Connecticut is a great place to do business, with good access to venture capital, rapid population growth, and a business-friendly legal environment. If you’re looking to join the ranks of Connecticut entrepreneurs, you’re in good company: The state is home to a whopping 350,000+ small businesses! More than 99.4% of firms in Connecticut are considered small businesses.
But how do you start a business in Connecticut? The process will involve working with the Connecticut Secretary of State. The specific steps that you will need to take depend on the type of business you are starting, as well as the type of legal business structure you choose (LLC, corporation, etc.) This guide will show you everything you need to know about starting a Connecticut business.
Decide on a business idea
First and foremost, you’ll need to decide what kind of business you want to start. Chances are you already have something in mind, but if not, here are some things to consider:
- What are you talented or naturally skilled at? Could this talent make you well suited to a certain type of business?
- What business does your community need? Have you talked to people to find out?
- What are you interested in? Can you combine any of your passions with a business idea?
- Is this going to be a full time business, or more of a side hustle?
These are questions to ask yourself when deciding on a business idea. Once you have decided, move on to the next step.
Plan your Connecticut business
Now it’s time to start planning. This means coming up with a business plan, naming your business, researching locations, and more. There’s a lot to cover here, so let’s break it down:
Select a business name
Before you can register a business, you will need to decide on a business name. This name should be memorable and relevant to your line of business. It must also be unique from other business names in the state, and it must comply with the Connecticut business name rules.
- The business name should be unique from all other businesses in the state of Connecticut. You can use the business records search to determine if your name is available
- LLC names must contain “LLC”, “Limited Liability Company”, etc.
- Corporation names must contain “Corporation”, “Corp”, “Inc”, etc.
- Some protected words or phrases require written permission to use. This includes financial terms like “bank” and “trust”, among others.
- Other naming rules apply. See the full list of CT business name rules here.
Once you have found a name that you like, you can move on to the next steps. Alternatively, you can reserve the name in advance for a period of 120 days. The filing fee for a CT name reservation is $60. Reserving a name gives you time to think about it before formally registering the business.
Keep in mind that if you are forming a sole proprietorship, you can operate under your legal name without formally registering a name. But if you plan to operate under a different name (or you’re forming an LLC or corporation), then you must register the name with the state.
Connecticut trade names
Business owners should also consider the possibility of using a trade name, otherwise known as a “doing business as” or DBA name. These are secondary names that can be added onto your business license, and which allow you to operate under a different name than your formal business entity name. You can learn more about Connecticut DBAs here.
Trade names must be registered with the town clerk in your area. You can find your local town clerk in this online directory.
Register a domain name
Once you choose a name, you should immediately register a domain name for your new business. In most cases, getting a .com domain name is ideal, but there are many other extensions (.biz, .net, etc.) that are worth considering.
You can use a tool like Namechk to search for an available domain name and find a great deal on the registration cost. You may find that your desired names are taken, so you may need to get creative.
Complete market research
Once you have an idea, you’ll want to do some market research. You want to gain a better understanding of who your customers – and competitors – are. You can achieve this by conducting online research, running focus groups, sending out surveys, and more. There are also companies that can help you complete market research, for a fee.
Select a business location
Unless you plan to run a remote/virtual business, you will need to find a physical location for your company. Research commercial property in your area, and take note of typical costs. For customer-facing businesses (retail and some services), location is very important, so take your time in selecting the right area for your business.
Create a business plan
You will now need to create a detailed business plan for your new venture. This plan is helpful for your own purposes, and will also be necessary in order to obtain funding from a bank. A good business plan should contain these elements:
- Finances: How much funding does the business need to get started? How many sales does it need each month to break even on expenses?
- Product: What do you plan to sell? Is it a product or a service? What problem does your business solve, and how is it distinct from your competitors?
- Marketing: How will you drive sales? What marketing and sales efforts do you plan to employ? How much money will you set aside to fund marketing efforts?
- Staff & Partnerships: How many people will you need to hire, and what skill sets do they need to have? Will you have any partnerships or arrangements with other local businesses?
If you need help, you can find business plan templates online that will help walk you through the steps you need to take to draft a detailed business plan. If you plan to seek funding, you may also wish to call your bank to see what they require in terms of business plans.
Decide on a business structure
Before you form your business as a legal entity, you will need to decide which business structure you will use. There are a few different types of businesses, each with its own pros and cons.
