Start a Business in Colorado
With a corporate tax rate well below the national average, a booming economy, and unbeatable access to public lands, Colorado is an excellent place to start a business.
To start a business in Colorado, all you have to do is start selling something. But if you want to make real money, protect your assets, and grow your business, you’ll need to do a lot more. Here’s a guide to starting your business in Colorado.
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1. Pick a Business Structure
Step one is to decide on a legal structure for your business. If you’re already selling stuff, you’re automatically a sole proprietor without liability protection—in essence, you are your business. If you’re sued, your business is sued. If you’re risk averse and want asset protection, you need to formally separate yourself from your business. LLCs and corporations do just that.
Colorado Limited Liability Company (LLC)
A limited liability company, or LLC, is a business entity that provides its owners with liability protection and tax options. LLCs are owned by one or more members. In most cases, members are not responsible for the business’s debts, and unless an LLC elects to be treated as a corporation, their owners generally enjoy pass-through taxation. Starting a Colorado LLC requires filing formation documents with Colorado’s Secretary of State and paying a $50 filing fee. Seriously, it just costs $50 to form an LLC in Colorado.
Like LLCs, corporations offer their owners (shareholders) excellent liability protection from lawsuits and liens, but they’re a lot more complicated when it comes down to actually running the business. Corporations are owned by their shareholders and managed by a board of directors. There is usually no limit to the number of shareholders a corporation can have.
Corporations also require extensive record keeping. They also have to deal with the so-called double-taxation, once on corporate profits, and again on each shareholder’s personal tax return. However, corporations are the preferred entity for business owners who are looking to attract investors and take their business to the next level. To start a Colorado corporation, you’ll need to file paperwork with the Colorado Secretary of State and paying the $50 registration fee.
Can an LLC be just one person?
It sure can! A one-person LLC is called a single-member LLC. Single-member LLCs are one of the most common kinds of businesses in the country. For the most part, single-member LLCs are just like multi-member LLCs, but there are some slight differences in how they file taxes and protect personal assets.
Read all about Single-Member LLCs.
What about Colorado nonprofits?
Nonprofits exist for an educational, scientific, religious or charitable purpose. Nonprofit corporations don’t technically have any shareholders, though they do have a board of directors. If giving back is your goal, you can start a Colorado nonprofit by filing the Nonprofit Articles of Incorporation with the Colorado Secretary of State and pay a $50 filing fee.
Want to learn more? Check out our Nonprofit Guide.
2. Name Your Business
Now for the fun part: choosing a name for your business. If you’re a sole proprietor, your business name is your name, unless you register a DBA. LLCs and corporations can name themselves anything they want as long as the name adheres to state law. Colorado’s guidelines for business entity names are described in CO Rev Stat § 7-90-601. Basically, your business name must:
- Not already be in use by another entity in Colorado.
- Include an identifier or abbreviation like “LLC” for a limited liability company or “Inc.” for a corporation.
- Not use words like “public benefit” or “cooperative” if your business is neither of those.
- Nonprofit corporation names can, but are not required to use a term or abbreviation commonly linked with corporations, like “Corp.” or “Inc.”
Check out Colorado’s Name Availability Search database to see if your business name is available.
Can I reserve a business name in Colorado?
Yes. Colorado lets you reserve your business name for up to 120 days. All you need to do is file a Statement of Reservation of a Name and the $25 filing fee. Colorado only allows online filings.
What is a DBA?
DBA stands for “doing business as.” In Colorado, DBAs are called trade names. You can use a DBA If you want to avoid using your own name when operating a sole proprietorship. Businesses also use DBAs when they branch out into new markets or undergo a rebrand, because it allows them to change their business name and image without having to amend or refile state formation documents.
In Colorado, a DBA is referred to as a trade name. To register a trade name, you’ll need to go online and file a Statement of Trade Name with the Colorado Secretary of State and pay a $20 registration fee.
What about trademarked names?
It’s a good idea to check with the US Patent and Trademark Office (USPTO) to make sure your business name hasn’t been trademarked by someone else. If it has, and you use it anyway, there’s a chance that the business could come after you for infringement.
Skip ahead to learn more about Trademarks.
3. File Formation Paperwork
While sole proprietors and don’t have to file state formation paperwork like LLCs and corporations, in almost all most cases they will need to get a Colorado business license.
