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Connecticut has a highly educated labor pool and is close to both Boston and New York City—which means starting an LLC in the state is a great deal for those who want the opportunities these major metropolitan areas offer but who don’t want to start a business in a large city. While taxes are relatively high in Connecticut, it’s also the US’s wealthiest state per capita, so Connecticut LLCs enjoy an affluent customer base. Here are the 11 steps to establishing an LLC in the Constitution State.
How to start an LLC in Connecticut
- Name your Connecticut LLC
- Create a business plan
- Get an employer identification number (EIN)
- File Connecticut LLC Articles of Organization
- Choose a registered agent in Connecticut
- Obtain business licenses and permits
- Understand Connecticut state tax requirements
- Prepare an operating agreement
- Examine business insurance options in Connecticut
- Understand financial considerations
- Market your LLC
What is an LLC?
An LLC, or limited liability company, is a formal business entity controlled by its ownership group. LLC owners, formally known as LLC members, assume the profits and losses of their company via a “pass-through” tax structure. There are single-member LLCs and multi-member LLCs. An LLC member can be a managing member who actively participates in the company’s day-to-day operations or a non-managing member who holds an ownership stake but doesn’t actively participate in operations.
An LLC provides liability protection for business owners, meaning they’re not financially responsible for legal claims against the entity or most business debts. Therefore, the LLC’s lenders and litigants can’t go after an owner’s possessions or bank accounts.
Connecticut draws few distinctions between a limited liability company (LLC) and a limited liability partnership (LLP). Partnerships offer fewer liability protections than LLCs and have a somewhat different ownership model. (Partners in LLPs work more or less independently; as an LLP member, you’re personally protected from lawsuits or defaults created by your business partners, but if you’re liable, a litigant may be able to go after your personal assets.) LLPs are popular with groups of trade professionals who work semi-independently, like doctors, lawyers, and architects. In Connecticut, LLPs file nearly all the same legal documents as LLCs, including Articles of Organization and name reservation documents.
Is an LLC right for you?
For many Connecticut business entities, the LLC structure provides an enticing combination of simplicity, flexibility, and protection. The two primary benefits of forming an LLC are:
- Avoiding double taxation. The IRS treats LLCs as “pass-through” entities, meaning that an LLC passes its profits and losses down to individual LLC members, who report them on their personal returns (whereas in a corporation, owners are taxed on their income, while the company pays corporate taxes). A pass-through structure lets LLC members claim a personal income deduction proportional to their ownership stake if their LLC loses money during a business year.
- Personal asset and liability protection. The LLC business structure keeps company assets separate from the LLC members’ personal assets. In the event of a lawsuit, default, or bankruptcy, litigants and creditors cannot go after the LLC owners’ personal property—protections you don’t get with a sole proprietorship.
1. Name your Connecticut LLC
You can operate your Connecticut LLC using two types of business names. The first is its legal name, which you’ll register with the state and the Internal Revenue Service. Your company can also adopt a DBA (“doing business as”), a separate pseudonym by which it’s known to the public. Shopify offers business name guidelines to help fledgling entrepreneurs brainstorm LLC names. You must then register your name with the state. Here’s how:
- Confirm you have an original name. Before you register an LLC name in Connecticut, do an online business records search to confirm that another company hasn’t claimed it. Connecticut LLC naming guidelines require all LLCs to include the phrase “Limited Liability Company” or its abbreviations (“LLC” or “L.L.C.”) in their business names.
- Register your LLC name. Once you land on an original LLC name, file the Application for Reservation of Name form found on Connecticut’s business website. The filing fee is $60.
- Register your DBA in your local community. If you operate under a DBA, apply for a trade name certificate with your town clerk. Filing fees are set at the local level. You do not register DBAs with the Connecticut Secretary of State.
- Reserve domain names and social media handles. In most cases, you’ll want a domain name and social media handles that correspond with your LLC’s legal name or DBA to make it easy for customers to find you. Shopify’s domain name generator can help.
