Colorado sees big surge in new businesses after filing fees drop to $1

The number of business start-ups in Colorado hit a record in the third quarter, attracting more newcomers than in the second quarter — an unusual performance given that there’s usually a lull after the second quarter, according to the Colorado State Department.

The late summer turnaround has a good reason, said State Secretary Jena Griswold on Tuesday. Filing fees dropped to $1 on July 1, saving applicants $49. Registering a trade name went from $20 to $1.

Since July, more than 49,000 new limited companies have been incorporated in Colorado, up 25% from the same quarter of 2021, and nearly 14,000 new trade names have been filed, up 5%, Griswold said during an online news conference.

Economist Brian Lewandowski, executive director of the business research division at Leeds School of Business, University of Colorado Boulder, said the third-quarter growth came as a surprise based on past trends. Company filings were only four times higher in the third quarter than the second in the last 17 years, including this year.

Lower fees likely had something to do with the increase, but not all trends in the third quarter were positive, he said.

“Existing entity renewals were down for the quarter. That has us wondering if there are headwinds that are really weighing on existing companies,” said Lewandowski, who worked on the quarterly report.

The number of companies that were late in submitting their periodic reports or went out of business also increased. Insolvencies, which had unexpectedly declined during the pandemic (probably due to federal relief), are steadily rising again.

“That may align with rising arrears and resolutions,” he said. “I think there’s still a question mark over the current environment we’re in and how businesses will thrive over the next year.”

The impact of recent layoffs at big tech companies has yet to show in Colorado’s economic data. Denver and Boulder have offices for most of the major companies that have announced layoffs. Twitter laid off about 3,700 employees, or half its workforce, after being acquired by Elon Musk. Facebook parent Meta said it laid off 11,000 employees last week. And this week Amazon is reportedly planning to cut 10,000 jobs. Salesforce, Lyft, and Stripe also announced this month that they would be shedding a few thousand employees.

“We don’t see (the) impact of big layoffs,” Colorado Technology Association CEO Frannie Matthews said in an email.

Colorado is still one of the economically better states. The labor force participation rate, which is how many working-age adults are working or looking for work, was the second-highest in the country in September.

While inflation is still high, big contributors – like gasoline prices – have fallen from July highs. Lewandowski said when he checked earlier in the morning, the price of a gallon of gas in Colorado was a penny lower than it was a year ago. Nationally, inflation growth slowed to 7.7% yoy from 8.2% in September.

New data for the fourth quarter shows renewals at existing stores rebounded in October and new store enrollments continue to rise, according to government data. Colorado employers added more jobs throughout the summer. But Lewandowski is cautious about the state’s future economy.

“Our expectation is that we will see net employment growth in the fourth quarter of the year,” he said. “We expect there will be a slowdown across the country in the first half of 2023. Given the higher cost of capital and borrowing, we are concerned about generally lower capex. We are concerned about the exchange rate affecting exports in general at the national level. Colorado is not a strong export state. And we are concerned about how inflation may hurt real consumption growth. That is why we believe there could be a mild recession or flattening of economic growth in the first half of 2023.”