If you are a small business owner, it might be in your best interest to create a Connecticut LLC. Most small businesses start out as sole proprietorships or partnerships. However, these two structures can come with certain disadvantages.
They may not protect the owners’ personal assets, and they will pass on to heirs if there is no other plan in place. Establishing an LLC can help your business avoid many of these disadvantages while also protecting you from potential litigation issues.
What is a Connecticut LLC?
A Limited Liability Company (LLC) is an entity that provides limited liability to its owners.
A Connecticut LLC offers protection from lawsuits against the assets of the company, except in the event of fraud or gross negligence on behalf of a person who manages the company. In most states, an LLC may be either “member-managed” or “manager-managed.”
Forming an LLC in Connecticut Is easy.
You may make the application as a sole proprietor or a business entity. In addition, you don’t have to pay an initial tax to file your LLC with the Secretary of State.
The state does require that you obtain an employer ID number from the IRS before operating your company. Follow these steps to create your LLC as easily as possible.
STEP 1: Name your Connecticut LLC.
You should choose a name for your business that is not misleading, does not conflict with another company in existence or held by others, and does not infringe on any third party’s trademarks.
You may reserve the name of your new business if you plan to form an LLC in the future. The state will mail you a Certificate of Reservation within two weeks of filing your Application for Reservation.
- A name must be unique.
- Names may not contain the word “bank,” “insurance,” or any other restricted words.
- You cannot use a name similar to that of another existing company or trade name in Connecticut.
- Each LLC member shall adopt an assumed business name when conducting business as an LLC in Connecticut.
- If your business is a sole proprietorship, the assumed name of the owner shall be the same as your own name.
STEP 2: Choose a Registered Agent in Connecticut
The Division Connecticut Secretary of State is responsible for maintaining a list of registered agents.
Your LLC’s name will be listed on this register, which may appear to the public as an official endorsement. A Registered Agent effectively serves as your business’s address in Connecticut.
- You can appoint a registered agent who must have a physical office in Connecticut.
- A registered agent may not be a business entity or trust that has been formed for the purposes of serving as a registered agent.
- The name and address of your LLC’s Registered Agent shall be provided to the Secretary of the State when making an application to form your LLC.
STEP 3: File the Connecticut LLC Certificate of Organization
The Secretary of State will file your Application for Filing LLCs with the Superior Court. In addition, you must provide the following:
- An original Certificate of Organization or a photocopy of an Assumed Name Certificate filed by one of the principals with the Office of the Secretary of State.
- A list containing the name and address of the LLC members or managers.
- An original Assumed Name Certificate, if applicable.
- Upon payment of the $200.00 filing fee, you will be issued a Certificate of Organization.
The Certificate of Organization is prima facie evidence that the LLC has been properly formed under Connecticut law.
The Certificate lists each principal’s name and business address, as well as its Registered Agent’s name and address (if different from the principal).
Without the Certificate of Organization, an LLC will not be able to file a certificate of the assumed business name or operate in Connecticut.
You have to file your Articles of Organization with the Connecticut Secretary of State. The Articles specify the names and addresses of the organizers and owners. The document should include the purpose for which your company was created, as well as a statement that it is an LLC instead of a corporation or other business entity.
STEP 4: Create a Connecticut LLC Operating Agreement
A Connecticut LLC operating agreement is a written document that specifically outlines the details of the organization and operation of your business.
In addition to addressing ownership or member percentage, it also covers critical issues such as:
- The distribution of profits and losses between members.
- Allocation of voting power among members.
- Handling membership changes in the future.
- Any restrictions that apply to the transfer of ownership interests in the business.
A Connecticut LLC operating agreement gives your business complete legal authority to enter into a contract, purchase property and incur debt.
STEP 5: Get a Connecticut LLC EIN
Your Connecticut LLC will receive an IRS Employer Identification Number, also known as an EIN. The IRS issues all businesses a Unique Employer Identification Number for tax purposes, whether they are incorporated or not.
You can apply online at the IRS website; the entire process takes less than 10 minutes to complete. You can also mail in Form SS-4 to the IRS in order to apply.
In Connecticut, an employer is required to report your EIN on W-2 forms for all employees, as well as on 1099-MISC forms for anyone you paid more than $600 during a tax year (this does not include your own LLC members).
An SSN is not required for EIN purposes, as it is with LLC members.
