Connecticut Startup

When you're forming a new Connecticut startup, it's important to look closely at the tax structure, ownership limitations, personal liability, and other issues; since each business type has a different combination of pros and cons, it's crucial that you select the type of business that best meets your structural, tax, and liability needs.

While this decision is best arrived at with the input of your accountant or legal advisor, below is a brief overview of the different Connecticut startups you can form to assist with your decision. We hope you find it useful.

Connecticut Sole Proprietorship

A sole proprietorship DBA in Connecticut is registered not at the state level, but at the city level. (However, DBAs for corporations and LLCs are registered with the Secretary of State.)

Sole proprietorship registrations are maintained with the Town Clerk's office of the city in which the DBA is located.

Incorporate in Connecticut

Incorporating in Connecticut is a slightly more involved process than starting a DBA; in order to form a corporation, Articles of Incorporation (called a Certificate of Incorporation in Connecticut) should be submitted to the Secretary of State's Commercial Recording Division.

A for-profit corporation will issue stock to its shareholders, who will contribute capital in exchange. Shareholders own a percentage of the company that corresponds to the percentage of stock they own; the corporation will authorize an amount of stock that it has to distribute. This amount will be specified in the Articles of Incorporation.

For-profit corporations will choose one of two tax classifications at the federal level: C corporation, or S corporation. A C corporation provides great ownership flexibility, making it attractive to larger companies—a C corporation has no limit on the amount or citizenship of shareholders, and it can issue multiple classes of stock. Additionally, it can own or be owned by a corporation. An S corporation, on the other hand, cannot have over 100 shareholders, and all of those shareholders must be US citizens or residents; it can only issue one class of stock, and it cannot have shareholders that are themselves corporations.

Connecticut Foreign Corporation

A foreign corporation in Connecticut must register as the same name that appears on its domestic corporation paperwork, unless that name is not available in the state. If this is the case, the Application for Certificate of Authority will list an alternate name to register under in the state.

The application to do business in Connecticut as a foreign corporation must list a registered agent; you will either specify in the paperwork that you would like to appoint the Secretary of State itself to act as registered agent for your foreign corporation, accepting any service of process on your behalf, or you will list the name and address of a registered agent of your choosing.

Connecticut LLC

An LLC, or limited liability company, is formed by submitting Articles of Organization (as an LLC is not incorporated, but organized) to the Commercial Recording division. Like the Articles of Incorporation, this formation document can either be mailed in, delivered to the Secretary of State's offices in person, or faxed to the division for filing.

An LLC is a type of business that, while recognized in all fifty states, is not recognized by the IRS as a tax classification. Instead, an LLC can elect whether it should be treated by the IRS as a partnership, or as a corporation.

Connecticut Nonprofit Corporation

A 501c3 nonprofit corporation is one that does not have shares or shareholders; it operates not for the benefit of its owners, but for public benefit, mutual benefit (in which it operates for the mutual benefit of its members), or other not-for-profit purposes.

A specific type of public benefit corporation—one formed for specific purposes, such as religious, scientific, or literary—can apply to the IRS to be treated as a tax-exempt organization under IRS Code 501c3. However, before this application is accepted, you must register as a nonprofit corporation in Connecticut, and you are not able to accept tax-deductible donations or other 501c3 benefits until specifically authorized to do so by the IRS.