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 personal assets. In 2019, Connecticut did away with its business entity tax, and 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. 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.
The name of your LLC must include “limited liability company” or its abbreviations.
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 for the same. 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 company in existence. The company’s name must also not be substantially similar to any other company. 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.
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, in Connecticut, you must mail the application to the town clerk’s office of the town you do business in. For instance, if your LLC is located in Stamford, you will have to send a trade name statement to the city of Stamford’s town clerk office. You can find the list of town clerks and their mailing addresses from the Connecticut Town Clerks Association website.
Doing a name search.
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 company in existence. To ensure that your company’s name is not already under usage, carry out a name search on the website of the State of Connecticut.
Nominate a Registered Agent
So far, so good. 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 receives and submits legal documents on behalf of the company. The registered agent you choose will have to consent to perform such functions because they will fill their name and address in the Certificate of Formation available in the public domain. Every formal business registered in the State of Connecticut is mandated by law to appoint a registered agent under Section 34-243n of the Connecticut LLC 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?
You can be your agent, provided that you are the owner or employee of a business in Connecticut. You could also choose anyone to be your registered agent as long as they satisfy the following requirements –
- Be 18 years or older;
- Have a street address in Connecticut;
- Be available during normal business hours (9 am – 5 pm).
Individual v. Commercial Registered Agent
Alternatively, you can hire the services of a Registered Agent Service. While you would incur some expenses, there are advantages to hiring a commercial registered agent. Employing a commercial registered agent service would ensure all communications are handled efficiently. It would ensure that your business is complying with all the state requirements. If you want to expand your business, then availing the services of a registered agent can make such expansion smooth and efficient. It would maintain your privacy.
The commercial registered agent 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 any subpoenas or for other legal requirements.
Filing the Certificate of Organization
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 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. Whereas, in a manager-managed LLC, the members appoint managers to look after the company’s management. You can file the certificate of organization online or by filling out the form and mailing it.
Create the Operating Agreement
An operating agreement is perhaps the most important document you require for your company. It is an internal document (unlike the certificate of organization) that governs 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. If your LLC does not have an operating agreement, the matters mentioned earlier would be regulated by state laws. Having an operating agreement ensures that the members can regulate the business of their LLC. Moreover, some banks may require an operating agreement before lending to the company.
Writing the Operating Agreement Yourself v. Hiring a Service
You could draw up the operating agreement yourself or hire the services of a commercial agent. 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 commercial registered agents 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 will not alter any requirement mandatorily specified by the law.
Obtaining an EIN
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 the taxation structure of your LLC when you apply for EIN. So how do you get one?
You can obtain one by applying online or by mailing or faxing your application. To apply online, you need your Social Security Number (SSN) or TIN. If you don’t have either, you will have to mail or fax your application.
Tax Liability of your LLC
Federal Tax Liability
Depending on the taxation structure adopted by the members, an LLC will be treated differently for taxation purposes. For example, a multi-member LLC is treated as a partnership for taxation purposes by default. In such a scenario, the partnership rules will apply for taxation purposes – that is, partners will not be personally responsible for taxes. Sounds complicated? Let us simplify it for you. The LLC needs to file Form 1065. In a partnership, the LLC does not pay any taxes on income. However, individual members are taxed on the profits/loss they acquire from the LLC. On the other hand, the owner of a single-member LLC would be required to file Form 1040. The profit/loss obtained by the LLC would be reflected in the owner’s income tax return.
If the company is a corporation, then corporate tax rules would be applicable, and the company needs to file Form 1120. Unlike a partnership, the LLC is taxed on its income. If the company is an S-corporation, the LLC is not taxed on its income, but the individual members are taxed on their allocated share of the revenue. An S-corporation needs to file Form 1120-s for taxation purposes. LLC can also change its taxation structure from partnership to corporation and vice-versa by filing Form 8832.
You can send the forms online or by mail to the following address:
Mailing Address: Department of the Treasury, Internal Revenue Service, Ogden, UT 84201.
State Tax Liability
You must obtain a state tax registration number. Then, you can register for the same 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. For registering online, you can visit the Taxpayer Service Centre. The registration fee is 100$, and you must renew the registration every five years. However, additional charges may apply. Certain goods such as furniture, electronics, and others are subject to sales tax levied by the state. In comparison, groceries and medicinal products are exempt from taxes.
Furthermore, some services such as landscaping and data processing are also taxable. For more information on individual tariffs on goods and services, refer to the Department of Revenue Services. If your tax liability is less than 83.33$ per month in 12 months, then you would be required to file taxes annually. If the liability ranges from 83.34$ to 333.33$ per month, you would be required to file taxes quarterly. If the liability is more than 333.33$, you would be required to file taxes monthly. The website of the Department of Revenue Services, Connecticut also has a useful Tax Information Guide to calculate your tax liability. For information on the tax deadlines, refer to the Tax Filing Calendar. We recommend consulting a professional accountant to ensure you calculate your tax liability accurately and avail of tax exemptions you might be eligible for.
Connecticut abolished the Business Entity Tax effective January 1, 2020. However, you are required to register with the Connecticut Department of Labor Tax and Benefits System and may be liable to pay unemployment insurance taxes if you employ people in your LLC. You may be liable to pay additional taxes to the local government depending on your location.
An annual report contains information about your LLC (such as number of employees, number of members, registered agent, etc.) Connecticut law requires that every LLC file an annual report with the Connecticut Secretary of State every year counted from the day of incorporation. If you do not file annual reports, the state administration has the power to even dissolve your business entity.
You can file an annual report online on the State of Connecticut website by paying a fee of 80$.
Business Licenses and Permits
Business Licenses and Permits are documents from the State of Connecticut authorizing the presence and activities of your LLC in the State. Depending on the kind of business your LLC is engaged in, you may require additional permits to operate in the State of Connecticut. For instance, if your company is involved in a food processing business you might require a food permit by the state’s health department in addition to the usual business license. So, to avoid any legal trouble, ensure that your LLC has all the licenses and permits required. You can find the state licenses your LLC may require by visiting the Connecticut Economic Resource Centre and the digital business assistant. For obtaining federal permits, you can check out the U.S Small Business Administration Guide.
Business Bank Account and Phone Number
Having a separate bank account for the LLC is vital. It ensures that the members and the LLC are separate financial entities. It is also pretty useful for taxation purposes. 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, LLC operating agreement. Lastly, appoint someone as an authorized signer for the bank account. The bank may also require the Tax ID and other personal information of the signer.
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 documents required may differ depending on the service provider.
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 you file your application, and you should be good 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!