With the right resources and sufficient knowledge, it’s easy to get your business started and registered, so you can make your Colorado business a reality. Colorado is welcoming to entrepreneurs and startups, ranking fourth in the nation according to Amazon’s latest evaluation. The state is home to over 572,000 small businesses, with over 1 million people employed in those businesses, almost half of all working Colorado residents. You’ll have a variety of great metropolitan areas to choose from, too; Denver is probably the most popular city for entrepreneurs, but Colorado Springs, Boulder, Fort Collins, and Aurora all have thriving business communities as well. Plus, once you get settled, you can rely on resources like the Colorado Small Business Development Center (COSBDC) to discover new opportunities and grow your business faster. There’s a branch office in almost every major city.
- Forming a Business in Colorado
- Federal Tax ID (EIN) Number Obtainment
- Colorado State Tax ID Number
- Localized Licenses and Permits in Colorado
Before you get much further, you should decide what type of business you want to form. Depending on what level of liability protection you need, and how you want to pay taxes, there are multiple viable legal structures to note.
These are the most straightforward options for forming a Colorado business:
- Corporations. Corporations are the most complex legal structure you can choose, but they offer many unique advantages. For starters, they have the most liability protection of any business type; they’re treated as separate legal entities, and can therefore shield their owners from most types of liability. They also grant you the possibility of raising money via public shares. Federally, all corporations must pay taxes on any income earned, and you may be responsible for paying taxes at an individual level when you receive income or dividends. In Colorado, corporations must pay a flat 4.63 percent tax rate on all taxable income as well.
- Limited liability companies (LLCs). LLCs are similar to corporations in that they’re treated as distinct legal entities. They offer liability protection in much the same way, but aren’t required to pay taxes at the federal level. Instead, they’re treated as a pass-through entity, with owners paying taxes on whatever money they withdraw. In Colorado, LLCs must fill out an annual report every year, but don’t owe state-level income taxes; however, you may still be responsible for the corporate income tax, or an alternative minimum tax.
- Sole proprietorships. Sole proprietorships are significantly simpler than either corporations or LLCs, but they come with a cost: additional liability exposure. As a sole proprietor, you’ll be personally responsible for any debt in your business, and more vulnerable to legal action. As for taxes, you’ll only owe money on the personal income you make in the business.
- Partnerships. Partnerships are very similar to sole proprietorships. The only real difference is the number of members; partnerships involve two or more parties as owners.
There’s no single structure that’s inherently better than the others, so spend some time on your business plan to research and dissect your business’s strengths and weaknesses, and choose the most appropriate structure for your needs.
No matter what type of business you decide to form, it’s wise to apply for a federal tax ID number often called an employer identification number (EIN). The best analogy here is your social security number (SSN). Like SSNs are issued to citizens, the federal government issues unique ID numbers to businesses to keep better track of business income and other financial activity.
You’ll quickly find that your EIN is important for more than just that, however. You’ll use your EIN regularly, including it on applications for credit terms with new partners and vendors, and using it when you open your first business bank account. It’s also important for hiring employees, and for building your business’s credit over time.
Applying for an EIN is a simple process, but it’s helpful to have someone handle it for you. Use our federal tax ID number obtainment service to get your business registered (and get your EIN) in a day or less.
If you plan to hire any employees in the state of Colorado, or sell goods and services in the state, you’ll need to have a state-level tax ID number as well. Applying for a Colorado state tax ID number will register you with the state, so you can handle things like sales taxes and excise taxes (which apply only to specific products, such as cigarettes and gasoline). You’ll also need a Colorado sales tax license, of which there are several varieties.
Getting a Colorado state tax ID is similar to the process for getting a federal tax ID. If you take advantage of our Colorado state tax ID obtainment services, you can get set up in a matter of hours.
There is no general purpose business license to apply for in Colorado; instead, most licenses and permits apply on a local level. There are hundreds of potential permits to consider here, and every city does things a little differently, so it’s impossible to offer a concise description. The best course of action, according to the Colorado Secretary of State, is to check with your local city hall or county clerk to obtain the licenses necessary to operate. If this is your first venture as an entrepreneur, the process may seem overwhelming, but once you have your legal structure in place, you’ll feel much better about taking your business from plan to reality. Be sure to use our services to get your federal tax ID and Colorado state tax ID today- and make things easy on yourself.