2. Create a business plan
A well-crafted business plan can be the roadmap to success and financial solvency. Most business plans contain a brief description of the operation, a mission statement, core goals, organizational flow charts, market analyses, projected revenue streams, and metrics for measuring progress. You can use Shopify’s business plan template to help you through the drafting process. You can also review business plan examples and borrow key ideas and formatting.
3. Get an employer identification number (EIN)
The next step in the Connecticut LLC formation process is to obtain a nine-digit federal employer identification number (EIN) at no cost from the Internal Revenue Service (IRS) for tax purposes. It functions much like an individual’s Social Security number. Any individual or business entity that hires employees needs an EIN. With this federal tax identification number, you can set up a business bank account for your LLC.
Once you have your federal EIN, you can obtain a sales tax and use permit from the Connecticut Department of Revenue Services, which costs $100.
4. File Connecticut LLC Articles of Organization
All Connecticut LLCs must file Articles of Organization with the state. You can submit a Certificate of Organization online or mail it to the Secretary of State’s Business Services Division. The filing fee is $120.
If your LLC already exists in another state, but you wish to expand into Connecticut, the state considers your company a Foreign LLC. You’ll need to file a Foreign Registration Statement, which costs $120. No matter which formation document you file, you must provide:
- Your LLC’s name
- The name and address of at least one managing member
- A physical street address and email address
- The name and address of the LLC’s registered agent
- The names and addresses of all LLC organizers (founding members)
- The LLC type (a regular limited liability company or a professional limited liability company)
- The LLC’s purpose or industry
5. Choose a registered agent in Connecticut
Every Connecticut LLC needs a registered agent who can accept tax documents and legal forms on your company’s behalf. Your Connecticut registered agent must maintain a physical address within the state. You can designate an LLC member, provided they live in Connecticut, or you can hire a professional registered agent service. Declare your Connecticut registered agent when filing your LLC Articles of Organization.
6. Obtain a business license and permits
Depending on your industry, you may need special licenses and permits to conduct business in Connecticut. Obtain these in addition to a sales tax and use permit from the Connecticut Department of Revenue Services. To find out which licenses and permits apply to your LLC, visit the Connecticut Department of Consumer Protection website. You can also call the Connecticut Business Helpline at 1-800-392-2122.
7. Understand Connecticut state tax requirements
For many years, Connecticut levied the Connecticut Business Entity Tax, but as of June 2021, this tax no longer exists. Your LLC must still pay federal taxes to the IRS, passing profits and losses through to members. Other Connecticut state tax considerations include:
- Annual report. Your LLC must file an annual report with the company’s most up-to-date information on Connecticut’s business portal. The filing fee is $80.
- Employer taxes. If your LLC has employees, youmust periodically remit their state withholding taxes and pay an unemployment insurance tax. Your exact remittances vary depending on the number of employees and their salaries.
- Corporate tax. LLC owners can choose to have their company taxed as an S corporation. This can be beneficial for profitable companies because corporate tax rates are typically lower than personal income tax rates, and LLC owners pay taxes at the personal rate. To have your LLC taxed as a corporation, file Form 2553 with the IRS. Then, file a Connecticut corporate business tax return and pay 7.5% on company profits.
8. Prepare an operating agreement
You don’t need a Connecticut LLC operating agreement to organize in the state, but many successful LLCs have one. An LLC operating agreement outlines how your Connecticut LLC conducts business and establishes your membership group’s shares and status within the company. A standard LLC operating agreement includes:
- The LLC’s name and, if applicable, DBA
- The LLC’s business address
- The LLC’s planned lifespan (temporary or continued in perpetuity)
- A List of LLC members and their respective ownership percentages
- The name and address of the LLC’s registered agent
- The scope of company business
- A distribution model for profits and losses
- Processes for admitting new members and removing existing members
- An enumerated list of business decisions that require membership vote, and procedures for such votes
- Duties and responsibilities of LLC members
- Policies on member indemnification and liability
9. Examine business insurance options in Connecticut
Entrepreneurs choose the LLC business structure to protect their personal assets if their company is sued. Still, LLC owners must often purchase insurance policies to cover day-to-day business operations. Some types of insurance, like workers’ compensation insurance and commercial automobile insurance, are non-negotiable; Connecticut state law mandates that LLCs carry these policies. Other policies are not state-mandated but may be required by private parties such as landlords, lenders, and event hosts.
