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Last Updated on Oct 22, 2021

How to Start a Business in Colorado

The Centennial State is an excellent place to do business. Colorado boasts the second-strongest economic climate overall, and it’s growing rapidly, with the 3rd highest population growth of any US state. And as Colorado’s population swells, so do its ranks of entrepreneurs: Currently, Colorado has the 6th highest rates of new entrepreneurs in the nation. 

If you’re looking to join the ranks of Colorado entrepreneurs, you are far from alone. As of 2019 data, there are more than 630,000 small businesses in Colorado, with thousands more opening each year. 

But how do you start a business in Colorado? The answer depends on a variety of factors, including the type of business you want to start (LLC, corporation, etc.) 

If you’re looking to start a Colorado business, this is the guide for you. The guide below will walk you through everything that you need to do to plan, start, and grow your new company.

First and foremost, you’ll need to decide what kind of business you want to start. Chances are you already have something in mind, but if not, here are some things to consider:

  • What are you talented or naturally skilled at? Could this talent make you well suited to a certain type of business?
  • What business does your community need? Have you talked to people to find out?
  • What are you interested in? Can you combine any of your passions with a business idea?
  • Is this going to be a full time business, or more of a side hustle?

These are questions to ask yourself when deciding on a business idea. Once you have decided, move on to the next step.

Now it’s time to start planning. This means coming up with a business plan, naming your business, researching locations, and more. There’s a lot to cover here, so let’s break it down:

Select a business name

Planning a business starts with naming it. You’ll want to come up with a name that is catchy, describes your business well, and most importantly, one that is not already in use by another business. 

Business names must be distinguishable from the names of existing businesses in Colorado. This is specific to the type of business entity, meaning that a new LLC must be unique from all other LLCs in the state. You can use the business name database and the name availability search to search and determine whether or not a business name is available or not. 

In addition to finding a unique name, the business name must satisfy various rules and requirements. 

  • The name must be distinguishable from other CO businesses
  • LLC names must contain the words “limited liability company”, or approved abbreviations like “LLC” or “L.L.C.”
  • Certain words or phrases require additional written permission in order to use. This includes financial terms like “bank”, “trust” or “credit union”, among others.
  • Other rules apply. Check with the CO Secretary of State if you have questions. 

Once you decide on a name, then you can move on to formally start the process of registering your business. Alternatively, you can reserve the name in advance. This gives you some time to think about the name, while reserving it in case you do end up wanting it. 

Colorado Doing Business As (DBA) names

It’s also wise to consider that Colorado does allow for the use of trade names, also known as “doing business as” names or DBAs. A trade name is basically a secondary name that you can do business under. Once you have registered your business, you can add a trade name, allowing for more flexibility in marketing and branding your company. 

You can file for trade names once your business is incorporated. These are secondary names that are essentially “attached” to your business license. 

Register a domain name

Once you choose a name, you should immediately register a domain name for your new business. In most cases, getting a .com domain name is ideal, but there are many other extensions (.biz, .net, etc.) that are worth considering. 

You can use a tool like Namechk to search for an available domain name and find a great deal on the registration cost. You may find that your desired names are taken, so you may need to get creative. 

Complete market research

Once you have an idea, you’ll want to do some market research. You want to gain a better understanding of who your customers – and competitors – are. You can achieve this by conducting online research, running focus groups, sending out surveys, and more. There are also companies that can help you complete market research, for a fee. 

Select a business location

Unless you plan to run a remote/virtual business, you will need to find a physical location for your company. Research commercial property in your area, and take note of typical costs. For customer-facing businesses (retail and some services), location is very important, so take your time in selecting the right area for your business. 

Create a business plan

You will now need to create a detailed business plan for your new venture. This plan is helpful for your own purposes, and will also be necessary in order to obtain funding from a bank. A good business plan should contain these elements:

  • Finances: How much funding does the business need to get started? How many sales does it need each month to break even on expenses?
  • Product: What do you plan to sell? Is it a product or a service? What problem does your business solve, and how is it distinct from your competitors?
  • Marketing: How will you drive sales? What marketing and sales efforts do you plan to employ? How much money will you set aside to fund marketing efforts?
  • Staff & Partnerships: How many people will you need to hire, and what skill sets do they need to have? Will you have any partnerships or arrangements with other local businesses? 

If you need help, you can find business plan templates online that will help walk you through the steps you need to take to draft a detailed business plan. If you plan to seek funding, you may also wish to call your bank to see what they require in terms of business plans. 

Before you form your business as a legal entity, you will need to decide which business structure you will use. There are a few different types of businesses, each with its own pros and cons.

