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Is it time to make your business idea a reality in Colorado? Colorado has consistently been rated as one of the best places in America to start a business thanks to its strong economy, low unemployment and tax rates, and a highly educated population. Regardless of where you decide to settle in the state, there are plenty of opportunities to help your business thrive.
Starting a business in Colorado calls for you to work through several legal and financial requirements. Also, setting up your company incorrectly can cause regulation or tax issues later, which could cost you financially or cause you to pause business operations. If you’re ready to start a business, Colorado is a fantastic place for it.
Colorado has favorable business tax laws, government friendliness to new industries, and a diverse geography. Both startups seeking venture capital money as well as small, one-person businesses have thrived in the state. It’s also the best place for green businesses for these same reasons.
Additionally, the state doesn’t have statewide business licensing requirements like some others, which makes it more affordable and less time-consuming to get started.
Starting a business in Colorado, whether it’s a limited liability company (LLC) or a corporation, can be tough without a set of helpful steps. While each city you operate in may have slightly different requirements, you’ll be ready to do business throughout the state if you can follow the six main steps that we’ve outlined below. You can find more state-specific business resources related to this process on the Colorado Secretary of State website.
The first step in launching any business successfully, whether in Colorado or elsewhere, is to create a detailed business plan. Every enterprise starts with a business idea on how to serve a certain group of potential customers. It’s important to dive deeper and turn your idea into a business plan so you’re ready for any of the other necessary steps to get your Colorado business off on the right foot.
Regardless of your industry, consider including the following in your own business plan:
The Southern Colorado Small Business Development Center has put together business plan resources to help you get ready for the launch of your Colorado business. You can also do a bit of research of your own to find out what else to include in your business plan, especially if you’re in a niche industry or expect to have a lot of competition and want to plan out how you’ll stand apart from the crowd.
When you’re starting a Colorado business, you can choose a business entity. Below are some of the more common options.
As a business entity, a sole proprietorship is the quickest way to get your small business started. You won’t have to file paperwork with the state, and you can start selling your goods or services today. But sole proprietorships don’t have any personal liability protection, making them a riskier endeavor than LLCs or corporations. Someone suing the business can go after the personal assets of the owners.
A general partnership works like a sole proprietorship, but has multiple owners who split the profits, debts, and liabilities. General partnerships, sole proprietorships, and most LLCs also have “pass-through” taxation, meaning that the Internal Revenue Service only taxes the owners on their personal tax returns without first taxing the profits at the business level.
A very popular business entity is the LLC. This business structure provides personal liability protection for the owners, as an LLC is a separate legal entity from them. With an LLC, your personal assets are usually safe from the liabilities and debts of the company. This is also true of a corporation, but corporations have stricter rules governing them and more paperwork.
LLCs also, by default, have the same pass-through taxation that a sole proprietorship or partnership have. In fact, they also have the option of being taxed as a corporation if that suits the LLC’s financial situation better.
Corporations are popular for companies that are planning major growth and want to issue stocks to help raise capital. However, they’re subject to “double taxation,” meaning that profits are taxed twice, at the business level and the individual owner (shareholder) level.
As we mentioned, corporations also keep the personal assets of their shareholders safe from the liabilities and debts of the company. However, they have the most red tape and rigid management structure.
An S corporation isn’t a legal business entity type. Rather, it’s a tax classification available to LLCs and corporations, provided they meet the IRS’s qualifications. S corporations are gaining popularity because, for corporations, they’re a way to avoid double taxation. For LLCs, they’re a way to save on self-employment taxes.
Getting started with an LLC, corporation, or S corporation does take longer than just starting as a sole proprietorship. But if you have the right support, such as our business formation services, the process can be quick and easy.
One of the most important parts of creating your business plan is to build out what your financials could look like as a new business. This means you’ll need to be very specific on what your business costs are and accurately calculate them so that you can prepare financially for the first several months. When calculating your business costs, keep in mind that there are one-time costs as well as ongoing costs.
One-time costs are things like a downpayment on an office building or the purchase of equipment that typically lasts many years. You only have to come up with the financing for these items when, or before, you launch your business.
Ongoing business costs can include monthly rent, marketing materials, or taxes that you’ll continue to pay regularly, often monthly or quarterly. Plan to cover one-time costs and ongoing costs to operate your small business for 6 to 12 months without any revenue. That way, it can survive the unexpected, and you’ll have the time it takes to build a customer base.
