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What business structure should I choose?
There are many business types you can open and operate in CT. Here are brief descriptions of common business types.
Sole proprietorship (sole prop): This business type can have only one owner and is a common company set-up for solopreneurs. Sole proprietorships are not required to file forms and pay fees to establish their businesses in Connecticut. Other key highlights:
- If someone decides to sue you or your business for property or personal damage, you are liable from your own assets.
- You are taxed once a year on your company’s profits. You'll need to report your business income and pay federal and state taxes. Please see our Getting Started in Business guide for details.
- You can start with just a “doing business as” name, often called a DBA.
- In many industries, you don’t need a license to operate.
General partnership: A general partnership is a business arrangement between two or more individuals who agree to share responsibilities, assets, profits, and financial and legal liabilities of a jointly owned business.
- Similar to sole props, general partners assume unlimited liability and are risking their personal assets.
- General partnerships are less expensive to form than a corporation.
- They are “pass-through” entities where profits or losses are passed directly to partners and reported on personal tax returns.
Learn more about general partnership applications and filing fees >
Limited liability company (LLC): An LLC may be better for you as a business owner if you need flexibility in how you will maintain and run your company. Other key highlights:
- You don’t have to have a board of directors. An unlimited number of members or owners are allowed.
- You are not personally liable if someone starts litigation with your business.
- You have to file quarterly taxes and cannot take your company public should it grow.
- State law requires that every new Connecticut LLC designate a Connecticut registered agent that will be available during regular business hours at a physical address within the state.
Learn more about limited liability company applications and filing fees >
Limited liability partnership (LLP): This type of business can assume management activities with limited liability for business debts and obligations. Other highlights:
- LLPs have no general partners.
- All partners have limited personal liability for the debts and obligations of the business.
- LLPs are popular among professionals, such as doctors and architects.
- Professionals like to form LLPs to protect themselves from malpractice claims filed against their colleagues.
Learn more about limited liability partnership applications and filing fees >
Limited partnership (LP): A limited partnership requires general partners who provide business acumen and management skills, and limited partners who invest money but don’t actively manage the company. Limited partnerships can include family businesses, commercial real estate projects, professional businesses, and estate planning. Other highlights:
- A limited partnership itself doesn’t pay taxes in the way a corporation would. It’s considered a pass-through entity.
- A limited partner's liability is limited to the amount of their investment in the LP.
Learn more about limited partnership applications and filing fees >
S corporation (S corp): This type of business is usually ideal for smaller businesses that have no more than 100 owners. Other key highlights:
- S corps can offer common stock so that equity can be shared with those who help build your company.
- Some business owners open an S corp so that they can offer stock incentives in the leaner, early years of their business' growth.
- You are not personally liable if someone starts litigation with your business.
- You are taxed only once a year. Shareholders only pay taxes on the profits they receive.
- There are more strict rules in place for an S corp, including keeping meeting minutes for shareholders and all shareholders must be U.S. citizens.
Learn more about S corporation applications and filing fees >
C corporation (C corp): This business type is best for those who plan to take their company public someday. Other key highlights:
- Shares of the company can be given to directors, owners, and employees.
- C corps are recognized internationally, and owners do not have to be U.S. citizens.
- You are not personally liable if someone starts litigation with your business.
- You are taxed twice a year. The business pays corporate taxes and shareholders pay on their earnings.
- With a C corp you must have a board of directors.
- There are strict rules about keeping meeting notes for all shareholders and board members.
Learn more about C corporation applications and filing fees >
Non-stock corporations: These carry out activities that benefit society but don't generate a profit. They’re often funded by dues, donations, grants, and fundraisers. They provide limited liability protection for the personal assets of members, directors, and officers. There are several types of non-stock corporations:
Non-profit [501(c)3] and others: A non-profit is best for those who want to make an impact in their communities but aren’t as concerned about profits or going public. Other key highlights:
- No one technically owns the non-profit. You can just oversee it.
- You cannot be held personally liable for damages in a lawsuit.
- Your business is tax-exempt if you choose to file for tax exemption.
- There are strict rules to keep both accounting and meeting records.
Social welfare organizations and local associations [501(c)4]: These can include:
- Labor organizations (e.g., electrical workers union)
- Civic organizations (e.g., religious groups - see below)
Non-charitable organizations [501(c)6]: Non-charitable organizations promote a common business interest. Examples include business leagues, chambers of commerce, real estate boards, and even professional football leagues. Other highlights:
- Exempt from paying federal taxes.
- Possibly subject to state and local taxes.
- Contributions are not considered charitable and are not tax deductible.
Learn more about non-stock corporation applications and filing fees >
Religious corporations or societies: As previously mentioned, religious corporations are a type of non-profit organization that is incorporated under the law. Other highlights:
- Can be used for many churches and sectarian schools.
- Religious corporations are often exempt from income taxes and other state and federal regulations.
Learn more about religious corporation or society applications and filing fees >
Franchises: A franchise is a business offshoot you can operate in Connecticut that's under a larger corporate structure. The franchiser may be nationally known. Other key highlights:
- You usually have to pay the franchiser fees to use their branding and often have to operate your business under the rules and guidelines that the franchise sets up.
- There are thousands of franchise business opportunities in CT.
Learn more about:
Statutory trusts: Statutory trusts can enhance privacy when conducting business because the beneficiary of the trust is kept private. This differs from other company structures, such as LLCs, S corps, and C corps, where ownership is in the public domain. Other highlights:
- Often used for real estate and passing down one’s assets to family members.
- Profits are distributed to the beneficiaries, which can lead to higher levels of taxation.
- Good option for individuals with a net worth of $1 million to $5 million.
Learn more about statutory trust applications and filing fees >
Visit the Connecticut Department of Banking for more regulations on businesses including franchises, LLCs, corporations, and more.