Sole proprietorship

Sole props are single-person operations. Examples include freelancers, gig economy workers and consultants. A sole proprietorship business is very easy and inexpensive to form, and tax reporting is also fairly simple. As a sole proprietor, your business taxes are reported as part of your personal tax return.

The downsides to a sole prop are that you cannot hire employees, and you don’t have the legal liability shield that something like an LLC or corporation would provide. 100% of the debts and liability of a sole proprietorship go to the sole owner: you. 

Partnership

A general partnership is an unincorporated business structure similar to a sole proprietorship, except with two active owners/participants. Partnerships do not have liability protection. 

Limited Liability Company (LLC)

A limited liability company, or LLC, is a popular choice for business owners because it provides liability protection to the owners. It separates the business from the owners, which means the personal assets of owners will not be at risk if the company gets sued or goes into bankruptcy. 

LLCs are also a bit easier to form than corporations. Even so, there is definitely more work involved with an LLC than there is with a sole proprietorship. 

Corporation

A corporation is owned by its shareholders, and is a separate entity. There are a few different types of corporations (C-corp, S-corp, etc), with the main differences being the way they are treated tax-wise. 

Corporations are more regulated than LLCs, which makes them more attractive to outside investors. For this reason, most large companies are corporations. The downside is that it takes more effort, and more paperwork, to form a corporation. 

Nonprofit

A nonprofit is a legal entity that is set up with charitable status, meaning that its goal is not to make a profit, but rather to address a certain cause. Nonprofits are funded by donations, rather than investors, and are subject to many regulations. They are exempt from most forms of taxation, although tax returns must still be filed. 

Next, it’s time to actually register your company. The process will be a bit different depending on the business structure (LLC, corporation, sole prop, etc.) but the basics are similar.

For the easiest experience with this step, it’s helpful to use a business formation service. Northwest Registered Agent, ZenBusiness, and Incfile are all great options. 

These companies guide you through the entire formation process and ensure that you don’t make any mistakes or miss any important steps. 

The basics of forming a Colorado business include:

  1. Deciding on a name for your business (see step #2 above)
  2. Choosing a Registered Agent (or using a professional registered agent service like Northwest Registered Agent). This agent is tasked with handling legal correspondence on behalf of your business. 
  3. Filing formation documents with the state of Colorado
  4. Applying for an Employer Identification Number (EIN) from the Internal Revenue Service (IRS)
  5. Applying for other necessary permits, licenses, and tax accounts
  6. There may be other steps as well, depending on the business

Form a business in Colorado

You will need to work with the Colorado Secretary of State. The process is best handled online, but there may be in-person or mail options available as well. Check with the Secretary of State’s office for details. 

Form a Colorado sole proprietorship

Follow these steps:

  1. Register a trade name (this is only required if you are doing business under a name other than your own legal name)
  2. Apply for a business license from your local city/county government, if required

For LLCs and corporations, the process is a bit more involved. 

Form a Colorado LLC

Follow these steps:

  1. Name your LLC (see above)
  2. Choose a Registered Agent (or use a service)
  3. File the LLC Articles of Organization online, and pay the $50 filing fee. This must be filed online
  4. Draft an LLC operating agreement
  5. Apply for an EIN with the IRS

Form a Colorado corporation

Follow these steps:

  1. Decide on a corporate tax structure (C corp or S corp)
  2. Name your corporation 
  3. Hold an organizational meeting and appoint corporate directors/officers
  4. File the articles of incorporation online, and pay the filing fee
  5. Apply for an EIN with the IRS

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Registering your business and forming an LLC or corporation is an important part of starting your business – but in order to operate legally, you will likely also need to obtain certain permits and/or business licenses

The specifics vary depending on the type of business you are running, as well as your location. For example, restaurants will need health permits, bars will need liquor licenses, and medical service providers will need various professional licenses and federal permits. You will need to research the specifics that relate to your business type.

There are different requirements at each level of government:

  • Local: Cities and counties may require certain business licenses or permits. Contact your county clerk for details.
  • State: Colorado may require certain permits or licenses. See this business checklist for more information.
  • Federal: Federal permits/licenses may be required for certain regulated industries, such as construction, medicine and legal services. Check the Small Business Administration (SBA) guide for more details. 

At this time, you should also apply for an Employer Identification Number (EIN). An EIN is a federal tax ID that is required to hire employees. You can apply for an EIN online with the IRS – the application is free and quick.

For most businesses, some startup funding will be necessary in order to get started. In step #2, you should have calculated your funding needs while drafting a business plan. Use this information to determine how much funding you need to raise.

