A Limited Liability Company (LLC) is a way of structuring a business that provides limited liability to its members (owners) like a corporation, but also the structural and tax flexibility of a partnership. The limited liability aspect of the LLC protects the personal assets of its members, from creditors and lawsuits that may come from the business. The incorporators can also choose whether the business should be taxed as a corporation or as a pass-through entity such as a partnership.
LLCs can only be formed under state law. As a result, the requirements and protections for LLCs can vary widely from state to state. While there is a lot of flexibility in creating and structuring LLCs in Connecticut, there are a few mandatory requirements that must be listed in the initial paperwork (Articles of Organization):
- Name of the limited liability company. This name must be different from all other business names on record at the Connecticut Secretary of State and it must have the words “LLC” or “Limited Liability Company” in it.
- The type of business the LLC conducts. A simple description that states the purpose of the LLC.
- An in-state address of the LLC.
- Appointment of a statutory agent of the LLC. This is to make sure that important information or any legal issues will make it to the LLC.
- Manager or Member information. The LLC must list the name, title, business, and residence of at least one manager/member of the LLC.
- The LLC’s email address. This allows the Secretary of State to send important notifications to the LLC
- The Articles of Organization must be signed by its organizer. The organizer can be a member or manager of the LLC but it cannot be the LLC itself and it can be signed digitally
Also, Annual Reports must be filed each year after the LLC is created with the Secretary of State. While there is a fee to file the report, there is also no penalty for a late filing. But filing it late will result in the Secretary of State holding the LLC in “bad standing”.
The forms required to form your business as an LLC can be found at the Secretary of State website. The Articles of Organization along with a fee of $120 can be filed online or can be mailed to the Secretary of State’s mailing address.
There are several reasons why you might want to structure your business as a LLC:
- Limited Liability: Like a corporation, LLCs shields the personal assets of its members from the debts and legal liability of the company.
- Tax Flexibility: LLCs can choose either to be taxed as a pass-through entity or as a corporation. Most LLCs choose to be taxed as a pass-through entity to avoid the double tax associated with corporations. If the LLC chooses to be taxed as a pass-through entity, it avoids this double tax and company revenues are only taxed when received by the LLC’s members and taxed according to their personal income tax bracket.
- Organizational Flexibility: Through writing an Operational Agreement, LLC’s can choose whether they will be run by members (owners) or other managers and it gives the LLC flexibility to operate as needed.
- Money Distributed by Agreement Not Ownership: Members of the LLC can choose any desired method for distributing profits and are not bound by traditional partnership agreements. The only limitation is that it must be included in the Operational Agreement.
While the limited liability and the tax flexibility of a LLC can be appealing, there are a few disadvantages to structuring your business as an LLC:
- Filing and Fees: Unlike a general partnership or sole proprietorship; LLCs require filing Articles of Organization and payment of some administrative fees which can cost upwards of $200 and may require a lawyer.
- Business Entity Tax: All LLCs, even those operating as a pass-through entity, are subject to Connecticut’s Business Entity Tax.
If you are looking for an attorney to help you with structuring your business, then contact a local Connecticut business lawyer today to get the help you need.