Pros and cons of Connecticut LLCs
There are a number of advantages associated with forming your own Connecticut LLC.
A limited liability company protects its members from business debts, allowing them to share the cost and risk of any financial obligations without having to give up individual assets such as their home or car.
Flexibility in operating.
Although an LLC’s operating agreement is not required for it to operate as an LLC, it does allow members the freedom to make decisions about how to run their business.
For example, some LLCs decide that all profits are to be shared while others have different divisions and bonuses for managers or owners.
Depending on what type of business you own, your LLC can have different tax statuses if you choose to do so.
Flexibility in management decisions.
When establishing an LLC, owners are not required to take part in managing the business or make any decisions related to its operations.
If a member is going to be significantly involved with the management of the LLC, though, it might be easier to form the organization as a corporation or partnership.
Flexibility in the transfer of ownership interests.
If an owner wants to sell their interest, they can do so at any time and under whatever conditions they choose to put into place.
Additionally, there are some potential disadvantages to forming your own Connecticut LLC.
- Taxes are generally more complicated for an LLC than for a sole proprietorship or corporation.
- There is greater complexity in the approval process of buying and/or selling the property when it involves multiple owners.
The cost to start an LLC in Connecticut.
A new Connecticut LLC must file a certificate of company formation with the Secretary of State prior to doing business, and it has to pay a $150 fee for that service.
Alternatively, a single-member LLC (with only one owner) does not have to pay a state fee to the Secretary of State; however, it may submit a filing fee with its county registrar.
The price depends on the county where your business will be located. And there is an additional $75 annual fee for LLC memberships.
Initial costs can also include:
- Stamps and envelopes if you file by mail (although most states offer online submission of filings)
- Office supplies to keep your business organized, such as paper, a filing basket, and envelopes.
Separate Your Personal and Business Assets
In order to keep your business and personal assets separate, you should consider opening a business bank account. All LLCs must deposit all income earned from their business into this account.
It is also advisable to maintain any records of your work-related purchases in a separate folder or file where they can be kept separately from records of personal transactions.
1. Opening a business checking account:
If you already have a personal bank account, your first step in opening a business checking account is to contact the bank where that account is held and request an additional name on the account.
- You should ask for the same person or entity (LLC) to appear as the name of both parties and make sure that one party will not be able to have sole access to the account.
- The bank will also ask for your LLC’s Federal Employer Identification Number (EIN), which it will use to report business-related income and expenses on your LLC’s taxes. You can obtain an EIN by contacting your employment service office or filling out IRS Form SS-4, Application for Employer Identification Number, which is available on the IRS website.
After your business checking account has been open for a few months, it’s important to make sure that you keep accurate records of all deposits and withdrawals made from the account.
This will help you identify where money is coming from in order to generate reports later (in case you need to present your financial statements on request, for instance).
2. Getting a business credit card:
If you have a business checking account, you will probably be approved for a credit card. You can ask your bank representative about opening a line of credit and which cards are most beneficial to businesses.
3. Hiring a business accountant:
Business finances can get complicated fairly quickly, and you’ll need to ensure that your accountant doesn’t charge too much for the work they do.
The Department of Revenue website has a list of certified public accountants who are not only trustworthy but affordable as well.
And it is important to keep in mind that there are many reputable CPA firms that are willing to work for a flat fee, so you’ll need to do some research and shop around.
Get Business Insurance for Your Connecticut LLC
In order to protect your LLC, you should consider purchasing a business liability insurance policy. A good option is Business Owner’s Policy (BOP), which covers three essential areas: property, liability, and workers’ comp.
It’s important to note that these coverages differ from the policies required by your state in order to do business. If you fail to obtain the proper state policy, you could end up getting your business license revoked.
Moreover, as a general rule of thumb, make sure that insurance companies are aware of any hazardous conditions at your place of business (such as rare pets or chemicals), and ask for a list of additional insurances they recommend in order to protect yourself against fire, flood or other potential problems.
Connecticut LLC Business Permits and Licenses
In order to operate in Connecticut, your LLC will need a license and some permits.
If you’re looking for information about opening a business in the state, Business Licenses USA has valuable information available, including links to all applicable licenses and permits.
Types of business licenses that you may need to obtain:
- Business License for Business Establishment (Standard, Manufacturing, Distributor): You will need this license to operate your LLC. It is valid for one year and costs $25.