For bootstrapped companies, you may be able to get by with your own personal savings, or some seed investments from friends and family. If your funding needs are small, this is likely your best route.

If your business plan indicates that substantial funding is needed, you will likely need to apply for a loan and/or a grant.

  • Small business loans are offered by banks, credit unions and other lenders. They can range from as little as a few thousand to hundreds of thousands. Specifics will depend on your business, as well as your personal creditworthiness. Most small business loans are issued in a lump sum, and paid back on a monthly basis, with interest.
  • Small business grants are offered by government agencies and some nonprofits. They are essentially business loans that don’t need to be paid back – but they usually have substantial fine print. It’s worth looking into, however, as there may be grants available, particularly for businesses serving an important social need, or for underprivileged entrepreneurs starting their first business. 

Beyond securing funding, there are other routine tasks that you need to take care of to get your business’ finances in order. This includes:

  • Opening a business checking account. You should have a separate business bank account that you use solely for business purposes. You can open this account at most banks, credit unions and financial institutions. Call ahead to see what documents will be required to open this account.
  • Open a business credit card or line of credit. This is not strictly necessary, but most businesses can benefit from having a business credit card, and/or a business line of credit. This can be used for day-to-day expenses and purchases, and may also earn you some rewards. 
  • Set up your accounting system. As a business owner, you will need to keep very detailed records about all revenue and expenses. To do this, you’ll want to set up the proper foundation from day one. This could be investing in an account software such as QuickBooks or Xero, hiring a bookkeeper, or at the very least establishing a spreadsheet to track everything. If you do not have any accounting experience, it’s wise to hire a professional to help. 
  • Purchase business insurance. Most businesses should have some form of liability insurance, and potentially other forms of business insurance as well. Insurance policies can help protect your equipment and buildings from costly damage, and help shield your company from liability if a worker or customer is injured or otherwise harmed. Speak with a local business insurance provider to get started. 

In this day and age, having a solid web presence for your business is very important. And social media profiles, while important, are no replacement for an actual website. You will want to build a professional business website that you can use to drum up business, inform your customers, and stay connected with your clientele. 

The simplest way to build a website is to use a website builder from a web hosting provider. When you register a new domain name, look for a provider that also offers web hosting and a site builder, so that you can purchase everything at once and get your site set up quickly.

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Unless you plan to operate a solo business (with you as the only worker), you will likely need to hire employees. To do this, you will need a federal employer identification number (EIN), which is a free tax ID number issued by the Internal Revenue Service (IRS).  

There are also state-level requirements for employers. Businesses must report new hires to the Colorado Office of Economic Security. Businesses also need to file for unemployment insurance tax, as well as withholding tax

Finally, your employees may need permits or licenses, depending on the type of business. For example, restaurant workers will need health permits, and healthcare workers will need professional licenses. Ensure that your employees meet all requirements. 

At this point, you also should look into setting up your payroll system – whether you handle it yourself, or use a payroll service.

Now it’s time to getNow it’s time to get down to business and engage with the day-to-day activities that are sure to bring your business success. This means marketing your products and services, maintaining good relationships with your return customers, and setting yourself apart from the competition.

Still have questions about running a business in Colorado? Here are some answers to frequently asked questions.

What are some business resources in Colorado?

There are a variety of resources available to Colorado entrepreneurs. A great place to start is the Colorado Small Business Development Center (Colorado SBDC). This resource provides free business advisor services, webinars and training, and many other useful resources. The Colorado District Office of the Small Business Administration (SBA) is another good option to explore.

What is the minimum wage in Colorado?

The Colorado minimum wage is $12.32 per hour, and $9.30 per hour for tipped employees. This is valid as of January 2021. The minimum wage is set by the Colorado Department of Labor and Employment, so business owners can check there for the latest updates. 

Keep in mind that cities and municipalities are able to set their own minimum wage laws. For instance, the minimum wage in Denver is $14.77 per hour. Be sure to check details in your local area.

What business taxes does Colorado have?

There are a variety of business taxes in Colorado. Businesses selling taxable goods and services must collect and pay sales and use tax, both on the state level and local level. Employers must pay unemployment insurance tax as well as withholding tax

Many firms will be subject to business income tax and other state taxes. Specialty taxes may be collected for industries like alcohol and tobacco sales, or gambling. Check with your CPA for details.

How do I dissolve an LLC or Corporation in Colorado?

If you end up needing to close your business, you will need to dissolve it. You will need to shut your tax accounts with the state, file any outstanding returns, and file the Statement of Dissolution. There may be other requirements, depending on the business.

Closing a business can be complex, so you may wish to hire a certified public accountant (CPA) for help with this process.

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