How to Establish a Sole Proprietorship in Colorado
To establish a sole proprietorship in Colorado, here's everything you need to know.
In Colorado, you can establish a sole proprietorship without filing any legal documents with the Colorado Secretary of State. There are four simple steps you should take:
1. Choose a business name.
2. File a Statement of Trade Name of an Individual.
3. Obtain licenses, permits, and zoning clearance.
4. Obtain an Employer Identification Number.
1. Choose a Business Name
In Colorado, a company may use any name it desires. However, it is a good idea to use a name that is not too similar to another registered business because of common and federal law trademark protections. To make sure your business name is available, run a search in the following government databases:
- Colorado Secretary of State: (Search under name availability.)
- U.S. Patent & Trademark Office: (Click on the TESS link under Tools.)
2. File a Statement of Trade Name of an Individual
If you use a business name that is different from your legal name, Colorado requires you to file a Statement of Trade Name of an Individual with the Colorado Secretary of State. Business owners must file this statement prior to the business start date. The filing fee is $20. Serious penalties can be levied against business owners who do not register their trade name including a monetary penalty of up to $500 and limited access to courts for enforcing debts against creditors. Trade names for sole proprietors expire at the end of each calendar year. Therefore, you will need to renew your trade name every year. Filing a renewal application can be done 3 months prior to its expiration. The renewal filing fee is $3.
3. Obtain Licenses, Permits, and Zoning Clearance
Your business may need to obtain a variety of licenses and permits depending on its business activities. Colorado provides a comprehensive list of every license and permit that may be required by any sole proprietorship. A business can obtain this information by going to the Colorado Office of Economic Development. Select your business activity and you get a list of all the required state and federal permits and licenses as well as required filings and laws you may be subject to, such as sales tax laws and inspections. Additionally, local regulations may apply to your business. You should check with your city or county clerk or licensing department. In Colorado, when working within city/town limits, the city/town regulations supersede the county regulations.
4. Obtain an Employer Identification Number
Sole proprietors who wish to have employees need to obtain an Employer Identification Number, or EIN. This is a nine digit number issued by the IRS for tax reporting purposes. All businesses with employees are required to report wages to the IRS using their EIN. Registering for an EIN can be done online at the IRS website.
Sole proprietors without employees are not required to have an EIN because they can use their Social Security number to report taxes. Nevertheless, you may want to obtain one anyway for your business. Some banks require one to open a bank account and it can reduce the risk of identity theft.
In Colorado, businesses that have employees are required to file a wage tax report with the Colorado Department of Revenue. You can register online at the Colorado Business Express website.
If you have employees, you must report and pay employment taxes weekly, quarterly, or annually depending on the amount of the employee’s wage. For more information on being a Colorado employer, see the Colorado Employer’s Responsibility guide, available on the State of Colorado Office of Economic Development (OED) website.
It is important to consider doing the following once you have established your sole proprietorship:
- Open a business bank account. Using your fictitious business name and EIN, you should set up a bank account to keep your business and personal finances separate.
- Obtain general liability insurance. Because sole proprietors are personally liable for all debts and obligations of the business, a business liability insurance policy may be the only form of financial protection against unforeseen events.
- Report and pay taxes. Depending on your specific business activities, you may be required to report such items as sales tax and use tax. The Colorado Department of Revenue oversees and collects these taxes. Visit their website for more information.