Your Colorado LLC doesn’t need to be formed in Delaware. Many Colorado entrepreneurs mistaking believe forming an LLC in Delaware will give them added tax benefits as well as liability protection. Quite the contrary. Forming a Delaware LLC may not be the best thing for Colorado business and here’s why.
YOU’LL NEED TO REGISTER AS A FOREIGN LLC IN COLORADO
If you want to conduct in the state of Colorado you’ll have to register of a either a domestic or foreign entity. By foreign, the secretary of state means any company not formed in Colorado. This means you’ll not only have to register in the state of Delaware, but in the state of Colorado as well.
Your initial filing fees will be $190.00 and your annual fees will be $310.00 approximately. If you were to form your business just in Colorado your initial filing fees will be $50.00 and your annual fees will be $10.00. Also, Delaware businesses are required to have a registered agent with a Delaware address. On average it costs about $100 a year for this service. Colorado businesses formed in Delaware pay an additional $400 a year in fees. Lastly, Since, there are a lot of additional record keeping requirements, there is a greater risk of an owner or manager messing up.
YOU’LL STILL HAVE TO PAY COLORADO TAXES
If you make money in the state of Colorado, you’ll be paying Colorado taxes. LLCs by nature are pass through entities which means the tax burden, “passes through” to the members or owners. The state of Delaware does not have the authority to determine your Colorado tax burden, nor does it have the authority to determine your federal tax burden. There are no significant tax benefits to forming your LLC in the Blue Hen State.
LITIGATION STRATEGY BASED ON A FALLACY
Some folks believe the Delaware Court of Chancery give business owners more favorable outcomes in limiting their personal liability exposure. In the long run however, this strategy is more costly and is not more likely to yield a favorable result.
Litigation is an expensive undertaking; especially if you need to hire lawyers in both Colorado and Delaware. One who is familiar with the Delaware court idiosyncrasies, and a Colorado attorney who’s familiar with local laws from which the claim has arisen.
Also, the Courts in Delaware decide corporate cases at a fast pace. This may be great for if you’re the plaintiff, but if you’re a defendant seeking to use delay proceedings as a litigation strategy, you may be out of luck.
Lastly, it may take longer to receive notice you’re being sued. You’ll be relying on a Delaware registered agent to forward the legal documents to your registered agent here in Colorado. Who would then forward those documents to you.
COLORADO LLC LAWS ARE SIMILAR TO DELAWARE’S
Both states use a charging order as the only way a creditor can seize the assets of an LLC or the ownership interest of an LLC member. The ownership interest under the charging order has only the rights of an assignee or transferee of the membership interest.
Neither Colorado nor Delaware require the members or owners be listed or named in any public documents, ensuring the privacy of the members.
COLORADO IS A BUSINESS FRIENDLY STATE
For many reasons, Colorado is a business friendly state. Unless your seeking venture capital money or sophisticated investor funding in the first two years of business, there’s no reason to form your LLC in Delaware. There’s no substitute for doing the work. Focus your energy on running a legitimate and successful company here in Colorado where you actually live and do business.
This article is for educational purposes only, and does not constitute legal advice about your case or situation. There may be exceptions to the information outlined above. Please consult an attorney if you have specific questions about your business.Follow me on social media: