Why form a Connecticut LLC?
One of the most common reasons why business owners form a LLC in Connecticut is that it provides business owners liability protection. The liability protection is the same as the protections that corporations have. The LLC is a relatively new business entity type when compared to corporations. The LLC was formed because business owners wanted the liability protection of a corporation without the hassle.
Filing a LLC in Connecticut will allow you to do business in the state without having to worry about your personal assets being vulnerable to a lawsuit. Only the business assets of the LLC will be vulnerable.
Connecticut may be the best state for your business. In most cases, filing in the same state your business is located in may be the best solution. However, you can still file in a different state but it may be more work to maintain since you have additional paperwork and requirements to maintain a LLC in a different state. It may be best to consult a CPA on what state may be best for your LLC.
Naming tips for your Connecticut LLC
The most common reason why filing a LLC in Connecticut is rejected is due to name availability. We do an exhaustive search for name availability but rejections can still occur because the reviewer at the state may deem the name too similar to another entity. We always recommend that you wait for the final approval of the LLC before conducting any business.
Things to keep in mind is that you avoid using acronyms for the LLC name. Acronyms are by far the most popular name. Most of them are take, especially if the acronym is 2 or 3 letters. Also, avoid using words such as “enterprises”, “group”, “holdings”, “associates” etc. These are very popular words used in the state. We recommend using words that are unique such as a last name.
Lastly, make sure that the name of the LLC isn’t too long. Some of the most well known companies in America are usually one or two words long. This is because it is easier to remember one word than five. Keeping the name short will help customers remember your company name.
Pass through taxation
One of the other advantages of a Connecticut LLC filing is that the LLC provides “pass through taxation”. What this means is that the profits that are reported by the LLC is passed through the LLC and reported on your individual income. In essence, the LLC does not pay taxes unlike a corporation. There is no double taxation like there is with a corporation.
Any profits that are generated and there are multiple members, the members would report their income accordingly to the amount of ownership for each person. Consulting your CPA on this tax filing will help you to best evaluate what will work for you.
Member vs Manager Managed LLC
There are two management types for forming a LLC in Connecticut. They are member and manager managed LLC. In the first type, the member managed is the most common. The members are the owners of the LLC. There can be multiple members so therefore each member as equal say in the operation of the LLC. The members have a direct say in how the LLC is to be managed and operated.
In a manager managed LLC, the owners or members of the LLC will hand off the day to day management of the LLC to a third party. The third party will dictate the management and operation of the LLC. Members would choose this type of management system if for instance the members don’t have the experience to operate a company or they do not wish to take upon the responsibility to manage a LLC.
What ever management type you choose, it is required in most states to state which type of entity you wish. Connecticut LLC’s are no different.
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