Starting a Business in Colorado: 8 Essential Steps

What better place to realize your entrepreneurial dreams than Colorado. The Centennial State was recently named the 11th top state for businesses in 2023, thanks to its business-friendly environment. It’s no surprise to learn that 99.5% of all Colorado businesses are small businesses.[1], [2]

Start Operating in Colorado: Key Points

1. The type of business entity you select reflects how your company will be structured, affecting everything from how much you pay in taxes to the registration paperwork.

2. Filing business formation documents is a critical step in the business formation process—they prove your business’s existence as a separate legal entity.

3. Opening a dedicated business banking account and credit card is essential for protecting personal assets.

Ready to Start a Colorado Business?

You have your entrepreneurial spirit and vision, and you know you’re ready to start a business in Colorado — so what’s next? For many, getting a business idea off the ground means wading through a sea of questions. What’s the proper business structure? What kind of documentation will you need? And what kind of licenses and permits will you need to file for?

Hunting these answers down can feel overwhelming, but getting started doesn’t have to be complicated. Even if you’re a first-time entrepreneur, you can seamlessly navigate from business idea to grand opening if you follow a few core steps.

1. Choose a Business Idea

When starting a business, your idea is the foundation for everything else. That’s why this is one step you will want to take your time with.

Of course, coming up with a business idea is easier said than done. You may already have a clear passion or niche that will make a fantastic business. But if you don’t, that’s OK too — there are many ways to find entrepreneurial inspiration. 

The best way to start is by doing your due diligence, researching current trends, and discovering holes where a service or product might be needed. Once you’ve identified these gaps, you can focus your business on filling them. If you’re still stuck, here are a few business ideas that have Colorado written all over them:

• Green businesses: More and more consumers are considering the environmental impact of the companies they purchase from — especially in Colorado. Consider opening an eco-friendly business (you can find more green business ideas here). 

• Retail store catering to outdoor adventurers: Colorado is filled with outdoorsy nature lovers from Denver to Boulder and beyond. A store dedicated to selling or renting outdoor gear and apparel can help them get started on their next adventure. 

• Cannabis cultivation and dispensary: Because marijuana is legal for recreational and medical use in Colorado, this is an exciting and growing industry to tap into. 

• Microbrewery: Colorado is known for its craft beer industry. Create a buzz by opening up a new spot for craft beer lovers. 

• Health and wellness center: Take advantage of Colorado’s natural beauty and emphasis on healthy living by creating a space that locals and tourists can visit for a retreat and self-care. 

• Home cleaning and organization service: Colorado’s growing population, combined with its high employment rate, translates to many busy professionals who need help keeping on top of cleaning.  

2. Draft a Colorado Business Plan

A business plan is an essential part of business formation in any state. This will ultimately form the foundation of your new business. It’ll also give you a way to assess the viability of an idea before investing too much time or money into it. That’s why creating a business formation plan can help avoid potentially costly mistakes. 

This plan should include your executive summary, funding plans, management and hiring protocol, and marketing and advertising strategies. If this feels overwhelming, take a deep breath of that fresh Colorado air and relax. There are a few go-to elements you can map out now as you look to start operating in Colorado:

• Define your business idea and outline your business structure.

• Clarify the market and competitive landscape.

• Outline your marketing strategy.

• State your mission and value proposition.

• Determine day-to-day operations.

• Identify potential risks.

• Map out funding, including investments from banks and other sources.

• Set benchmarks, goals, and key performance indicators (KPIs).

3. Select a Business Name

Your business name can set you apart from the competition and bring customers to your storefront — and it can also protect you and your business at the state and federal levels once you’ve officially registered it with the Colorado Secretary of State. 

So, where do you start? When choosing the correct name, the sky’s the limit, but as you begin brainstorming, remember this: Make sure it’s short, memorable, and unique. It’s also a good idea to ensure it’s relevant to your products, services, or expertise, so double-check that it’s not misleading. 

It’s also just as important to research to ensure potential name ideas are available and don’t infringe on existing trademarks or copyrights. You can check the availability of a business name or for businesses with a similar name by searching the Secretary of State’s business name database.[3] You can also use Swyft Filings’ Free Business Name Search tool to start your Colorado business search. 

Once you have a business name in mind, Colorado lets you submit a name reservation — so you can ensure it’s not scooped up by someone else before you’ve filed your documents. This FAQ on the Colorado Secretary of State website has some valuable tips on navigating that process.[4] 

4. Choose a Business Structure

The type of business entity you select reflects how your company will be structured, affecting everything from how much you pay in taxes to the registration paperwork you may be required to file. Most importantly, it determines your level of personal liability in case the business defaults on a loan or faces potential legal trouble.