State formation documents are what officially tie your business to the state. They also create the separation necessary to protect your personal assets.
- To form a Colorado LLC, file Colorado Articles of Organization.
- To start a Colorado corporation, file Colorado Articles of Incorporation.
These documents can only be filed online with the Colorado Secretary of State.
Note: When you submit your articles to the state, the information you include becomes part of Colorado’s public record, meaning that the names and addresses listed will be visible in Colorado’s online Business Database.
What is a Colorado registered agent?
All corporations and LLCs doing business in Colorado are required to have a Colorado registered agent. Registered agents are responsible for keeping a Colorado street address, maintaining regular business hours, and accepting legal documents on behalf of the LLC.
How can I keep my information off the public record?
A reputable registered agent service, like Northwest, won’t list your personal information on public filings if they don’t have to. This means that your private information will be shielded as much as legally possible.
4. Draft Internal Records
So far in this guide, we’ve dealt with public forms that you’ve had to file with the Colorado Corporation Commission. Now, it’s time to organize your internal records. These are the documents your business will keep on record within your company.
Though these documents are internal, you’ll likely need to show them to third parties like the bank or—if you start a nonprofit—the IRS.
Here are the major internal documents you need to organize for LLCs and corporations:
Colorado LLC Operating Agreement
This is your LLC’s rule book. It defines how your LLC will do things like make decisions, distribute money, manage operations, and appoint officers. Your operating agreement plans for every big picture scenario your LLC is likely (or unlikely) to face, including dissolution.
Drafting an operating agreement is hard, and the internet is full of shabby templates that have been copy and pasted from who knows where. So we had our attorneys draft an Colorado LLC Operating Agreement template that you can use as a solid foundation.
Colorado Corporate Bylaws
Bylaws are the rules your corporation will adopt and follow internally. Bylaws detail how your corporation will appoint directors and officers, hold shareholder and board meetings, and handle emergencies, among other things.
Bylaws are not a legal requirement of Colorado corporations. CO Rev Stat § 7-102-106 states that directors, incorporators, or shareholders may adopt initial bylaws—but the law does not declare that bylaws must be adopted. However, corporate bylaws are arguably the most important internal document your business can create. Just because the law allows you to disregard them doesn’t mean you should.
As with operating agreements, you can find plenty of bylaws templates online. But bylaws are pretty serious, so you don’t want to just use the first template you come across. Our attorneys drafted an Colorado Corporate Bylaws template you can use to get started.
Starting a nonprofit? Learn about Colorado nonprofit bylaws.
5. Get Colorado Business Licenses
Almost all businesses in Colorado will require some type of licensing. Even if you’re a sole proprietor running a home-based business, you’re most likely going to need a local permit or license to legally do business.
Colorado Business License
Colorado does not issue a blanket, state-side business license. Instead, business licenses are issued by the various Colorado state or local agencies for specific types of business, activities, and professions. However, the state does issue a Colorado Sales Tax License. Essentially a sales tax license allows your business to operate in Colorado, and registers your business with the state as a an official collector of the 2.9% state sales tax.
The standard Colorado Sales Tax License costs $16 and is valid for two years. To get a license you can apply online at MyBizColorado, or you can file a Colorado Sales Tax and Withholding Account Application by mail.
Colorado Professional Business Licenses
Professional business licenses are usually required for activities that require extensive training in specialized areas like accounting, contracting, electrical work, engineering, and other professions. In order to get a professional license, you, your business, and any employees who are working in a professional capacity will need to apply with the corresponding state agency. They may also be required to get other licensing depending on where the business is located.
Local Business Licenses
Remember how you had to apply with the state to collect sales tax? You also have to do that in each city or county. For example, if you plan to do business in Denver, you’ll have to apply for a Denver sales tax license for the privilege of collecting and paying the local sales tax. Each municipality will also charge a fee for this privilege. Denver’s is $50 every two years.
In some cases you will you need both a state license and a local license to operate your business. Regulated industries such as liquor, marijuana, building contractors, mechanics, electricians and other industries will need a specialty license from the state, and local authorities, in order to operate. To get a better idea regarding the types of Colorado business licenses, and their corresponding agencies, check out Colorado’s Department of Regulatory Agencies (DORA).
Learn more about How to Get a Business License.
