When deciding to start a business in Connecticut, one of the first factors to consider is the structure of the business. The business structure can affect the rights and liabilities of the business owner. Therefore, you should consult an experienced Connecticut business lawyer before deciding.
A business structure refers to an organization’s legal structure recognized in a jurisdiction. The structure determines the operations it can undertake, tax implications, raising capital and liabilities, etc.
You should understand the features of each business structure before deciding and also consider your business needs and goals. This article discusses the forms of the business structures available in Connecticut.
Types of Business Structures in Connecticut
Business incorporation is handled by the Commercial Recording Division of the Connecticut Secretary of State. There are five (5) common forms of business structures available in Connecticut. We discussed them below.
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Sole Proprietorship
This is the simplest structure for an individual looking to establish a business in Connecticut. It is simply a one-person business, where the owner is responsible for the daily running of its operations. The owner will be required to file a Certificate of Trade Name to be operated.
Its features include:
- It is easy and inexpensive to establish
- The owner has complete control and authority of the business
- The owner is solely responsible for the business’s financial obligations
- It is not a separate legal entity; hence, it cannot sue or be sued in its name
- The business is limited to using funds from personal savings and consumer loans
- It ceases to exist upon the death or retirement of the owner, etc.
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Partnership
In this type of business structure, ownership is shared between two or more individuals. The partners are jointly liable for the debts and obligations of the business. Each partner contributes equally to the growth and development of the business.
Its features include:
- The business does not directly pay tax on its income. Each partner pays tax through personal tax returns.
- The business ceases to exist upon the dissolution of the partnership or death of a partner.
- Partners can share the financial liabilities of the business.
- Partners can combine knowledge, skills, and expertise in operating the business.
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C-Corporations
A C-corporation is a company structure with a legally separate entity and tax structure from its owners. It can sue and be sued in its name. Shareholders own C-corporations but they are not personally liable for the business liabilities.
The shareholders can appoint directors to oversee the management and operations of the business. Its features include:
- It is subject to double taxation
- The business has perpetual succession. Its existence is not affected by the death or incapacity of its shareholders
- It has a separate legal entity and tax life distinct from its shareholders
- The company can raise funds and capital by selling its stocks and shares to the public, etc.
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S-Corporation
This form of business is subject to special rules and limitations. It is suitable for persons who want the limited liability of a corporation. The shareholders benefit from the pass-through tax treatment of a partnership or sole proprietorship.
Its features include:
- It must meet specific Internal Revenue Service (IRS) criteria to be listed as an S-corporation
- The business profit and loss pass directly to the shareholder’s personal income
- The shareholders are protected against debts, liabilities, and obligations of the company
- It cannot have more than 100 shareholders
- No shareholder can be a non-resident alien (must all be United States Citizens)
- The company must have a single class of stock, etc.
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Limited Liability Company (LLC)
This is a hybrid business structure. It allows business owners to take advantage of some benefits of partnerships and corporations. The owners are called members, and they can divide and delegate management responsibilities, profit sharing, funding obligations, dissolution, etc.
Its features include:
- It is an independent entity. Its members are not personally liable for the debts and obligations of the company
- The company’s income and expenses pass directly to the member’s personal income tax returns
- An LLC can have an unlimited number of members
- The liability of a member is limited to their investment in the company, etc.
Contact a Connecticut Business Lawyer Today!
Choosing a business idea is the first step to starting a business in Connecticut. The next step is to decide the legal structure. Once you have, you need to understand the legal implications and rights and liabilities.
Our experienced Connecticut business lawyers at Aeton Law Partners can guide you through the forms of business structures. In addition, we will explain the law regulating each, and guide you through the formation stage. Contact us today for a free consultation.