Sole props are single-person operations. Examples include freelancers, gig economy workers, and consultants. A sole proprietorship business is very easy and inexpensive to form, and tax reporting is also fairly simple. As a sole proprietor, your business taxes are reported as part of your personal tax return.
The downsides to a sole prop are that you cannot hire employees, and you don’t have the legal liability shield that something like an LLC or corporation would provide. 100% of the debts and liability of a sole proprietorship go to the sole owner: you.
A general partnership is an unincorporated business structure similar to a sole proprietorship, except with two active owners/participants. Partnerships do not have liability protection.
Limited Liability Company (LLC)
A limited liability company, or LLC, is a popular choice for business owners because it provides liability protection to the owners. It separates the business from the owners, which means the personal assets of owners will not be at risk if the company gets sued or goes into bankruptcy.
LLCs are also a bit easier to form than corporations. Even so, there is definitely more work involved with an LLC than there is with a sole proprietorship.
A corporation is owned by its shareholders and is a separate entity. There are a few different types of corporations (C-corp, S-corp, etc), with the main differences being the way they are treated tax-wise.
Corporations are more regulated than LLCs, which makes them more attractive to outside investors. For this reason, most large companies are corporations. The downside is that it takes more effort, and more paperwork, to form a corporation.
A nonprofit is a legal entity that is set up with charitable status, meaning that its goal is not to make a profit, but rather to address a certain cause. Nonprofits are funded by donations, rather than investors, and are subject to many regulations. They are exempt from most forms of taxation, although tax returns must still be filed.
Register your business in Connecticut
Next, it’s time to formally register your business and form it as a legal business entity. The process differs slightly depending on what type of business you are opening, but for the most part, you will need to work with the CT Secretary of State.
Want the easiest experience possible? Then it’s well worth it to pay for a professional business formation service. Northwest Registered Agent, ZenBusiness, and Incfile are among the best options out there, and they are all very affordable.
A business formation service will walk you through everything you need to do to start your Connecticut business. It also will ensure that everything is done accurately, and that you don’t miss any important filings or steps.
If you wish to do the work on your own, follow the steps below.
The basic steps of opening a new business in CT include:
- Deciding on a name for your business (see step #2 above)
- Choosing a Registered Agent to represent your company. This agent will be tasked with receiving important legal documents on behalf of your business
- Filing formation documents with the state of Connecticut
- Applying for an Employer Identification Number (EIN) from the Internal Revenue Service (IRS)
Form a Connecticut sole proprietorship
Follow these steps:
- Decide if you will operate under your legal name, or use a trade name
- If you use a name other than your own, you will need to register a trade name
- Apply for a business license and/or other necessary permits from local governments (city/county)
Form a Connecticut LLC
Follow these steps:
- Name your LLC (follow the Connecticut LLC naming rules)
- Choose a Connecticut Registered Agent (or use a service such as Northwest Registered Agent)
- File the LLC Certificate of Organization online, and pay the $120 filing fee. The form can also be filed by mail
- Draft an LLC operating agreement
- Apply for an EIN with the IRS
Form a Connecticut corporation
Follow these steps:
- Decide on your desired corporate tax structure (S corp or C corp)
- Name your new corporation (follow the Connecticut corporation naming rules)
- Hold an organizational meeting and appoint directors
- File the Connecticut Certificate of Incorporation online, and pay the $250 filing fee. This form can also be filed by mail
- Apply for an EIN from the IRS
Apply for business licenses and permits
Registering your business and forming an LLC or corporation is an important part of starting your business – but in order to operate legally, you will likely also need to obtain certain permits and/or business licenses.
The specifics vary depending on the type of business you are running, as well as your location. For example, restaurants will need health permits, bars will need liquor licenses, and medical service providers will need various professional licenses and federal permits. You will need to research the specifics that relate to your business type.
There are different requirements at each level of government:
- Local: Cities and counties may require certain business licenses or permits. Contact your county or city clerk for details.
- State: Connecticut may require certain permits or licenses. Check the Connecticut Department of Consumer Protection for details.
- Federal: Federal permits/licenses may be required for certain regulated industries, such as construction, medicine and legal services. Check the Small Business Administration (SBA) guide for more details.
At this time, you should also apply for an Employer Identification Number (EIN). An EIN is a federal tax ID that is required to hire employees. You can apply for an EIN online with the IRS – the application is free, and quick.
For most businesses, some startup funding will be necessary in order to get started. In step #2, you should have calculated your funding needs while drafting a business plan. Use this information to determine how much funding you need to raise.