How do I get a Colorado business license?
To get a specific business license, you’ll need to apply to the local licensing department that issues that license. Opening a boxing gym in Mesa? You’ll need to contact Colorado’s Office of Combative Sports to see what licenses you’ll need. Coffee shop in Denver? Start with Denver’s Department of Excise and Licenses to see what licensing (and permits) you’ll be required to have.
How much does it cost to get a Colorado business license?
That all depends. The city of Boulder will charge you $274 to operate a food truck, but that’s just for the license. You’ll also have to deal with the local health department and pay any fees that they require. Opening up a barber shop in Colorado? Be prepared to pay $28 just to apply for the license, and another $127 to take the exam to get your license. Some licenses, like a restaurant or liquor license, can run into the hundreds.
How do I get a professional license in Colorado?
Getting a professional license in Colorado is totally dependent on the profession. Accountants will need to apply and qualify for any necessary licenses with the Colorado Board of Accountancy. Engineers will need to get a license from the Board of Licensure for Architects, Professional Engineers and Professional Land Surveyors. These licenses are state-issued. Local licenses may also be required depending on the profession.
How do I get a local business license?
License requirements can be found by searching your county or city government website. For example, if you’re opening a childcare facility in Mesa, you’ll need a Regular Family Child Care Home license. You’ll also need to get a state license from the Colorado Division of Early Learning and Licensing and Administration. Selling your broccoli at the local Fort Collins farmer’s market? Be prepared to apply for a local vendor’s permit and license, and a sales and use tax license.
6. Organize Your Money
The liability protection you get from forming an LLC or corporation is only as strong as the separation between you and your business. At a minimum, you’ll need to open a bank account for your business. And if you’re going to hire employees, you’ll need to tackle payroll, too.
Open a Business Bank Account
To keep your business spending separate from your personal spending, you’ll need to open a business bank account. If you don’t, a court could find that your business is not actually separate from you, the owner, under the Alter Ego Doctrine. Also known as piercing the corporate veil, this is the outcome when a judge finds that a company is not a separate entity but rather an alter ego of the owner. If this ever happens, you could lose your limited liability status.
Opening a business bank account as a sole proprietor is important, too. Though sole proprietors and general partnerships have no limited liability status to protect, both will benefit from organizing their business finances come tax season.
You can set up a business bank account by providing the bank with formation documents, operating agreement or corporate bylaws, EIN, and in some cases, a Corporate Resolution to Open a Bank Account or LLC Resolution to Open a Bank Account.
Set up Payroll
Processing payroll is no one’s idea of a good time, but unless you want your employees to quit on you when they don’t get paid, it’s a good idea to pay particular attention to it.
Here’s how you set up payroll:
- get an EIN for your business
- register for a Colorado Wage Withholding Tax Account
- register for a Colorado Unemployment Insurance Tax Account Number
- prepare the necessary forms your employees will fill out
- break out the calculator and do your own payroll, obtain payroll software, or hire a professional
- set a schedule for payroll
Because payroll is so important to running a successful business, many business owners choose to hire a professional service.
What forms do my employees need to fill out?
Your new employees will need to fill out a W-4 to determine how much you’ll withhold and an I-9 to verify that the employee is eligible to work in the US.
What’s the difference between an independent contractor and an employee?
It’s important to understand the difference between an independent contractor and an employee. That’s because for employees, you’ll need to withhold and pay income, social security, and Medicare taxes. Independent contractors pay these taxes on their own.
An independent contractor is self-employed—how they complete their work is not directly controlled by an employer. An independent contractor may perform the same kind of work for other businesses, and can do the work when and how they choose.
An employee, on the other hand, performs their work how and when their employer chooses.
If you’re unsure, you can file Form SS-8 with the IRS and let them decide.
Learn everything you need to know about hiring independent contractors.
How do I get a Colorado Tax Withholding Account Number?
Colorado calls this a Colorado Account Number (CAN). You already have one if you applied for a Colorado Sales Tax License. You can look up your CAN number with the Colorado Department of Revenue.
7. Get Business Insurance
Forming an LLC or corporation protects your personal assets. But if anything disastrous befalls your business—like a lawsuit, burglary, flood, or fire—your business is going to have to pony up some cold hard cash. Business insurance can help cover the costs.