The next step in your journey is to create a business name that works for you throughout Colorado. Choose a name no one else in the state is using to transact business and one you can easily own the brand identity for, both online and off. Settle on one that’s easy to understand so you can own both a strong domain and various social media profiles.
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If your new business is a sole proprietorship or partnership using a name that’s different than the legal names of the business owners, you’ll need to apply for a Colorado trade name with the Colorado Secretary of State. This is commonly known as a doing business as (DBA) name in most states and is a requirement for all Colorado businesses that do business under a name other than their official, legal business name.
After choosing your business name, it’s time to register the business structure you chose, if it’s one that requires state registration, such as a Colorado LLC or corporation. An LLC will need to complete Articles of Organization and file them with the Colorado Secretary of State. A corporation will need to do the same, but with Articles of Incorporation.
Registered business entities like this will have other steps to complete, such as choosing a registered agent, creating an operating agreement or corporate bylaws, and applying for a federal employer identification number (EIN) from the IRS.
In addition to the paperwork an LLC or corporation must file to register with the state of Colorado, many businesses are required to get a federal employer identification number (EIN), which is your federal tax ID that you also use to hire employees. Note: If you’re a sole proprietor with no employees, you may be able to use your Social Security number as your tax ID, though many experts recommend obtaining an EIN to help avoid identity theft.
Once your Colorado paperwork is done, you’ll be able to set up a business bank account, get any permits or licenses you need, and get the necessary business insurance. You’ll need a business bank account to keep your business and personal finances separate. Mixing your business and personal finances can create a nightmare at tax time.
Luckily, in Colorado, you won’t need a state-issued business license, but check with the local governments where you’ll do business to see what licenses and permits they require.
Business licenses and permits can be needed on the federal, state, and local levels. Because there’s no central place to confirm whether your business has every license and permit needed to operate legally, you’ll have to do some research. Our business license report can do the work for you.
General liability insurance is the main coverage most small businesses use. It can help shield your business from lawsuits due to accidents or mistakes by you, your business partners, and your employees. For example, if a customer slips and falls in your restaurant, general liability coverage can help mitigate the financial loss. Talk to a qualified agent about what other business insurance your company could benefit from.
Now that you’re legally ready to start transacting business in Colorado, it’s important to figure out how to market it to reach your target customers. Coloradans are online just like residents of other states, including in smaller towns away from the bigger cities of Denver, Boulder, Colorado Springs, or Fort Collins. However, word of mouth and referrals are sometimes the best marketing options in small populations.
Depending on your industry, online ads have plenty of marketing opportunities. Keep company pages on social media platforms where your customers hang out most, whether that’s Facebook, Instagram, LinkedIn, or any other.
If you have a physical location, make sure your Google My Business is up to date and optimized to show up at the top of business listings in your area. Don’t forget Yelp and local business registrations as well as advertising in local papers. Connect with a Colorado marketing partner if you need more help.
Put yourself in your customer’s shoes, and you’ll be much more successful than with blind paid advertising. Check out the Colorado Small Business Development Center’s marketing resources to learn more.
Colorado has a good mix of populated places with large and growing cities, well-traveled suburban areas, and small towns. This makes it a nice fit for most types of businesses, including tech companies, restaurants, and rural-focused enterprises. Here’s a list of the types of businesses that can work well throughout the state:
For more, read our guide on the Best Businesses to Start in Colorado.
Overall, Colorado is one of the best states in the country to start a business because of its natural geography, business-friendly government, and strong economic climate. Starting your business is manageable in Colorado if you take the right steps to plan ahead and set up your company correctly. You can find more information on the Small Business Administration website, or you can have us help you.
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
The entire state can be beneficial to starting a small business in Colorado, and the right city for you depends on your industry. Denver, Boulder, and Colorado Springs are consistently ranked in the top cities to start a business nationwide.
The cost to open an LLC in Colorado starts with a filing fee for your Articles of Organization, but you’ll also have to pay an additional fee to reserve your business name. Because fees change over time, check the Colorado Secretary of State website for the latest.
Over 170 corporations base their operations in Colorado.
Colorado is a legal and tax-friendly state for small business owners. You can check out the Colorado Secretary of State website for resources on taxes and other business matters.