So you’re looking to form an LLC in Connecticut. Great idea! Forming an LLC opens the door for tax savings, limited liability, and security to your personal assets. In 2019, Connecticut did away with its business entity tax. The State is a great destination to incorporate your LLC. However, the procedure may seem a bit tedious.
This article will act as your detailed yet straightforward guide and walk you through the different steps involved in forming an LLC in Connecticut.
Naming your LLC
What’s in a name? Well, the identity of your company. The first step in setting up your LLC is to name your business. A good name will help your LLC to have brand value in the market.
So, you must name your company to make it distinctly identifiable. A catchy name also attracts consumers. Your LLC’s name appears in all the documents related to your LLC, and a significant amount of information regarding the formation of your LLC stays in the public domain. So, ensure that the name you choose is unique and creative.
While naming your LLC, make sure that you follow the guidelines laid down by Connecticut.
The name of your LLC must include the words “limited liability company” or the abbreviation “L.L.C.” or “LLC.” You may abbreviate “Limited” as “Ltd.” and “company” as “Co.”
You must also not use any name that confuses your LLC with a government agency. For instance, let us assume that you want to name your pest-control company “Indoor Residual Spraying” and use the ‘IRS’ abbreviation. Unfortunately, this would not be permissible under the regulations of the State of Connecticut.
The name of your LLC should be unique and not match the name of any other entity. The company’s name must also not be substantially similar to any other entity. The underlying rationale is that no company shall benefit from the goodwill and reputation of another company.
If the name of your LLC includes words such as ‘Bank’ or ‘Attorney.’ In that case, you may require some additional paperwork. You may also be required to confirm with other obligations, such as including a licensed individual (For instance, a lawyer, a doctor, etc.) in your LLC.
You may read Section 34-243k of Connecticut’s Uniform Limited Liability Company Act to understand all the naming guidelines.
Does your business require a DBA?
DBA stands for “Doing business as.” It is essentially a trading name. It is a name under which the business operates. It is different from the legal name of your business.
For example, the legal name of HP is Hewlett Packard; however, their trade name is HP. So, to sum it up, a DBA is like an alias. If you want your business to be recognized by a name other than its legal name, you may file for a DBA. How do you file for a DBA?
Unlike many other States, where you apply for the DBA with the Secretary of the State, you must mail the application to the concerned town clerk’s office in Connecticut.
For instance, if your LLC is located in Stamford, you must send a trade name statement to the city of Stamford’s town clerk’s office. You can find the list of town clerks and their mailing addresses on the Connecticut Town Clerks Association website.
Option 1: Contact Your LLC’s County ClerkContact County Clerk
Fee: Contact County Clerk
Doing a Name Search and Name Reservation
As mentioned before, the Regulations of the State of Connecticut require that the name of your LLC must be different from that of any other entity in existence. To ensure that your company’s name is not already under usage, you can use the State’s Business Records Search portal.
Sometimes you have decided on your name but would still need more time to register your LLC. If this is the case, you can reserve your chosen name. You have to apply with the office of the Secretary of State. Connecticut allows you to reserve the name you have selected for 120 days.
Option 1: Reserve Your Name OnlineApply Online – OR –
Option 2: Reserve Your Name by MailDownload Form
Commercial Recording Division
Connecticut Secretary of the State
P.O. Box 150470
Hartford, CT 06115-0470
Commercial Recording Division
Connecticut Secretary of the State
165 Capitol Ave., Suite 1000
Hartford, CT 06115-0470
Registering Your Business Domain
The internet is becoming increasingly popular every day. Most people read internet reviews and look for an online presence before purchasing a product or service. A well-designed website may aid in acquiring new customers.
The address of your website is how customers find you online. So before you select a name for your LLC, it is recommended that you ensure that the domain name you need is also available.
You can check currently available domain names.
Choose a Registered Agent in Connecticut
Having picked a name for your newly established LLC, the next thing that you need to do is to appoint a registered agent. A Registered Agent is an individual or another business entity responsible for receiving all official communication on behalf of the LLC.
The registered agent you choose will have to consent to perform such functions. Every LLC registered in Connecticut must appoint a registered agent under Section 34-243n of Connecticut’s Uniform Limited Liability Company Act.
You can nominate a registered agent by filing their name and address along with the Articles of Organization.
Who can be a registered agent?
The State of Connecticut provides specific requirements that your registered agent must comply with. The agent you select for your LLC must be:
- An individual State resident (above 18 years) or
- A business entity that has obtained authorization to conduct business in the State.
The registered agent should be available during business hours on all working days.
Individual v. Registered Agent Service
You can appoint yourself or any of your friends or family as the registered agent of your LLC. Alternatively, you can also hire a professional service. While you would incur some expenses, there are advantages to hiring a registered agent service.
A registered agent service would ensure all communications are handled efficiently. They ensure that you don’t fail to duly respond to any notice or other communication that may be sent to your LLC. They remind you when your returns and other filings are due and help ensure you don’t miss any deadlines.
