taxes, check the status of refunds, and manage tax accounts.
Local Requirements
Depending on where in Colorado your business is located, you may also need to pay some local taxes. You should check with the city in which your business is located for information about taxation requirements. Colorado’s four largest cities also offer business resources online: Denver, Colorado Springs, Aurora, Fort Collins.
Step Six) Obtain Business Licenses and Permits
General business licenses are not required in Colorado, but one or more industry- or profession-specific licenses may be required in order to legally operate your PLLC. The Colorado Department of Regulatory Agencies website includes a list of licenses and permits and application instructions. The Colorado Department of Revenue also issues sales tax licenses, if necessary. You can find out more about sales tax licenses on the Department of Revenue’s website.
Would You Prefer a Professional Form Your PLLC?
If you would prefer to have a professional handle the paperwork for you, consider hiring an online business formation service.
Because of the often-complex nature of professional limited liability companies, some of our favorite service providers don’t offer PLLC formations, but there are still plenty of quality companies that do provide this service. A couple of our favorites for PLLC formation are LegalZoom and MyCorporation.
Another option would be to hire a business attorney to handle your PLLC formation. While this is certainly a more expensive route than using an online formation service, a lawyer’s expertise could come in handy when you’re forming a specialized business structure like this.
Next Steps: What to Do After Creating a PLLC in Colorado
Open a business bank account
We highly recommend that you establish a separate business banking account so that your business and personal finances are maintained completely separate. This is important because it helps protect your personal assets and also makes filing taxes much easier. Once you receive your EIN from the IRS, you’ll be able to use it to establish an account at the bank or credit union of your choice.
Business insurance
Companies with one or more part- or full-time employees in Colorado are generally required to obtain workers' compensation insurance. Additional information on Colorado’s workers’ compensation insurance requirement can be found on the Colorado Department of Labor and Employment’s website. For general information on insurance for businesses in Colorado, you can the Small Business Guide to Insurance on the Colorado Department of Regulatory Agencies website. Though not required, it’s probably also a good idea to pursue general liability insurance, as well as some industry-specific policies pertaining to the profession practiced by your PLLC.
Understand income reporting
Income reporting is just what it sounds like – reporting the income you made from your business. It’s important to note that you must file this form whether you made or lost money over the course of the year.
Tax forms and instructions for the various Colorado taxes that may apply to your PLLC can be found on the Colorado Department of Revenue’s website.
Understand annual reporting
All reporting entities in Colorado, including PLLCs, are required to file periodic reports with the Colorado Secretary of State. The periodic report is used to update information about your PLLC and maintains the “Good Standing” of your PLLC. Filing instructions and other information about periodic reports in Colorado can be found on the Secretary of State’s website.
Find an accountant
We don’t recommend that you attempt to manage your business finances without the help of a professional. There is too much room for error, and a professional can ultimately save you time and money by guiding you on how to best manage your business finances. At a minimum, enlist professional help to set you up with software and the steps for keeping up with your finances on a regular basis. Then, consult back with your accountant at least a couple of times per year – and especially at tax time – to ensure you’re keeping track of everything correctly.