- Business License for Trade or Business (Standard): This license allows you to operate your business as a retail establishment, which means that you won’t need specific permits for your business operation when you apply for this form of license (but you may need them if you wish to add a building permit for renovations or other improvements). It is valid for one year and costs $25.
- Manufacturing/Distilled Liquor/Health Foods Retailer or Wholesaler: If you plan on manufacturing liquor, distributing it, or selling healthy foods (i.e., organic fruits and vegetables) that have been prepared at the premises in the state of Connecticut, this license will enable you to do so. It is valid for one year and costs $25.
- Farm Products Retailer or Wholesaler: If you plan on selling fruits, vegetables, or eggs from your farm in Connecticut, this license is required. It is valid for one year and costs $25.
- Amusement Device Operator: If your business involves coin-operated amusement devices or vending machines, you’ll need this license. It is valid for one year and costs $25.
- Home Entertainment Contractor: This license enables you to install hidden surveillance systems, burglar alarm systems, or home theaters in Connecticut homes. It is valid for two years and costs $45.
- Massage Therapist: If your business involves giving massages or reflexology treatments, you’ll need this license. It is valid for two years and costs $75.
Other Licences and Permits you may need:
- Tobacco Retail License (for selling tobacco products): This license is valid for two years and costs $30.
- Tobacco Wholesaler Permit: If you plan on manufacturing or distributing tobacco products in Connecticut, this permit will allow you to do so. It is valid for one year and costs $30. -Food Establishment Permit: If you plan on opening a food establishment that serves potentially hazardous foods (i.e., foods made by deep-frying, salting, or pickling), make sure to apply for this permit before doing so. It is valid for one year and costs $25.
- Outdoor Dining License: This license is required if you plan on opening an establishment that serves food outside. It is valid for one year and costs $25.
- Open Air Food Service Permit: If you plan on running a mobile eatery in Connecticut, this permit will allow you to do so. It is valid for one year and costs $25.
Connecticut LLC Tax Filing Requirements
The state of Connecticut will require you to fill out a corporate income tax return and pay taxes on your LLC’s income, as well as any withholding taxes.
The Department of Revenue offers some helpful information online regarding what records are needed in order to file this type of return, so if you’re unsure about it, be sure to check it out.
Connecticut Sales Tax
In addition to being required to pay corporate income tax, your LLC will also incur certain sales taxes when you conduct business transactions or make purchases.
- If you plan on selling anything through your company, including products and services (i.e., web design), you’ll be required to charge a 7% sales tax. You can register to collect sales taxes by filling out a Sales Tax Exemption Application (form CT-2261) and filing it with the Connecticut Department of Revenue Services.
- If you plan on hiring workers for your business, be sure to note that they will also have to pay a 1% withholding tax on their salary.
- If you plan on making purchases, such as if you have an office that is to be furnished and equipped (i.e., computers, furniture), you will also have to pay sales taxes on these items.
Connecticut Employer Taxes
Your LLC will also have to pay a Labor Department tax of $.60 per hour for each employee or worker that you hire, in addition to paying corporate taxes on its income.
The state of Connecticut requires this from all employers and employees who are currently registered with the state.
- You can register your business with the state’s labor department through the “New Employer Registration” form. This is available online, and it allows you to register your company for SECA taxes (which are federal taxes that are paid on behalf of workers with no income tax liability).
- You will need to provide detailed information about the wages and salaries, tips or gratuities, social security wages, and tips that you paid to each worker during the period in question.
- You will also be responsible for calculating and paying quarterly estimated taxes, based on income and withholding from workers, as well as providing a 1099-INT form by January 31 of the year after the tax year has ended. You’ll need this form to be prepared and completed if you have business transactions that include interest earned by the LLC.
In addition to all of this, your company will also be responsible for paying unemployment insurance taxes on behalf of its employees. These can be filed online or through a tax returns system (known as CT-1040ES), which allows you to make payments via check or credit card.
The state of Connecticut has a few other taxes that you should remember to keep tabs on:
- Assuming your business is considered an active corporation, then you’ll need to pay personal property tax. This allows the state to keep track of how much property is owned by each company or LLC. You can review your property’s worth at the Department of Administrative Services website.
- If you plan on doing business in Connecticut, you’ll need to pay state sales or use taxes when conducting transactions or other business dealings within the state. You can register for this with the Connecticut Department of Revenue Services.
