How to Start an LLC in Connecticut? (In-Depth Guide)
Starting an LLC in Connecticut is a relatively simple process that can offer your business significant benefits. There is a systematic procedure set by the state that you should comply with.
Since I’ve been in the LLC formation industry for several years, I’ll walk you through the steps necessary to form an LLC in Connecticut.
To provide you with all pertinent information, I collaborated with seasoned limited liability company consultants and legal advisors in the state.
Furthermore, these Connecticut professional LLC services can be utilized to launch an LLC for you.
Quick Summary:
- To start an LLC in Connecticut, choose an LLC type, register a unique business name, select a registered agent, and file a Certificate of Organization.
- Connecticut LLCs offer benefits like limited liability, pass-through taxation, and flexible management.
- Over 90% of businesses in Connecticut are small businesses, many of which are LLCs.
- In my experience, the ease of setting up an LLC in Connecticut significantly outweighs the administrative hurdles, making it a preferred choice for new business owners.
How to Form an LLC in Connecticut
In order to form an LLC in Connecticut, a business owner has to take a few steps that will have the LLC legally recognized as a business entity.
1. Choose the Type of Your LLC (Mandatory)
When choosing the type of your Connecticut LLC, you generally have two main options: a single-member LLC or a multi-member LLC.
Single-Member LLC:
Advantages
- Simplified management and decision-making, as there's only one owner.
- Easier tax filing, as it's treated as a disregarded entity for tax purposes.
- Less formal paperwork for internal governance compared to multi-member LLCs.
Disadvantages
- Limited perspectives and skills, as there's only one member.
- Potential challenges in raising capital or securing loans.
- Perceived lack of credibility with some clients or vendors due to being a sole owner.
Multi-Member LLC:
Advantages
- Diverse skills and perspectives from multiple members.
- Easier to raise capital with more members contributing.
- Shared responsibility and workload among members.
Disadvantages
- More complex decision-making and potential for disputes.
- Complicated tax filing as it's treated as a partnership or corporation.
- Need for more formal internal governance structures.
Each structure offers unique benefits and challenges, and the best choice depends on your specific business needs and goals.
2. Choose a Name for Your LLC (Mandatory)
A Connecticut LLC must have a unique business name that is not already in use by another business entity in the state.
The name must comply with Connecticut's naming guidelines, which includes the following:
- The naming guidelines are relatively simple. The name must be different from the names of other business entities, and it cannot contain certain prohibited words such as "bank," "insurance," or "trust."
- There has to be an abbreviation that includes the words "limited liability company" or the abbreviation "LLC".
- Terms you can never include in a Connecticut LLC name include terms associated with a government agency, such as "Internal Revenue Service" or "Federal Bureau of Investigation."
When you're choosing a name, it's essential to make sure that the domain is available as well.
You can use a domain search tool to check availability.
Also, you can perform a business entity search to make sure that your desired name is not already in use by visiting the Connecticut Secretary of State's business name database.
If your business name is available, you can file an Application for a Reservation of Name with the Connecticut Secretary of State by paying a $60 filing fee.
Your limited liability company name will be reserved for the next 120 days by completing this process.
Read More: How to Look Up an LLC in Connecticut
3. Select a Registered Agent (Mandatory)
A registered agent service is an organization that is appointed by the LLC to receive service of process on its behalf.
This means that the registered agent will be responsible for forwarding any legal documents to the company.
There are a few things to keep in mind when appointing a registered agent:
- The registered agent must be a resident of Connecticut or an organization authorized to do business in the state.
- The registered agent must have a street address in Connecticut where they can receive mail and legal documents.
- The registered agent should have a reputation for professionalism and be responsive to inquiries.
If you choose to use a registered agent service in Connecticut, be sure to do your research and compare prices before selecting one. You can find a list of registered agent services on the Connecticut Secretary of State's website.
4. File Certificate of Organization (Mandatory)
Once you have determined that a limited liability company is the right business structure for you and your desired name is available, it's time to file your Connecticut LLC Certificate of Organization with the Secretary of State [1].
This document officially creates your LLC and includes information such as its name, registered agent, and principal place of business.
A filing fee of $120 can be paid online with a credit card or check. For additional details on the cost of forming an LLC in Connecticut, see our guide.
