8 Steps to Forming a New Business in Colorado

If you are considering a new business venture in Colorado, forming a business entity is important for multiple reasons.  Some business owners seek liability protection, others want tax benefits, and still others desire ease of transfer of ownership interests for future investors or partners.  Whatever the reason, the establishment of a separate corporate entity, whether a corporation, L.L.C., or partnership, is advantageous to the owners.

We recommend a few key steps to forming a new business.  These steps should not be overlooked:

1) Define the goals of your business.

This step will give vision to your entire business operation.  Further, it will constitute the beginnings of your business plan, policy and procedures, and employee manual.  Always start with the big picture.

2) Decide upon ownership and management structure.

The nature of your ownership and management structure will help determine which corporate structure best serves your needs.  Further, clarity of ownership and management is critical to clearly defined dealings with partners and/or investors.

3) Consult with an accountant and attorney.

As you proceed with your business, a solid relationship with both an accountant and an attorney will serve you well.  These are resources who can help avoid problems and pitfalls in your business operations.  You should take the time to establish these relationships right from the start, as you decide upon the best tax and legal structure for your new business.

4) Separate business and personal finances from the very beginning.

Too often, business and personal finances are co-mingled, causing disputes with partners and difficulties with the IRS.  Please keep separate finances for your business ventures right from the start.  Also be sure to keep all receipts and records.

5) Register the business and any trade names with the Secretary of State.

On occasion, a new business owner will simply call his business an LLC, or a corporation, without having registered with the Colorado Secretary of State.  A new business is not a corporate entity unless it has been registered.  The process is quite simple and inexpensive, and can be most easily accomplished online at the Secretary of State website.

6) Obtain the tax ID (EIN) and determine tax status.

Upon registration as a business entity, and upon application to the IRS, the federal government will issue a tax ID, known as an employer identification number (EIN).  This is the number to use for any bank accounts, 1099s, or business dealings, rather than a personal social security number.  Further, if your business is to become an S corp, the election must be made in order to obtain S corp status and take advantage of any tax benefits.  If you are a non-profit, the process of obtaining non-profit approval can take some time, and you should determine whether you meet the criteria to expedite your request for 501(c) status.  Your accountant should be able to assist with these issues.

7) Prepare bylaws or an operating agreement.

For a corporation, bylaws must be prepared.  For an LLC, an operating agreement is needed.  In a partnership, it is important to have a partnership agreement.  These documents address how the business is to be operated, particularly in the event of any disagreement.  Your attorney can assist with preparation of such documents.

8) Prepare all other new business documents.

Every company is unique, and your business documents should reflect the needs of your business.  For a new business, there is usually a need for an employee manual, job descriptions, policies and procedures, lease agreements, buy-sell agreements, and purchase/sales contracts.  There might also be a desire for buy-out agreements, confidentiality agreements, non-compete/non-solicitation agreements, stock certificates, purchase orders, and many other business documents.  It is best to have the documents in working order before you need them.  Your attorney should be able to assist with such document preparation.


We certainly wish you the best in your business venture, whether for-profit or non-profit.  If there is any legal assistance needed, feel free to call The Vaughn Law Offices at (303) 586-5905.

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