Here's a breakdown of the major types of business structures:

Limited Liability Company (LLC)

LLCs are popular because they offer personal liability protection and give you more flexibility at tax time than a corporation (which we will discuss next). Liability protection means that, in most instances, your personal car, house, and savings are protected in case of a business bankruptcy or lawsuit. 

LLCs are the best option for business owners who want to limit their personal liability and potentially pay a lower tax rate than they would with a corporation.

C Corporation

A C corporation or traditional corporation is a legal entity authorized by the state to transact business. It is a separate body from its owners with its own assets, liabilities, obligations, and rights. If you incorporate, your business is automatically a C corps.

S Corporation

While its name may be slightly misleading, an S corp is not a business structure — it's a special tax status created by the Internal Revenue Service (IRS). This status allows the business to be taxed as a pass-through entity, avoiding paying a corporate tax on business income.

Nonprofit

Although nonprofits follow organizational rules similar to C corps, they may be exempt from state or federal income taxes. Nonprofits must file with the IRS to be tax-exempt. The Internal Revenue Code 501(c)(3) is most commonly used to grant nonprofits tax-exempt status. 

Sole Proprietorship

This is an unincorporated business with one owner. A sole proprietorship’s earnings are taxed as the owner’s income. If you don’t plan to use your name as your business name, you must register a Doing Business As (DBA) name. You can easily (and quickly) register your DBA name here.

5. File Business Formation Documents

With all the groundwork done and your business structure chosen, it’s time to make it official. Incorporating a business requires filing and submitting documents to the Colorado Secretary of State. Filing these documents is a critical step in the business formation process — they prove your business’s existence as a separate legal entity.

Here are a few things to consider, based on your business structure: 

LLCs

All Colorado LLCs must file for a Certificate of Formation (also known as Articles of Organization) with the Colorado Secretary of State, officially establishing your LLC in the state. 

If this document is filed incorrectly (or not at all), your business may not be considered a separate legal entity. As a result, you may not be able to shield your personal assets from business liabilities. It can also hold you back from critical business transactions, like opening bank accounts or obtaining the necessary licenses and permits. You may also be subject to penalties, fines, or legal consequences.

It's important to consider drafting an LLC operating agreement, too. This document describes the daily operations of your LLC, as well as the rights and responsibilities of each member. Although an operating agreement isn't required in Colorado, it's still highly recommended.

Corporations 

Corporations must file for a Certificate of Incorporation (or Articles of Incorporation) with the Colorado Secretary of State. Similar to the Certificate of Formation, this is a legal document that serves as proof of the formation and existence of a corporation. This means it also has the same ramifications if filed incorrectly or not at all. 

Similar to LLCs, corporations (both S corps and C corps) aren’t legally required by the state to have an operating agreement. Still, experts advise owners of these businesses to create and execute their version of an operating agreement, called bylaws. The bylaws show how the shareholders, officers, and directors will split control within the organization and manage it daily.

This process can seem daunting because of the vital nature of filing formation documents. Fortunately, third-party services like Swyft Filings can streamline and simplify this process by handling the filing on your behalf — and ensuring the correct business formation documents are filed on time.

6. Apply for Colorado Business Licenses and Permits

After registering your small business for tax purposes and taking steps toward incorporation, you must get any necessary permits and licenses. While Colorado doesn’t have a general business license, you’ll still want to check your city and county for their own licensing requirements.

These Colorado business licenses and permits grant you the right to operate your business in the state and help the state government track your business entity and revenues to issue taxation accordingly — making this an essential step in the overall business formation process. 

Without obtaining them, you could face tax and legal penalties, limited legal recourse, or even business closure.

Here’s a breakdown of a few things you’ll need to consider: 

• Register with DORA. In Colorado, specific business sectors (like banking, real estate, and insurance) must register with the Department of Regulatory Agencies (DORA). Here’s a list of all business types that require DORA regulation.[5]

• Check local requirements. Some Colorado cities and counties have regulations requiring contacting the local government before obtaining state certification, like obtaining liquor licenses.  

• Apply for a retail sales tax license. In Colorado, only goods sold are subject to retail sales tax. You'll need a retail sales tax license for standard retail and wholesale transactions to get started.

• Obtain a registered agent. To do business in Colorado, you must have a registered agent who will serve as the point of contact between your business and the state of Colorado. This person will collect, file, and deliver essential documents on your behalf.

If you’re unsure about which permits and licenses you need to apply for to start operating in Colorado — and how to do it correctly — Swyft Filings’ experts can guide you through the entire process.

7. File and Report Business Taxes

Business formation? Check. Now it's time to focus on the next step in your business journey: Navigating the world of business taxes.

