You are ready with an innovative idea and a name for your new business. Now, you must choose the entity under which you will operate: a sole proprietorship, partnership, limited liability company, or corporation. The entity you choose will determine how you pay taxes, how you raise money, and what your liability for company debts will be.
By speaking with a Connecticut business formation lawyer, you can crystallize a set of goals and choose the company structure that helps you attain them. Reach out to an experienced attorney at Sparks Law today to get started.
Many new businesses must register with the Connecticut Department of Revenue Services (DRS), as they must pay state sales taxes or withhold for state income taxes. Any company that sells, rents, or leases goods, sells taxable services, or operates any lodging house must secure a Sales and Use permit.
Before registering with the DRS, new business owners should:
There are many crucial tasks to complete before a company is up and running. A local business formation attorney can help with identifying these tasks and complying with state and federal guidelines.
Entrepreneurs choose business entities that best benefit their situations. They should also consider where they want their businesses to be in the future. For instance, an owner who dreams of trading on a national stock exchange should charter a corporation because other entities are not structured for this future goal. Although there are variations for each business structure, the primary entities include the following.
A sole proprietorship is owned by one person who is taxed on the profits and losses of the business as personal income. Sole proprietorships do not pay separate company taxes. Owners are also personally responsible for the debts and liabilities of the company. The state does not require a formal filing, although the owner must register the name in the county if it is different from the owner’s name.
Partnerships are formed between two or more owners whose venture is for profit, passed through to owners who report them on their individual tax returns. Partners are also responsible for the business’s liabilities. Owners should adopt a partnership agreement as a rule book. A seasoned Connecticut attorney could draft a relevant document that defines duties, rights, and how the company will be managed once it is formed.
Limited liability company (LLC) members are not personally liable for all the company’s debts. When the company is formed, members contribute something of value—cash, property, or services—which becomes their ownership share.
Members should adopt an operating agreement drafted by a skilled business formation attorney. The agreement details company ownership, profit distribution, duties, buy-in protocol for new members, pass-through or corporate tax structure, and dissolution, among other covenants.
Corporations have more complicated filing requirements but can raise capital more easily by selling stock. Once trading on a stock exchange, a corporation technically raises money with each trade. Boards of Directors run corporations, which are managed by officers who report to the Board. Generally, shareholders, directors, and officers are not responsible for the corporation’s liabilities unless they acted in bad faith.
There are many issues to address before you open for business—filings, fees, and permits are just the beginning. At Sparks Law, our legal team can help you make sense of the state and federal requirements and explain the benefits of each business structure.
If you are starting a company, you should consult one of our Connecticut business formation lawyers. Call today to find out how we can help get your business started.