The Connecticut Insurance Department regulates insurance offerings in the state and connects businesses and individuals to insurance providers. Common policies include:
- Workers’ compensation insurance. You’ll need to provide workers’ compensation insurance if you have employees. Workers’ comp covers medical expenses if they’re injured on the job and makes payments to employees who must take time off from work due to injury. Workers’ compensation policies do not cover independent contractors.
- Commercial automobile insurance. No matter how your business uses its business vehicles (such as delivery trucks or semi-trucks), they must be covered by commercial automobile insurance in Connecticut.
- Professional liability insurance. Professional liability insurance—also referred to as errors and omissions insurance—protects your LLC against claims that your advice or services caused a customer financial harm.
10. Understand financial considerations
You’ll need an LLC bank account to get cash, issue checks, deposit incoming checks, and receive payouts from payment providers. You can set up an account at a bank or a credit union with your federal EIN.
Many startups need funding, grants, and special tax benefits to pay for startup costs. The Connecticut Department of Economic and Community Development and the US Small Business Administration (SBA) are great places to start looking for financial resources. The SBA has two offices in Connecticut: the main office in Hartford and a second office in Bridgeport. And don’t forget merchant support services, like Shopify Capital, that connect business owners to lenders and investors.
11. Market your LLC
Once you’ve filed all the required legal documents for your Connecticut LLC, you can turn to the more enjoyable process of building a brand and marketing your business. Marketing campaigns rely on many identifiers, including slogans and taglines, logos, a unified written voice, color schemes, and fonts. These elements can end up in your marketing campaigns, including:
- TV and radio ads. This traditional form of advertising exposes your company to a broad audience. It costs more to air broadcast ads in Connecticut than in less densely populated states, but the widespread exposure can pay off in the long run.
- Pay-per-click web ads. Most of us interact with pay-per-click web ads on web pages, social media feeds, and online videos. Compared to TV and radio commercials, web ads can be more focused. You can target specific customers based on demographics, interests, search histories, and geographic location.
- Social media influencer campaigns. Social media celebrities have immediate access to huge followings. You can pay influencers to promote your products, give reviews, and offer discount codes.
Shopify’s small business marketing guide provides more information on marketing fundamentals, including how to build an online audience, convert customers, and sustain existing customer relationships.
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Starting a Connecticut LLC FAQ
How much does it cost to start and maintain an LLC in Connecticut?
To start an LLC in Connecticut, you need to pay $60 to reserve your LLC name, $120 to submit a Certificate of Organization or a Foreign Registration Statement, and $100 to obtain a sales tax and use permit from the Connecticut Department of Revenue Services. To maintain the LLC, you’ll need to file an annual report to the state for $80.
What are the pros and cons of establishing your LLC in Connecticut?
Connecticut is the wealthiest state per capita in the United States and one of America’s top-ranked states for public education. The state’s proximity to the New York and Boston metropolitan areas connects you to the many opportunities these major centers offer. However, the Tax Foundation ranks Connecticut 47th out of 50 states, due to high personal and corporate rates (though its western neighbor, New York, ranks even lower, at 49).
Do you need a registered agent for your LLC in Connecticut?
Yes. Connecticut state law requires all LLCs to designate a registered agent with a physical presence in the state. You can elect an LLC member or opt for a professional registered agent service.
How do state taxes work for LLCs in Connecticut?
Connecticut LLCs must collect and remit the state’s 6.35% sales tax and need a sales tax and use permit. If your Connecticut LLC has employees, it must pay unemployment insurance tax.If you opt for your LLC to be taxed traditionally, business income passes through the company to LLC members, who receive their share of profits or losses via IRS Schedule K-1 and report these totals on their personal income tax filing. However, if you choose to have your LLC taxed as an S corporation, your company income is taxed at Connecticut’s 7.5% corporate tax rate. To have your LLC taxed as a corporation, file Form 2553 with the IRS, then file a Connecticut corporate business tax return