Are you asking yourself, “do I really need insurance for my business?” The answer is really up to you. If you run a home-based Etsy store, maybe not. If you’re in the business of trimming trees, probably. The fact is, people buy all sorts of personal insurance policies that cover homes, vehicles, and health. Insuring your business isn’t much different.
Some of the most common forms of insurance for businesses include:
Workers’ Compensation Insurance
Workers’ compensation insurance aids employees who become injured or disabled while working their jobs. The insurance provides the injured worker with partial compensation for lost wages, medical bills, and even rehabilitation. In most cases, if you have employees, you’ll need to also have workers’ comp insurance. Obtaining workers’ comp insurance is as easy as searching online or calling up your local insurance company.
Colorado’s Workers’ Compensation Act requires that all employers with one or more employees working in Colorado must carry workers’ comp. There are some exemptions from coverage, including:
- Independent contractors.
- Licensed real estate agents and brokers working solely on commission.
- Officers of corporations or members of Limited Liability Companies (LLCs) who own more than 10% of the company.
- Sole proprietors and partners in a partnership, although the construction industry has special rules for this.
- Drivers under a lease agreement with a common or contract carrier.
Colorado sets the minimum required insured rate at $100,000 per employee for bodily injury, and $100,000 per employee for bodily disease.
Employers have three options for workers’ comp insurance in Colorado. They can purchase workers’ compensation insurance through the state fund, which is administered by Pinnacol Assurance. Large businesses with at least 300 employees or $100 million in assets can qualify for self-insurance. Or you can shop around and find the best deal from a local or national commercial insurance company.
Do business owners need workers’ compensation insurance in Colorado?
Because Colorado does not consider business owners employees, they are exempt from workers’ comp insurance requirements. In most cases though, it wouldn’t be a bad idea to include yourself in any workers’ comp policy you have for your employees.
This covers the costs of claims against your business for injuries or damages to the property of others, like clients or customers. This includes medical expenses, legal fees, settlements, and judgments. Whether or not you need it depends on whether your business is likely to be sued and how many assets your business needs to protect. If it’s just you and your computer in your basement, you might feel comfortable skipping liability insurance. Or maybe you won’t. Beyond general liability insurance, you can purchase or add on more specific types, like professional, cyber, commercial, home-based business, or product liability insurance.
8. Understand Your Tax Burden
No one enjoys taxes, except maybe accountants and the IRS. Taxes are, however, an important part of doing business. Your business will need to pay attention to federal, state, and local taxes if it wants to avoid costly penalties from the IRS.
- LLCs. Single-member LLC? By default, you’re taxed similar to a sole proprietor. More than one LLC owner? You’re taxed as a general partnership. Either way, your default tax status is “pass-through,” which means you don’t pay corporate taxes. Instead, your LLC’s owners report profits and losses on their personal tax returns. LLC members are responsible for their own federal self-employment taxes (15.3%). LLCs can elect to be taxed as an S-Corp or C-Corp by filing the appropriate paperwork with the IRS.
- Corporations. Corporations are taxed as C-Corps by default. This means that corporations pay the 21% federal corporate tax rate and the applicable Colorado corporate tax of 4.55%.
To pay your federal taxes (and take a good deal of other steps required to start a business), you’ll need to get an Employer Identification Number (EIN). You can apply for one with the IRS or hire us to get one for you.
Do I need an EIN if I’m self-employed?
If you’re operating a sole proprietorship or single-member LLC that doesn’t employ anyone else and you don’t need to file excise or pension plan returns, you don’t legally need an EIN.
However, you can still get one—and you probably should. Otherwise, you’ll have to use your own social security number to do business. Plus, you’ll likely need an EIN to open a business bank account.
How do I get an EIN?
To get an EIN, you can either apply online or file form SS-4 by mail with the IRS. Getting an EIN is free.
Check out our guide to applying for an EIN.
What is an S-Corp?
An S-Corporation is a federal tax election. Registered business entities like LLCs and corporations start out with a default tax status, but can file paperwork with the IRS to be taxed as an S-Corp. Like LLCs, S-Corps are taxed as pass-through entities. Like corporations, S-Corps can make distributions that aren’t subject to the 15.3% self-employment tax.
Learn more about the S-Corp tax election.
What is a C-Corp?
