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While corporations are among the more complicated business types for many entrepreneurs because they are treated as an entity separate from the owners, the structure of a corporation is exactly what suits their needs. Corporations fall into the following three categories:
In this article, you will learn how to get started forming your Colorado corporation today.
In Colorado, making your new corporation official requires filing the Articles of Incorporation with the Secretary of State office. This process can only be completed online. Before you get to that point, and afterward, there are several other steps to consider.
To simplify the process of forming a corporation in the state of Colorado, we’ve put together 10 easy steps to form your business:
Coming up with a name is not quite as simple as it sounds. You will need to make sure your business name is unique, suits your business well, aligns with all business naming regulations, and includes a corporation designator. Besides choosing a name you like and making sure it meets standards, don’t overlook the importance of checking for available web domains. You’ll want to reserve a website domain name that matches your chosen title and has not already been taken. Here is the full breakdown of the naming process:
The board of directors oversees the operations of the business. The initial incorporators — those filing the Articles of Incorporation for the business — often appoint the initial board of directors. Afterward, the board is elected annually by shareholders (those who hold stock in the company — this can include the original incorporators).
In Colorado, only a single incorporator is required, and only one member on the board is needed, although having more is generally advisable.
Incorporators may be directors and also shareholders. In fact, a single person can start a corporation and hold all associated titles. But the three titles are associated with different roles within the company.
The incorporators should appoint the initial board of directors before filing the Articles of Incorporation. Then, the appointed directors should meet to approve corporate bylaws, determine the share structure, and solidify other matters before filing. That way, your business starts on the right foot with plans clearly in place.
A registered agent is the point of contact for anything legal having to do with the business. The registered agent has to be available during normal business hours and to receive any tax documents, legal forms, and so on that might be sent to the business.
You are required to name a registered agent when you file the Articles of Incorporation. In Colorado, a registered agent must meet the following criteria:
While Colorado allows you or even your business entity to be your registered agent, this isn’t typically advisable. You don’t want to face embarrassing situations with clients or customers by having legal papers served in your place of business, for example.
Filing the Articles of Incorporation registers and establishes your business with the state. In this document, you will need to include:
This filing is completed online on the Secretary of State’s website (there is no option to mail in forms). A $50 filing fee is required and can be paid using a credit or debit card or a prepaid account.
You should convene a meeting with the board of directors as soon as possible so that corporate bylaws can be established. The bylaws lay out all of the rules and functions of the corporation. While Colorado does not explicitly require corporations to adopt bylaws, it is always good to create them to avoid headaches down the road. Your corporate bylaws should include:
Bylaws are legally binding, so it’s good to seek the assistance of an expert or a lawyer when creating them. You can also find templates online that might help.
Your corporation’s bylaws do not need to be filed anywhere but should instead be kept in a safe place with other corporate documents. It’s often a good idea to set up a corporate records book where you can keep all of your corporation’s important papers, including bylaws, minutes from meetings, and stock certificates. Colorado law outlines the corporate records you’re required to keep.
Another important document to draft is a shareholder or stockholder agreement. This document outlines the rights and responsibilities of all shareholders and should include:
Again, this agreement can be drafted from a template, but you may want to utilize professional assistance. Your shareholder agreement should be kept with your other important corporate records.
To get your company off the ground, you need capital. It’s a good idea to determine how much capital you need before issuing shares of stock so that you can determine a reasonable value for each share.
Shares of stock may be issued in exchange for services or other noncash value or direct contribution to capital.
Each share is only issued once. However, after being issued, it can be traded and sold. All issued shares must be documented in the company’s annual report. Although it is not typically required, most corporations issue certificates to shareholders, indicating their shares.
Stock may be issued publicly or privately. Privately issued stock is usually issued to the founders, managers, employees, or a private group of investors. A public corporation makes a portion of its stock shares available for public purchase.
Companies that issue public stock need to file quarterly statements with the Securities and Exchange Commission (SEC). They must also track how many shares are issued and to whom. In Colorado, the Colorado Securities Act requires that the sale of securities such as stocks be registered with the Department of Regulatory Agencies.
Check with the Colorado Department of Regulatory Agencies to see if the business service you provide requires any licenses or permits. If it does, make sure you apply for them and keep them up to date.
You should also check to make sure local zoning laws are consistent with your business practice. In addition, contact your city hall or county clerk to see if any special local licenses may be required.
When seeking information about licenses and permits, remember that they can be federal, state, local, and/or industry-specific, so do a thorough search or hire a service to conduct a search for you.
Depending on which type of business you have and whether you have employees, you may be required to have insurance, such as unemployment insurance, professional liability insurance, and so on. Colorado’s government website includes a comprehensive list of insurance types and under which circumstances they are required.
Corporations are treated as separate entities, which means they need their own tax identification number separate from the Social Security numbers of the owners. As such, you will need to obtain an Employer Identification Number (EIN) from the IRS. This number acts like the corporation’s Social Security number for tax purposes.
Visit the IRS website and fill out their online form. It only takes a few minutes and is free. Afterward, you will receive your EIN. Keep track of this number in a safe place, as you will need it for future documentation and filing your business’s tax returns.
Remember that corporations must pay their own taxes separate from any taxes paid on shareholder earnings. This must be done at the federal and state levels by submitting the appropriate returns each year.
Each year, your corporation is required to submit a periodic report. This allows you to update any information, names, and addresses for your business with the Secretary of State. It also keeps your business in “good standing.”
While the exact cost for starting a corporation in Colorado will vary based on the size and type of the business you start, at a minimum, you will need to pay the $50 fee for filing the Articles of Incorporation. Additional fees may include:
ZenBusiness can help reduce the headaches of getting your corporation off the ground by assisting with many of the required steps for a low annual fee.
Corporations, as a business structure, have many advantages. Among these are:
However, there are disadvantages you should also be aware of to make an informed decision. Among the disadvantages are the tax structure (profits are taxed at both the corporation and personal income tax levels), and there’s a lot more red tape and paperwork involved than other structures, such as LLCs.
How your corporation is taxed in Colorado will depend on its designation as a C corporation, an S corporation, or a nonprofit.
C corporations are treated as separate entities and must file their own tax returns. In addition, all owners and shareholders file tax returns for earnings and dividends (this results in double taxation). While that might seem less than ideal, there are some benefits to this tax structure, including more flexibility in what can be deducted.
S corporations are pass-through entities, much like limited liability companies (LLCs). All profits are passed through to the owners, who must pay taxes on their individual income tax returns.
Nonprofit corporations are exempt from paying federal and state taxes, provided they stay within the rules for nonprofit activity. However, anyone drawing a salary from a nonprofit corporation will pay income tax on that salary.
Keep in mind that you may be responsible for additional taxes, depending on your corporation’s operations and whether you have employees. You can learn more about the following taxes on the Colorado Department of Revenue’s webpage: