How to start a business in Connecticut in 8 steps
The state of Connecticut has a rich history of advancing governmental policy, particularly at the federal level, so it’s no wonder why many choose to start a business in the Constitution State in order to exist around the influential energy that flows abundantly and has helped propel legions of other companies to success.
If you’re thinking of starting your own business in Connecticut, the following 8 steps will help guide you toward transforming your business idea into a tangible entity.
1) Think about the type of business you want to start
Starting a successful business is no easy task. It requires a fantastic business idea, a deep understanding of how that business idea will make you money, and the fortitude to draft and implement a business plan, which is why taking the time to think about why you’re pursuing your business idea is of extreme importance.
Having a thorough understanding of why you want to start a business will allow you to align your purpose with the specifics of the venture you’re thinking about. Simply “wanting to make money” is not enough of a reason to start building a business from the ground up. There are much easier ways to “make money” that do not involve the all-encompassing, time-consuming process of being an entrepreneur.
You’ll likely have more success with your startup by first figuring out your “why” and then deciding “what” business to start. With your “why” in place, you’ll be tuned in to the driving force behind your thoughts, actions and intentions, and will thus be more motivated and better equipped to meet the day-to-day needs and challenges of whatever specific enterprise you’re embarking upon.
2) Set up your legal structure
The next step to starting your own Connecticut business is to select your business entity, also known as your business structure. The business entity for your company is a legal structure that refers to how your company will be taxed and pay its taxes. In Connecticut specifically, there are 5 primary categories under which a business structure typically falls:
- Sole Proprietorship: What you get with the ease of setting up a sole proprietorship you lose in terms of legal protections. For an individual to become a sole proprietor in the state of Connecticut, there is nothing to file. With only a Social Security Number, you’ll be set up to operate as a pass-through entity, meaning all income derived from your venture will be taxed to you personally. However, being a sole proprietor also means you’ll be personally responsible for any losses, and in the event your enterprise faces a lawsuit, your personal assets could be compromised.
- General Partnership: Much like a sole proprietorship, general partnerships are easy to establish and run using the business owners’ Social Security Numbers and full legal names. Also, like sole proprietorships, general partnerships do not offer business owners legal protections, nor are they seen as separate business entities. If those elements of your business are important to you, it’s best to look at a more formalized corporate structure.
- Corporation: While it’s a much more expensive option, electing to file your new business as a corporation is a great way to protect you and your company from a potential lawsuit, as well as receive a multitude of tax benefits. Corporations are viewed as their own individual entities, so your personal assets are not at risk if the business encounters any legal hurdles and are broken down into S Corporations or C Corporations, which refers to the differences in how each entity designation is taxed.
- Limited Liability Company (LLC): LLCs provide the most significant number of options in terms of tax flexibility. Setting up a Limited Liability Company is a great way to have your business structure accommodate the tax specifics of your startup in that it can be taxed as a traditional corporation or as a pass-through entity and involves much less paperwork than corporations. Many LLC owners still choose to draft bylaws and an operating agreement, despite there not being a requirement to do so.
- Nonprofit: Instead of being funded by investors, nonprofits are funded by donations and help advance various causes for social good. If you choose not to register your nonprofit as its own entity, you will be personally liable for any debts or lawsuits.
Remember to investigate how your competitors have established themselves, no matter which business entity you choose for your startup’s legal structure. See if a pattern emerges for the most common business structure because it might be worth exploring “why” to ensure you’re not overlooking any critical elements on how a business like yours should be operating.
3) Name and register your business
The process of naming your business is one of the more exciting activities you can complete throughout the business formation process. It’s important not to rush this step since choosing a name you’re dissatisfied with will ultimately lead to unnecessary paperwork and a lot of wasted capital. Take some time to think through your business name and lock in a moniker that excites you. If you feel good about your business name, chances are your customers will feel good too. However, before officially moving forward with your name of choice, complete a name search on the Connecticut Secretary of State’s website via the Secretary of State’s Business Entity Database. If your business name does not appear in the search for corporations or LLCs, it is available.
Once you’ve verified your business name is available, you can then move forward with registering your business with the state of Connecticut. The registration process might differ from company to company depending upon the legal structure you established for your business.
If your company is a sole proprietorship or a general partnership, but you want to operate the business using a fictitious name—or “Doing Business As” (DBA)—then submit a Trade Name form to the Town Clerk’s Office for a $10 to $20 filing fee. If your company is an LLC, you’ll need to file a Certificate of Organization with the Connecticut Secretary of State along with a filing fee of $120. If your company is a corporation, you’ll need to file a Certificate of Incorporation, also with the Connecticut Secretary of State, and a $250 filing fee. If your company is a nonprofit, you’ll need to submit a Certificate of Incorporation, but your filing fee is only $50. All of the above filings can be completed online or via mail.
Now that you know the required forms to submit to the state and the fees associated with them, it makes sense to choose a registered agent—your point of contact in Connecticut who will handle all of your business’s tax and legal affairs—to help facilitate the filing process.
After you’ve registered your business with the state of Connecticut, you’ll then want to register it federally with the IRS. To register your business with the Internal Revenue Service, you’ll need to submit an application form for a Federal Employer Identification Number—or tax ID—which the government will then issue to you and use to track your business taxes. The easiest way to apply for a Federal Employer Identification Number is to fill out the IRS’s application form.
4) Apply for business licenses and permits
Depending on the nature of your business, you may be required to secure different licenses and permits that are specific to your industry. Thus, applying for business licenses and permits in Connecticut occurs more on a case-by-case basis. Since there’s no general business license required in Connecticut, the following are some of the most frequently applied for permits and licenses in the state:
- Connecticut Tax Registration Number: Also known as a Sales Tax Permit, this number is used by the state of Connecticut to track sellers’ tax-related activities within the state and can be obtained from the Connecticut Department of Revenue Services.
- Trade Licenses: If your business is a specialized service you provide to others, these licenses may be required on behalf of the business owner but not the business itself.
- Zoning Permits: These permits are required for certain businesses in certain areas and act as an “approval” from the city or county where the business is operating.
To double-check you’ve applied for all of the necessary licenses and permits specific to your business, review ct.gov, the Connecticut Department of Consumer Protection’s website, and the Small Business Administration (SBA) website for more information and further clarity.
5) Choose a location
Connecticut possesses a diverse range of topography, from beachy shores to wildlife preserves to populated cities like New Haven and Hartford. There’s something for everyone to enjoy and a specific location out there waiting for your new business to call it home.
As you consider which location will best suit your business needs, consider often overlooked external factors such as travel time, access to business resources, and proximity to trafficked areas. While you might have already found the “perfect” office building or storefront to set up shop in, carefully evaluate all of the other circumstances that will be part of your day-to-day before you pull the trigger on the first place you see.
Whether or not you need a physical location for your office to conduct business is something else to consider. Remote teams are the new trend, so if your company is small, your employees are few, and you can complete the work from anywhere, it might be most economical for you to shed the cubicle and set up a home office.
6) Open a bank account and prepare for future taxes
Nothing feels more official about starting your own business than holding a debit card or credit card with your business name emblazoned across the front. With so much validation within that small piece of plastic, it’s easy to get lost in your entrepreneurial dreams and forget how to obtain one in the first place!
Before opening a business bank account or a business credit card, you’ll first need to choose a financial institution you feel comfortable with. Many small business owners choose to bank with an establishment they already use for their personal finances, which is an excellent option since you’ll already have a rapport with that bank and know how to navigate it. It’s also essential to keep your business transactions separate from your personal financial moves. Creating individual accounts for each is the easiest way to do it. Come tax season, your past self will thank your present self for being so forward-thinking.
Once you’ve chosen where you want to bank for your business, you’ll need to provide some combination of the following documents—depending on your company’s legal structure—to your bank associate: A driver’s license, Certificate of Incorporation, Certificate of Organization, Trade Name Certificate, Social Security Number, and Federal Employer Identification Number.
To help keep your business compliant with all federal and state tax laws, it might make sense to hire a business accountant who can take out the guesswork and allow you to focus on your day-to-day business.
7) Purchase business insurance
In many states, purchasing business insurance is optional. However, in the state of Connecticut, if you’re running a business with one or more employees, you are legally required to purchase a workers’ compensation policy. For most small businesses, the 3 most popular types of business insurance are workers’ compensation, general liability, and professional liability:
- Workers’ Compensation Insurance: If one of your employees suffers an injury on the job, this policy helps cover their medical expenses and any associated costs related to the injury.
- General Liability Insurance: This basic insurance policy protects your business’s assets from many unexpected risks and events.
- Professional Liability Insurance: Also known as E&O coverage, this policy is primarily used by those who provide consulting or contracting services and protects them against negligence and unfinished work claims.
Having a conversation with your business accountant will help you better understand the types of business insurance available to you. With a solid understanding of the business insurance landscape, you’ll be more equipped to purchase required policies and other policies that will provide the most value to your company.
8) Create a marketing plan, hire employees, and more
It’s now time to build upon all of your hard work and to start spreading the word that your business exists. One of the best ways to help publicize your new enterprise is by creating a thorough marketing plan. Think of your marketing plan as a subfolder to your business plan, where you outline the strategy for advertising, social media, promotions, and online marketing. With so many facets to growing your business, your marketing plan will act as a reference guide to make sure your efforts are calculated, efficient, and moving you in the direction of success.
You may also decide it’s time in your entrepreneurial juncture to hire employees. Remember to report any new hires to the state of Connecticut and consult with your business accountant to ensure you’re complying with all IRS employee tax laws.
In 5 minutes or less, Huckleberry can generate an insurance quote perfectly tailored to meet the ever-changing needs of your company, giving you the flexibility and peace of mind to grow your business on your own terms.