A C-corporation is the default federal tax election assigned to corporations. Most corporations are taxed as C-Corps, but LLCs can also apply for C-Corp tax designation by filing paperwork with the IRS. C-corps file federal corporate income taxes and state corporate income taxes (in Colorado, the corporate income tax rate is a flat 4.55%). C-corps can pay their shareholders in distributions, and the shareholders report those profits on their personal tax returns.
Learn more about the C-Corp tax election.
Local Colorado Business Taxes
Taxes don’t end at the federal level. Colorado levies a 4.55% tax for both state income and corporate taxes. The state sales tax sits at a low 2.9% (less than half of what tax-averse Texas collects). Local municipalities can charge their own sales tax, in conjunction with state sales tax. For example, Winter Park, Colorado implements a sales tax of 8.3%. Combine that with the state sales tax and you’re looking at a hefty 11.2% total sales tax that needs to be collected from almost all sales.
9. Build Your Business Website
If you want actual local Colorado customers to find your business, they have to be able to find you online. This means you’ll need a website, a business email account, and social media accounts. Don’t worry if you’re not especially tech-savvy—you don’t have to be a web developer or an annoying influencer to establish a robust online presence. You’ll just need the following:
- Domain name. Your domain is the address where your website will live. You’ll want a domain name that is short, unique, local, and—most importantly—available. If your domain is trademarked, you could face legal trouble.
- Domain registrar. Once you’ve decided on a domain name, you’ll want to register it with a domain registrar. Some domains are more expensive than others. Some domain registrars also offer hosting and most will provide you with a business email that includes your domain name (“[email protected]”).
- SSL certificate. An SSL certificate signals to your users that your website is secure. If your website will use forms—like a sign-up form or a “contact us” form—an SSL certificate is critical. But even if you don’t you use forms, you’ll still probably want one—it allows an encrypted connection, which means your users’ data is transported securely. There are several types of SSL certificates, and you can often get one through your domain registrar.
- Site design. The easiest option is to use a free website creation tool—there are a number of free options available. Most are easy even for a newcomer to use, with styles and built in templates. For a more custom design, you can hire a web designer to work on your website, but this will be much more expensive.
10. File the Colorado Annual Report
Colorado requires every business operating in the state to file a Periodic Report with the Secretary of State every year. The Periodic Report’s due date is three months from your entity’s birth date. For instance, if your business was formed in Colorado in June, then each year, your filing window would be between June 1st and August 31st. The report costs just $10, and can only be filed online at the Colorado SOS website. Paper reports are not accepted.
Read up on How to File a Colorado Annual Report.
What if I don’t file an annual report in Colorado?
If you fail to file your report by its due date, Colorado will hit you with a $50 late fee. After 90 days of non-compliance, the fee jumps to $90. If you still fail to file your report, Colorado’s Secretary of State will revoke your business’s ability to legally do business in the state. If this happens, you will be required to file paperwork with the state in order to get your Colorado business reinstated. You’ll also have to pay all filing fees and penalties in order to do business in the state.
11. Apply for Trademarks
A trademark is a design, symbol, word, phrase—or any combination thereof—that represents a brand’s goods or services exclusively. Only some businesses register trademarks.
You can apply to register your trademark with the Colorado a or federally with the U.S. Patent and Trademark Office (USPTO). Registering your trademark in Colorado is cheaper and easier than registering with the USPTO, but doing so only protects your trademark in Colorado.
You can only register a trademark once you’ve started using it (so slap it on that website you just made), and not all applications are approved. Trademark law is complex, and the strength of a trademark application (and the trademark itself) depends on many factors.
Our attorneys can review your application, offer advice, and prepare and submit the application for you—Check out our Trademark Service.
How do I register for a trademark in Colorado?
To file for a trademark in Colorado you’ll need to go online and file a Statement of Registration of Trademark. You’ll also need to attach a “specimen” of your trademark to your online filing. Colorado trademarks cost $30, and last five years before renewal is required.
Can I register a trademark before I use it?
No. But you can file an application with the USPTO under Intent-to-Use status. This gets your application in line before you’ve actually used the mark, which could be helpful if you’re worried someone else might register your mark before you’ve had a chance to use it.
For your trademark to become official, you’ll eventually need to show proof that you’re using it. An Intent-to-Use application buys you some time to do that.
Learn more about filing an Intent-to-Use Trademark.