Your first step is to register with the Colorado Department of Revenue. If your business is a Sole Proprietorship, Partnership, or LLC, file Colorado Form 104. If your business is a Corporation, you must file Colorado Form 112.

From there, there are a few specific taxes you'll have to keep in mind when it comes time to filing your business taxes:

State Income Tax 

All businesses filing a federal tax return must file a Colorado state income tax return. And Colorado, like almost every other state, taxes income. The business state income tax currently hovers around 4.4% of taxable income in Colorado. 

State Employee Taxes 

Will your business hire employees? If so, you'll need to pay employer taxes. After calculating and withholding the appropriate amounts from employee paychecks for federal income tax withholding and FICA (Federal Insurance Contributions Act) taxes, you must also: Pay for FICA taxes as a business and make payments to the IRS based on total employee payroll.

Franchise Tax 

A franchise tax is imposed on a company doing business within a state. Franchise taxes may be a flat fee or based on a company’s net worth. Colorado doesn’t impose franchise taxes. 

Sales Taxes 

If you intend to sell goods to customers in Colorado, you must collect and pay sales tax — which currently hovers around 2.9%. As mentioned in the previous section, you’ll first have to register with the Department of Revenue.

It’s important to note that failing to pay your estimated taxes on time — or any other taxes listed above — could result in a tax penalty.

8. Open a Business Bank Account

Once you register your Colorado business, you’ll need to set up a dedicated business banking account — essential for maintaining personal asset protection (it’ll also make tax filing with the IRS a lot easier).  

You can protect your assets with these three steps:

1. Open a Business Bank Account: To start, you’ll need an EIN (Employer Identification Number). This is used in place of your social security number, ensuring your bank account is separate from your personal finances. 

2. Get a Business Credit Card: Opening up a business credit card is another way to separate personal and business expenses — and it’ll help you build your company’s credit history.

3. Set up Business Accounting: Accurate accounting and bookkeeping are essential to the financial well-being of any small business and startup. From preparing taxes to maintaining payroll, accounting software can streamline this process. 

Take Your First Steps Toward Small Business Ownership

The benefits of starting a business in Colorado are clear. It’s a rapidly-growing state with a strong reputation for supporting entrepreneurs and small businesses. 

Are you ready to take the next step in realizing your entrepreneurial dreams? Suppose you’re ready to start operating in Colorado. In that case, Swyft Filings offers the services, support, and expertise you need to navigate from business idea to business formation to grand opening—without any big headaches. You can start your business journey today.

Frequently Asked Questions

Is Colorado a good place to start a business?

Yes! Today, 99.5% of all Colorado businesses are small businesses, thanks to the state's business-friendly environment, strong economy, and thriving startup culture. Colorado has also implemented various programs and incentives to support small businesses and startups, such as grants, tax credits, and funding for specific industries.[6]

How much does it cost to start operating in Colorado?

The filing fee for an LLC in Colorado is $50, while filing fees for corporations vary based on the type and structure. On top of this, remember to factor in business license cost, registration, and any specific permits necessary for your industry or type of business.

Can I start a business in Colorado without a business plan?

While you can start a business in Colorado without a formal business plan, it’s generally recommended that you do create one. A business plan serves as a roadmap for your venture, outlining your business goals, strategies, financial projections, and marketing plans. 

A well-thought-out business plan can significantly increase your chances of success and help you navigate the challenges of starting and running a business.

What does Colorado require to start a business?

To start a business in Colorado, you must choose your entity (like LLC, corporation, sole proprietorship, etc.) and officially register your company with the state (including registering your business name). And while there are no general business license or permit requirements, you may need one for specific business types — like retail sales. 

What is the process for starting a business in Colorado?

As outlined in the article above, there are eight critical steps to starting a business in Colorado: 

1. Choose a business idea. 

2. Draft a Colorado business plan. 

3. Select a business name. 

4. Choose a business structure. 

5. File business formation documents. 

6. Apply for business licenses and permits, if applicable. 

7. File and report business taxes. 

8. Open a business bank account.

Bibliography

1. CNBC. “America’s Top States for Business 2023: The full rankings.” Accessed August 9, 2023.

2. Colorado Chamber of Commerce. “Colorado Small Businesses: A Look at the Economic Profile.” Accessed August 9, 2023.

3. Colorado Secretary of State. “Business Entity Search.” Accessed August 9, 2023.

4. Colorado Secretary of State. “Business FAQs.” Accessed August 9, 2023.

5. Colorado Department of Regulatory Agencies. “Services.” Accessed August 9, 2023.

6. Colorado Office of Economic Development and International Trade. “Colorado State Small Business Credit Initiative.” Accessed August 9, 2023.