The certificate can be filed online or by mail to the Business Service Division, Connecticut Secretary of the State.
Steps to Take After Forming an LLC in Connecticut
5. Create an LLC Operating Agreement (Optional, but Recommended)
Operating agreements are internal LLC documents that govern the company's operations.
An operating agreement includes things like members' percentage interests, voting rights, and management procedures.
Although not required in Connecticut, it's a good idea to have an operating agreement in place. With an operating agreement, the LLC can avoid any disputes among members.
Connecticut LLC operating agreements must include the following:
- Name of the LLC and its principal place of business
- The purpose of the LLC
- The names and addresses of all members, managers, and officers
- How profits and losses will be allocated among members
- Procedures for amending the agreement or dissolving the company
You can find a template for a Connecticut LLC operating agreement online or through an attorney. Be sure to customize it to fit your company's specific needs.
6. Apply for an Employer Identification (EIN) (Optional, but Recommended)
Federal tax identification number (employer identification number or federal employer identification number) is used by the Internal Revenue Service to identify taxpayers.
You will need an EIN in order to get started, so be sure to apply for one as soon as you finish with your operating agreement. You can apply for a tax ID number online at the IRS website.
Your EIN will be mailed to you, and it will also be included in your LLC formation documents.
Once you have your EIN, you can open a bank account for your LLC and hire employees. This will make it easier to track your business expenses and income, making filing LLC taxes much simpler.
7. Open an LLC Bank Account (Optional, but Recommended)
Connecticut LLCs offer personal asset protection. However, if you don't keep your business and personal assets separate, you risk piercing the corporate veil.
For this reason, it is essential that you open an LLC bank account that will not be used for any personal expenses. This will help to clearly delineate your business and personal finances and make it easier to track your company's financial progress.
To open an LLC bank account:
- Contact the bank of your choice and schedule an appointment with a business banker.
- Bring your operating agreement and the Certificate of Formation
- Complete the necessary paperwork and provide your company's EIN
- Set up a system for tracking expenses and profits.
There are many banks that offer business checking accounts specifically for LLCs. Be sure to research the best option for you and compare interest rates, fees, and other features.
You may also want to consider a credit union, which often offers lower rates and fees than traditional banks.
8. File Your LLC Annual Report (Mandatory)
As a business consultant with experience in assisting LLCs in Connecticut, I can't stress enough the importance of timely filing your annual report.
Typically due by the end of your LLC's formation anniversary month, this report is vital for maintaining your company's legal standing.
"Before filing your annual report, ensure you have all the necessary information including your LLC’s Connecticut Business ID number, principal business address, name and address of your registered agent, and information about your LLC’s managers or members."
- Delina Yasmeh, J.D./Tax LL.M, Distinguished Expert in Mergers & Acquisitions
Connecticut encourages online filing of annual reports through the Connecticut Secretary of State’s website. You’ll need to access the Connecticut CONCORD system to file electronically.
The annual report filing fee for an LLC in Connecticut is typically around $80. This fee is subject to change, so it’s advisable to check the current fee on the Secretary of State’s website.
If you’re unsure about the process, consider consulting with a legal professional or an accountant who is familiar with Connecticut business law.
Remember, staying compliant by filing your annual report is crucial for maintaining the good standing of your LLC.
9. Obtain Business Licenses and Permits
Business licenses and permits are necessary in order to operate your business. The types of licenses and permits you need will vary depending on the type of business you are starting.
In Connecticut, you can find a list of all required licenses and permits on the Department of Consumer Protection's website.
The Department of Consumer Protection offers a number of resources to help business owners understand and comply with licensing requirements, including an overview of the licensing process, frequently asked questions, and contact information for each bureau within the department.
You can also contact the local town hall or economic development office for assistance.
Some common licenses and permits for businesses in Connecticut include:
- General business license
- Tax registration certificate
- Seller's Permit
- Foodservice permit
- Contractor license
- Home improvement contractor license.
A professional limited liability company in Connecticut will likely need more business licenses than a traditional LLC because it will provide professional service.
For example, a professional LLC might need a business license to practice law, medicine, or accounting.
10. Choosing Your Tax Structure
When you start an LLC in Connecticut, the tax structure of your business will determine how you report taxes.
