Your Guide To Starting A Business In Colorado
Since the pandemic, entrepreneurs across the country have been forming new businesses in record numbers. These entrepreneurs saw the vast opportunities that opened up because of the shift to digital, and the change in the nature of work. Although the United States seems to be entering a recession, historically, some of the best businesses in history have been formed during a recession, such as Netflix, Airbnb and Disney. During the past few years, Colorado has emerged as one of the best states to do business in America, with one of the lowest corporate tax rates in the country. If you’re thinking about starting a business in Colorado, this is your guide.
Draft a Business Plan
A business plan is not a map of the future, but it is a statement of what you intend to do, and how. You need a business plan, not just to clarify for yourself what your plans are, and how you will go about achieving them, but also for third parties with whom you may need to work. If you need third party capital, you will need a business plan to explain to them what your prospective return on invested capital (ROIC) will be, how much free cash flow (FCF) you think your business will generate, how long you expect to be able to be profitable, when you will be profitable, what your business model will be, among many other things. Often, because it’s your idea, you think you have all the answers, but the act of writing a business plan brings out any problems that your idea has. Although it’s not a legal requirement, it is absolutely necessary.
Choose a Business Structure
Every business has to be organized according to some business structure. By law, if you are working alone and have not registered your business, the federal government considers your business to be a sole proprietorship. A sole proprietorship does not distinguish between the entrepreneur’s assets and those of the business. Other popular business structures recognised by federal law are a partnership, and its variants, such as the limited liability partnership (LLP), and limited partnership (LP); and the corporation, particularly the C corp and S corp. Limited liability companies are created under state statute.
Corporations offer the greatest protection for its shareholder’s assets, because of the near-absoluteness of the distinction between shareholder and company assets. This is because corporations have “personhood”, they are, in terms of the law, just like you and I. Corporations also allow the owners to raise capital at large levels by issuing shares in exchange for equity capital. LLCs also offer a large degree of personal asset protection for its owners, who are known as “members”, although that tends to be less than corporations.
Get a Registered Agent
By law, every business has to have a registered agent. A registered agent is a person or business designated by you to receive your business’ service of process. Service of process refers to documents relating to legal actions of which your business is a party, such as a lawsuit or summons. Yoru registered agent’s address appears on your registration documents and the paperwork used to renew your business’ charter, when that is necessary. A registered agent is either an officer or employee of your business, or, a third party, such as your lawyer, or, a registered agent firm.
A registered agent has to be available at all times during the business day. If your registered agent cannot be reached during business hours, legal action can continue without you. So, it’s important to have a reliable registered agent. That means, hiring a third party registered agent. You can learn more about registered agents in Colorado here.
Register the Business
Unless your business is a sole proprietorship or a partnership, you are required to register your business. You do this at the Colorado Secretary of State. Before you register, you have to check at the website of the Secretary of State’s to see if there is any other business with the same name, or a name that is deceptively similar. For example, if your preferred business name is, The Funky Monkeys LLC, you have to check if there’s another company called The Funky Monkeys, and if there’s a company whose name looks like that, such that there would be confusion.
You will have to pay $50 to register a corporation or an LLC.
Get an Employer Identification Number (EIN)
You need to get an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). An EIN is your business’ social security number, allowing you to pay your taxes, open a bank account, get unemployment insurance, and conduct general business.
Get a Business License or Permit
A business license or permit is not a requirement for every business operating in the state. However, some classes of business do have to obtain a business license or permit from the state, city or county. You will have to check with the city hall and county clerk to learn if you will need a local license, and the Colorado Department of Regulatory Agencies (DORA), to learn if you will need any statewide licenses.
In a few cities, a business license of general license is known as the City Sales and Use Tax license. In some cities, every business will have to get a business license, while in others, only certain businesses will require a business license.
At the federal level, small businesses do not tend to need to have a business license or permit. However, if your business is in agriculture; alcohol sales, distribution, imports and serving; aviation; firearms, ammunition and explosives; fish and wildlife; commercial fisheries; maritime transportation; mining and drilling; nuclear energy; radio; and television broadcasting; and transportation, you will need a federal business license.
Insurance is often neglected by businesses, but it is essential. At some point, a point unknown to you, your business will suffer some kind of loss. Insurance exists to fill that hole, in other words, it increases your future wealth, given that you are bound to suffer a loss. So even though it may seem like a cost, it is protection for the future.