Professional help lets you focus your energy and time on core business areas. Also, if you work out of your home or a private office, having a professional registered agent service will help you maintain privacy as a registered agent’s address is available for the public to access on the concerned websites.
The registered agent service will store and maintain all your essential documents online to provide easy and instant access to them whenever needed. This helps organize your work better and comes in handy in subpoenas or other legal requirements.
Filing the Certificate of Organization with Connecticut
The Certificate of Organization is a legal document that enlists the name, address, and member’s credentials of an LLC. Filing the certificate of the organization gives legal recognition to the LLC. Once the Certificate of Organization is approved, the LLC is authorized to conduct business in the State of Connecticut. The document is to be filed with the office of the Secretary of State.
The document must also mention the managerial nature of the LLC, whether it is member-managed or manager-managed. In a member-managed LLC, the members look after the company’s day-to-day functioning. The members appoint managers to oversee the company’s management in a manager-managed LLC. You can file the certificate of organization online or by filling out the form and mailing it.
Option 1:File the application onlineApply online – OR –
Option 2: File Your Articles of Organization by Mail or In-PersonDownload Form
Business Services Division,
Connecticut Secretary of the State,
P.O. Box 150470,
Hartford, CT 06115-0470.
Business Services Division,
Connecticut Secretary of the State,
30 Trinity St.
Hartford, CT 06106
As of now, the State does not have any provisions pertaining to expedient processing of your Certificate of Organization.
Public Notice of Formation
As of now, the State does not have any provisions pertaining to a mandatory public notice of formation for your LLC.
Create the Operating Agreement for your Connecticut LLC
An operating agreement is one of the most crucial documents you require for your company. It lays down the rules of your LLC’s internal operation and functioning. It also provides a framework concerning the duties of members of the LLC and its managers.
It is an internal document (unlike the certificate of organization) that governs matters like the ownership percentage of different members (assuming that an LLC has more than one member), distribution of profits/loss among the members, how the company would pay taxes, and how dissolution (How the assets/liabilities would be distributed among the members, in case the LLC shuts down) of the company would take place.
Even though the laws in the State do not mandate an operating agreement, you should have one. It offers credibility to your enterprise. You will need an operating agreement for opening an account with the bank. In short, an operating agreement acts as a guiding force in matters of the day-to-day functioning of the LLC.
There are no prescribed templates for an operating agreement, and you may draft one according to the needs of your business. However, irrespective of the nature of your business, it shall be advisable for your operating agreement to cover the following matters:
- Organization Details
- Duties of Members and Managers
- Management and Voting
- Capital Contributions
- Division of Profit and Losses
- Bookkeeping Procedures
- Procedure for adding new members
- Requirements concerning Meetings and Procedures thereof
Writing the Operating Agreement Yourself v. Hiring a Service
You could draw up the operating agreement yourself or hire the services of a professional. The decision on whether you should do it yourself depends on the complexity of the operations of your LLC and its management structure.
If you want to be sure that your operating agreement covers all the necessary bases, it may be preferable to hire the services of a professional. Most registered agent services also assist you with creating an operating agreement.
Limits of Operating Agreement
According to State law, an operating agreement may not vary a limited liability company’s capacity to sue and be sued in its name. Moreover, an operating agreement cannot alter any requirement mandatorily specified by the law.
Obtaining an EIN for your Connecticut LLC
An Employment Identification Number [EIN] is a nine-digit number used as an ID for taxation purposes. It is allotted by the Internal Revenue Service (IRS). All LLCs with more than one member and employing other people need to have an EIN. An EIN is also necessary to open a business bank account. Moreover, you get to decide your LLC’s taxation structure when applying for EIN. So how do you get one?
You can obtain one online or by mailing or faxing your application. You need your Social Security Number (SSN) or TIN to apply online. You will have to mail or fax your application if you don’t have either.
Option 1: Request an EIN from the IRSApply online – OR –
Option 2: Apply for an EIN by Mail or FaxDownload form
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Fax: (855) 641-6935
File Annual Reports in Connecticut
An annual report contains information about your LLC (such as the number of employees, members, registered agents, etc.) Connecticut law requires that every LLC file an annual report with the Connecticut Secretary of State. It is a document used by the authorities to get the latest and updated information about all the business entities operating in the State.
You must file the annual report by the 31st of March. If you miss the deadline, your LLC may be given the “Not in Good Standing” status. If you fail to file the document beyond one year, you risk your LLC getting shut down by the authorities.
You can file an annual report online on the State of Connecticut website by paying a fee of $80.
Tax Liability for your Connecticut LLC
The way your LLC will be taxed depends upon the number of members in your LLC. There are four ways in which LLC will be taxed:
- Sole proprietorship: a business owned by a single person
- Partnership: a business owned by multiple people
- C – Corporation: income is split or segregated for taxation
- S – Corporation: tax liability is split between the business and its owners
Federal Tax Liability
Depending on the taxation structure adopted by the members, an LLC will be treated differently for taxation purposes.
