Owning a business comes with many responsibilities and no “operating handbook”. The following is a list, by no means comprehensive, of different requirements that befall on a Connecticut business. Many of these are common pitfalls that have be-devilled our clients in the past. Please do not hesitate to reach out if you have questions.
Compliance
- Formal entities are required contractually and often by law to follow their own declarations, bylaws or operating agreement. Businesses need to be familiar with what these documents say and make sure they are in compliance with these documents. Failure to do so can be downright fatal in a lawsuit, or cost an entity a great deal in a business transaction.
- Labor laws are constantly changing in Connecticut. Not staying informed on important updates can lead to significant liability if an employee chooses to make an issue. Just because your business only employees a few people, doesn’t mean the Department of Labor won’t take significant issue if you’re found in violation of any wage laws. Be sure that you’re up to date with regards to laws governing overtime, salaried employees, employment of minors and constantly changing unemployment tax regulations. We highly recommend you use a reputable payroll service that will help you stay in compliance.
Reporting
- Businesses in Connecticut are required to file an “annual report” with the Secretary of the State. This report is done online and contains any updates to the officers or addresses of the entity. The fee for filing is $20 for a Limited Liability Company and $150 for a Corporation. Most banks will not lend to an entity that hasn’t filed these reports and thus, is “in good standing”.
- It is popular to register a business in Delaware, however, if you intend to do business in Connecticut, you’ll need to register your business with the CT Secretary of the State. Your business will not be able to borrow money or own real estate otherwise. Your business could also find itself penalized for having failed to do so in certain instances if it should be involved in litigation.
Taxes
- All business entities in the State of Connecticut are required to pay the $250 business entity tax every other year.
- All entities much register with the Internal Revenue Service as well as the State Department of Revenue Services.
- If you are a business required to pay sales tax, you must report it quarterly online to the DRS.
- For years, the Federal Government has been assessing the State of Connecticut with a penalty for keeping the reserves in its unemployment tax fund too low. These penalties are passed on to employers and can be quite complicated. A reputable payroll service can take this burden off the business.
- Just because your entity did not make any money, does not mean it’s absolved of its duty to file a tax return with the state or Federal Government. All active entities must at least file a “postcard return” and can be assessed significant penalties if they fail to do so.
Should I Start My Business in Delaware?
As you think about where to incorporate a business or form an LLC, you may be considering Delaware. More than half of public and Fortune 500 companies are incorporated in Delaware. Be sure to consider your business type and closely assess the state laws and financial considerations before making a choice for your business.
Delaware advantages. For large businesses, Delaware holds many advantages—but smaller business may not find it as beneficial. Here are the highlights:
- Delaware’s business law is one of the most flexible in the country.
- The Delaware Court of Chancery focuses solely on business law and uses judges instead of juries.
- For corporations, there is no state corporate income tax for companies that are formed in Delaware but do not transact business there (but there is a franchise tax).
- Taxation requirements are often favorable to companies with complex capitalization structures and/or a large number of authorized shares of stock.
- There is no personal income tax for non-residents.
- Shareholders, directors and officers of a corporation or members or managers of an LLC don’t need to be Delaware residents.
- Stock shares owned by persons outside Delaware are not subject to Delaware taxes.
If you don’t see a direct benefit to forming in Delaware, it probably makes sense to form in your home state. It’s less complicated and you won’t run the risk of needing to pay business entity taxes or registration fees in two states. You can register a business in Delaware, but many states, including Connecticut, will make you register as a foreign corporation or LLC if you want to do business there.
This document is not a substitute for seeking counsel and advice from legal counsel or your accountant.
This post is not intended as legal advice and is not a substitute for talking to an attorney. The facts in each case are different and may lead to different results. Please do not rely on the advice on this page alone.