Federal LLC Tax Filing Requirements
You should keep a few things in mind when filing taxes as an LLC:
- In order to be considered a “regular” or standard limited liability company (LLC), then you will need to file paperwork for an Employer Identification Number (EIN) that is assigned by the IRS. This allows the federal government to keep track of all active LLCs and corporations.
- In order to get your EIN, you’ll need to file Form SS-4 with the IRS. This can be done online or by mail (you may also send an electronic version of this instead). The application is fairly straightforward, and it only requires basic information (i.e., your company’s legal name and physical address) to be filled out.
- Just like most new business owners, you will also need to register with the state as a corporation or LLC. This can be done by filing form CT-6 if you plan on doing business in the state of Connecticut.
Connecticut Business Entity Tax Forms
To make things a little easier, here are the forms that you’ll need to fill out in order to do business in Connecticut:
- CT-120 (for LLCs)
- CT-200 (for corporations that are doing business in CT)
- CT-251 (if you want to do business as a foreign entity)
In addition, be sure to keep your EIN number, as well as the name and physical address of your LLC or corporation, on hand for all tax filings.
File Your Connecticut LLC Annual Report
All LLCs in the state of Connecticut must file an annual report with the Secretary of State’s Office. This should be filed every year by October 15. Otherwise, a penalty of $100 per month will be assessed for any months that are left unfiled.
You can download the application from the website at www.ct.gov, but be sure to follow the instructions and include all necessary information.
You can also mail in your filing, or you can visit the office with it if you need additional help filling it in person.
Hiring Employees in Connecticut
Like most states, Connecticut has certain laws that regulate how many employees your company can hire.
These regulations were put in place to help protect businesses from being forced into bankruptcy because of lawsuits or for other issues regarding the number of employees they have on payroll.
Here are a few things to keep in mind before hiring employees:
- Any company that plans on having more than five full-time employees will be required to register with the federal government.
- Any company that has 50 or more workers must also establish a safety committee (i.e., a group of individuals that are responsible for making sure safety protocol is followed throughout all business operations).
- All businesses in Connecticut (and elsewhere) are required to pay into state or federal unemployment insurance (or both). These funds go towards covering the expenses needed to maintain and keep these insurance systems up and running.
- While you may think that paying employees is expensive, this actually ends up saving employers money in the long run. Many entities end up finding themselves having to deal with high-cost lawsuits because of workplace accidents or other issues that occur at the hands of their employees.
- To create a safer workplace, you may want to consider bringing in an expert. This could be an attorney or a qualified accountant who can help with employee and labor laws. It will also give you a better understanding of how these systems work and how they can benefit your company when a problem does occur.
- You may want to consider employee insurance as well. Many states have laws in place that require businesses to offer certain types of insurance for their workers (i.e., Health Insurance, life/accidental death, and dismemberment). The cost of these plans can get expensive, so it’s a good idea to check on what is required by state law before making your final decision.
Connecticut Foreign LLCs
In addition to any LLCs that do business in Connecticut, there are also foreign LLCs. These are companies that are registered as a limited liability company with the state of Connecticut but only use it for business transactions outside of the United States (i.e., international corporations).
The process is fairly simple, and all you need to do is make sure that all of the filing fees are paid, and you’re not running a fraudulent registry.
As long as these requirements are met, any foreign LLC is eligible to be listed in this state.
How to Obtain a Certificate of Good Standing in Connecticut
A Certificate of Good Standing (along with a Certificate of Existence) can be obtained by filing Form INC-129. This certificate will verify that the corporation exists and is actively doing business in Connecticut.
If you’re unsure whether or not your company or LLC is considered active, then consider following up with the Office of the Secretary of State. If there are no outstanding issues against the business, then a Certificate of Good Standing will be issued.
This certificate is valid for one year and must be renewed each time you want additional verification that your company or LLC remains active.
To obtain this document, you’ll need your business’s legal name, your full name, your Social Security Number, and a Form INC-129. You must also provide the address that you want it mailed to and an exact payment of what is required by state law (currently $100).
If you’re thinking about creating a limited liability corporation, then make sure that you fully understand what this type of business actually is. It might seem like an easy way to protect yourself from any and all lawsuits, but it isn’t always the best option when dealing with personal legal issues (i.e., divorce).
As with anything, you need to do your homework before signing on the dotted line and create a business structure that will ultimately protect you in all situations.