An LLC is treated as a sole proprietorship for tax purposes, provided that it only has one member. On the other hand, LLC members with more than two or more members are taxed like partnerships.
Both entities can still choose corporate taxation (either S corporation or C corporation) if they meet the requirements.
LLCs in Connecticut have to collect sales tax if they are selling products or services in the state.
The tax rate is currently at six and a half percent, but it might change in the future. Income tax is also collected on LLCs, and it's computed similarly to how partnership income tax works.
Connecticut business entity tax is a tax on the privilege of doing business in the state.
The tax is imposed on all LLCs but varies depending on the LLC's income. The tax ranges from $250 to $25,000, depending on how much money the LLC makes.
There are also a number of local taxes that businesses in Connecticut have to pay.
These vary by municipality, so it's important to check with your town or city hall for more information. Generally, these taxes include property tax, income tax, and sales tax.
If your limited liability company has employees, you'll need to pay employer taxes, unemployment insurance, workers' compensation, and disability insurance.
The amount that you'll have to pay for these depends on the number of employees and the type of coverage you choose.
Benefits and Drawbacks of an LLC in Connecticut
Benefits:
- Personal Liability Protection: Safeguards personal assets from business debts and legal issues, a crucial benefit in a state where there are 354,013 small businesses comprising 99.3 of all businesses, as per 2023 US Small Business Administration stats, indicating a vibrant entrepreneurial environment [2].
- Tax Flexibility: Options to be taxed as a sole proprietor, partnership, or corporation.
- Simpler Administration: Easier management and less paperwork compared to corporations.
- Operational Flexibility: Allows for more freedom in managing business affairs.
Drawbacks:
- Higher Costs: Initial filing and ongoing annual fees can be more expensive than other business structures.
- Business Entity Tax: Biennial tax imposed on LLCs, adding to expenses.
- Perceived Credibility: They may have less credibility with investors or banks compared to corporations.
- Limited Growth Potential: Some limitations in raising capital, as it can be harder to issue shares or attract certain types of investors.
DIY vs. Professional LLC Formation
DIY LLC Formation
Pros:
- Cost-Effective: Generally cheaper as it avoids professional service fees.
- Direct Control: Complete control over the formation process and understanding every aspect.
- Learning Experience: Gain firsthand knowledge about the legal structure and requirements of an LLC.
Cons:
- Time-Consuming: Requires more of your time to research and complete all steps correctly.
- Risk of Errors: Without legal expertise, there's a higher risk of mistakes in documentation and compliance.
- Limited Legal Knowledge: Might miss important legal nuances specific to Connecticut LLC laws.
Professional LLC Formation Service
Pros:
- Expertise and Accuracy: Professionals are knowledgeable about Connecticut’s legal requirements, reducing the risk of errors.
- Time-Saving: They handle the bulk of the work, freeing up your time.
- Compliance Assistance: Many services offer ongoing support for staying compliant with state laws.
- Peace of Mind: Confidence that all legal aspects are properly managed.
Cons:
- Cost: More expensive due to service fees.
- Less Hands-On Involvement: You may not learn as much about the process and legalities.
- Potential Over-Reliance: Risk of becoming dependent on a service for future legal or compliance issues.
Related Articles:
- How to Cancel an LLC in Connecticut
- Top LLC Filing Services in Connecticut
- How Long Does It Take to Form an LLC in Connecticut
FAQs
How Do I Register a Foreign LLC in Connecticut?
To register a foreign LLC in Connecticut, you should file an Application for Registration of Limited Liability Company with the Connecticut Secretary of State, submit all legal documents and comply with state requirements.
Do You Need a DBA for an LLC in Connecticut?
Yes, you need a DBA for an LLC in Connecticut if you intend to operate under a fictitious name. File a Trade Name Certificate on the town where your business is located and pay the corresponding fee of $10.
Does an LLC in Connecticut Have a Franchise Tax?
An LLC in Connecticut will have a franchise tax only if the company is taxed as a C-Corp.
Reference:
- https://business.ct.gov/manage/all-business-filings/llc-forms?language=en_US
- https://advocacy.sba.gov/wp-content/uploads/2023/11/2023-Small-Business-Economic-Profile-CT.pdf