If you’re a single-member L.L.C., your default taxation type will be that of a sole proprietor or ‘disregarded entity.’ The L.L.C. has to report its activities under Schedule C, Schedule E and/or Schedule F of Form 1040.
A multi-member L.L.C. is treated as a partnership by default for tax purposes. In such a case, the partnership rules will apply for tax purposes, which means that partners will not be personally liable for taxes. In this case, apart from filing Form 1040, you’ll have to file your partnership return in Form 1065 and provide information in the K-1 of each partner.
If you would like your LLC to be taxed like a C-Corp or S-Corp, you can do so by filing Form 8832 and Form 2553, respectively.
State Tax Liability
Earlier, Connecticut required businesses to pay a biennial Business Entity Tax. This requirement was done away with through legislation (Public Act 19-117.)
If your LLC is engaged in selling certain physical products or specific services, you will be required to pay Sales Tax. You have first to obtain a seller’s permit for this purpose.
If you choose to treat your LLC as a partnership, you will be required to pay State Income Taxes on the income you take out of your LLC. The income tax rates in Connecticut range between 3 and 6.99%.
If, on the other hand, you choose to treat your LLC as a corporation for taxation purposes, the LLC will be required to pay the Connecticut Corporate Tax, which is currently at 7.5%.
You must obtain a State tax registration number for your business. You can register for this ID either online or by filling out Form REG-1 and mailing it to the Department of Revenue Services State of Connecticut, P.O. Box 2937, Hartford, CT 06104-2937. To register online, you can visit the Taxpayer Service Centre. The registration fee is 100$, and you must renew the registration every five years.
However, additional charges may apply. Certain goods such as furniture, electronics, and others are subject to sales tax levied by the State. In comparison, groceries and medicinal products are exempt from taxes.
For more information on individual tariffs on goods and services, refer to the Department of Revenue Services. The Department of Revenue Services, Connecticut website also has a helpful Tax Information Guide to calculate your tax liability. For information on the tax deadlines, refer to the Tax Filing Calendar.
We recommend consulting a professional accountant to ensure you calculate your tax liability accurately and avail of tax exemptions you might be eligible for.
If your LLC has hired employees, you must sign up for Unemployment Insurance Tax and Employee Withholding Tax.
Permits and Licenses
An LLC operating in Connecticut must comply with State and Federal regulations. Accordingly, your business will be subject to three licensing jurisdictions: Federal, State, and Local. For instance, if your company is involved in a food processing business, you might require a food permit from the State’s health department and the usual business license. So, to avoid legal trouble, ensure that your LLC has all the required licenses and permits.
Federal Licensing requirements will depend on the business activity carried on by your LLC. If your company is engaged in any area of business regulated by the Federal Government, you will be required to obtain relevant Federal Licenses and Permits.
Some business activities requiring Federal Licenses and Permits are Agriculture, Alcoholic beverages, Aviation, Firearms, ammunition and explosives, Fish and Wildlife, Commercial fisheries, Maritime transportation, Mining and drilling, Nuclear energy, Radio and television broadcasting, and Transportation and logistics.
At the State level, your LLC should get a seller’s permit if it sells specific physical products or services to which sales tax applies. You can apply for a seller’s permit by visiting Connecticut’s Taxpayer Service Center website. Additionally, certain professions in the State are required to obtain specific licenses. You may visit the Connecticut Department of Consumer Protection for more information.
Depending on where you operate your business, you may also be required to get the local government’s license and permit. In New Haven, companies are required to obtain a local-level broker license. To know more about local licensing requirements, get in touch with the office of your Connecticut city or town clerk’s office.
Business Bank Account & Phone Number
It is always prudent to open a separate Bank Account for your LLC and have an individual designated phone number. Having a different account helps you to avoid mix-ups and helps ensure that your personal assets are not affected in case of insolvency or lawsuits. So how do you get a bank account for your LLC?
Choose an account type (Overdraft, interest account, Fees account) that matches your business requirements. Secondly, submit all the necessary documents that the bank may require. Usually, a bank may require- articles of organization, employment identification number, business license, and LLC operating agreement. Lastly, appoint someone as an authorized signer for the bank account. The bank may also require the signer’s Tax ID and other personal information.
Moreover, a business phone number may also provide customer support, increasing consumer satisfaction and proving beneficial to your business. You can obtain a phone number by availing of services of any network carrier (such as AT&T). Usually, you would require some documents to prove the existence of a business entity. The records required may differ depending on the service provider.
Connecticut is an excellent choice for your business. The State has a good regulatory setup and provides several programs aimed at small and medium enterprises. The State also provides tax exception schemes aimed at helping new businesses.
Corporate Business Tax Exemptions, Real & Personal Property Tax Exemptions, and Sales and Use Tax Exemption are some tax incentive schemes for new businesses. Get in touch with your local county or city government office to determine if your LLC is eligible for any of these incentives.
With the last step, you will complete all the procedures required to form an LLC in Connecticut. Double-check all the documents and information before filing your application, and you should be ready to go. If you’re hesitant about any step in the process, you could always use an LLC incorporation service instead.
Enjoy your new LLC!