For bootstrapped companies, you may be able to get by with your own personal savings, or some seed investments from friends and family. If your funding needs are small, this is likely your best route.
If your business plan indicates that substantial funding is needed, you will likely need to apply for a loan and/or a grant.
- Small business loans are offered by banks, credit unions and other lenders. They can range from as little as a few thousand to hundreds of thousands. Specifics will depend on your business, as well as your personal creditworthiness. Most small business loans are issued in a lump sum, and paid back on a monthly basis, with interest.
- Small business grants are offered by government agencies and some nonprofits. They are essentially business loans that don’t need to be paid back – but they usually have substantial fine print. It’s worth looking into, however, as there may be grants available, particularly for businesses serving an important social need, or for underprivileged entrepreneurs starting their first business.
Set up your business finances
Beyond securing funding, there are other routine tasks that you need to take care of to get your business’ finances in order. This includes:
- Opening a business checking account. You should have a separate business bank account that you use solely for business purposes. You can open this account at most banks, credit unions and financial institutions. Call ahead to see what documents will be required to open this account.
- Open a business credit card or line of credit. This is not strictly necessary, but most businesses can benefit from having a business credit card, and/or a business line of credit. This can be used for day-to-day expenses and purchases, and may also earn you some rewards.
- Set up your accounting system. As a business owner, you will need to keep very detailed records about all revenue and expenses. To do this, you’ll want to set up the proper foundation from day one. This could be investing in an account software such as QuickBooks or Xero, hiring a bookkeeper, or at the very least establishing a spreadsheet to track everything. If you do not have any accounting experience, it’s wise to hire a professional to help.
- Purchase business insurance. Most businesses should have some form of liability insurance, and potentially other forms of business insurance as well. Insurance policies can help protect your equipment and buildings from costly damage, and help shield your company from liability if a worker or customer is injured or otherwise harmed. Speak with a local business insurance provider to get started.
Create a business website
In this day and age, having a solid web presence for your business is very important. And social media profiles, while important, are no replacement for an actual website. You will want to build a professional business website that you can use to drum up business, inform your customers, and stay connected with your clientele.
The simplest way to build a website is to use a website builder from a web hosting provider. When you register a new domain name, look for a provider that also offers web hosting and a site builder, so that you can purchase everything at once and get your site set up quickly.
Unless you plan to operate a solo business (with you as the only worker), you will likely need to hire employees. To do this, you will need a federal employer identification number (EIN), which is a free tax ID number issued by the Internal Revenue Service (IRS).
When you hire a new employee, you will need to report the new hire to the Connecticut Department of Labor. This can be done online.
CT businesses will also be responsible for paying various Connecticut employer taxes. This includes Connecticut unemployment tax, as well as withholding tax. There may be other requirements, as well. Research requirements for your specific business to ensure that you are meeting all necessary tax filing requirements.
At this point, you also should look into setting up your payroll system – whether you handle it yourself, or use a payroll service.
Run and grow your business
Now it’s time to get down to business and engage with the day-to-day activities that are sure to bring your business success. This means marketing your products and services, maintaining good relationships with your return customers, and setting yourself apart from the competition.
Connecticut business FAQs
Still have questions about running a business in Connecticut? Here are some answers to frequently asked questions.
What are some business resources in Connecticut?
Business owners in Connecticut have a variety of resources at their disposal. A great place to start is the Connecticut Small Business Development Center (CTSBDC). This resource provides free business advisor services, webinars and training, and many other useful resources. The Connecticut Department of Revenue Services also provides a database of resources for small businesses.
What is the minimum wage in Connecticut?
The Connecticut minimum wage is $13 per hour as of 2021. It will rise to $14 per hour in July 2022, and again to $15 per hour in June 2023.
Keep in mind that individual cities and counties are able to impose their own minimum wage laws. They cannot be less than the state minimum wage, but some cities have implemented a higher minimum pay than the CT minimum wage.
What business taxes does Connecticut have?
There are a variety of taxes that CT businesses must pay. Any business selling taxable goods or services must collect and pay the CT Sales and Use Tax (currently 6.35%), as well as local city/county sales tax.
How do I dissolve an LLC or Corporation in Connecticut?
If you end up needing to close your business, you will need to dissolve it. To do this, you must close down all your tax accounts with the state – you can find more information on how to do this here. You must also file the Articles of Dissolution with the state in order to formally close your CT business.
Closing a business can be complex, so you may wish to hire a certified public accountant (CPA) for help with this process.
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