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5 Steps to Setting up A Business in Colorado
Colorado has the third strongest business climate in the United States. It is sixth in the nation in access to venture capital and eighth in entrepreneurship. It is also a rapidly growing state that's far cheaper to live and work in than hotter markets like California. All of this makes Colorado a great place to start a new business. Here are the five steps to setting up a business in Colorado.
Choose the Right Business Entity
There are several different ways to set up your business as a legal entity. The simplest is to begin a sole proprietorship. The law treats you and your business as one and the same. If someone sues the business, your personal assets are at stake. And you may not be able to avoid all paperwork. Even unregistered business owners may be required to file a Trade Name or DBA.
A partnership doesn't create a separate legal entity, either, but it involves two or more people. The Limited Liability Corporation or LLC provides personal liability protection, but you have to deal with pass-through taxation as if you were a sole proprietor. However, this can be a benefit over the double taxation you'd pay as a shareholder receiving part of the revenue only after the corporation paid its income taxes.
A corporation is a separate legal entity, and it removes personal liability for the stakeholders. It also provides a formal structure for multiple decision makers to work together running the company. A side benefit of being an LLC or corporation is having increased credibility.
Register Your Business in ColoradoTo register a business in Colorado, you'll need to fill out the business formation documents with the Colorado Secretary of State. It must be online at their website because they don't allow you to file by mail. There is a modest filing fee owed depending on the type of business you're forming. A partnership or sole proprietorship submits a statement of trade name in addition to the forms. A corporation or LLC submits articles of incorporation.
Secure a Federal Tax ID NumberAt this point, you secure a federal tax ID number. This is also known as an Employer Identification Number. The EIN can be understood as the Social Security Number for your business. It is required to open a business bank account, file federal taxes and handle employee payroll. This can be done online, by fax or by mail.
Register with Colorado's Department of RevenueThis is the point where you register with the Colorado Department of Revenue to pay state taxes. At a minimum, you'll owe either corporate or personal income tax on business income earned in Colorado. There are different forms for corporations than other business structures. Remember that registration with the state is not equal to doing your taxes every year. This is simply the step that must be done before you can file your annual state income taxes. If you're selling physical products, you'll also have to register for Colorado sales tax. If you will be hiring employees, you'll have to register for the unemployment and employee withholding tax on behalf of your staff.
Secure Any Additional Permits or LicensesAfter all of this, it may be necessary to secure yet another business license. Colorado's Division of Professions and Occupations site tells you the licensing requirements for various businesses. And you may need to get more than one business license or permit. For example, a restaurant likely needs health permits in addition to building and signage permits. Business insurance may be a requirement, as well. For example, Colorado requires all businesses with employees other than LLC members and corporate officers to have worker's compensation insurance.
ConclusionWith our step by step guide, you'll be able to set up a legal business in the state of Colorado. This is true no matter what type of business you're in.
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