A corporation is a business structure that provides personal liability protection by separating the owner’s personal assets from the business’s assets. A corporation is liable for the business’s actions and finances, while the owners (known as shareholders) are not.
Corporation Pros
- Corporations provide liability protection for the shareholders
- A corporation can raise non-debt financing by selling shares of the business
- Taxation may be lower than a sole proprietorship or partnership
Corporation Cons
- Corporations are more complex and expensive to set up than sole proprietorships, partnerships, and Limited Liability Companies (LLCs)
- At a minimum, corporations are required to hold an annual board of directors meeting and shareholders meeting, take minutes at the meetings, issue shares, etc., to maintain the entity’s liability protection.
Generally, Corporations are chosen over Limited Liability Companies when a significant amount of funding is being raised from investors. However, due to the cost and complexity of a Corporation, most small businesses are better off forming an LLC.
Related: How To Form An LLC In Connecticut
The following steps are to create a domestic Corporation, which is the most common type for businesses. The other types of Corporations in Connecticut include a foreign Corporation (an out-of-state Corporation wanting approval to physically operate in the state), a professional Corporation (designated for Corporations offering professional services), or a non-profit Corporation.
Steps to Forming a Corporation in Connecticut
Step 1: Choose a Name
The first step in forming a Corporation in Connecticut is selecting a name.
The corporation’s name must be different from that of other entities in the state of Connecticut. Check available corporation names in Connecticut.
The name of the Corporation must include one of the following designators at the end of the business name:
- Corporation
- Company
- Societa per Azioni
- Limited
- Incorporated
- Or an abbreviation of one of those words, such as Corp., Co., S.p.A., Ltd., or Inc.
A comma may be used after the business name and before the designator. For example, “Common Grounds Coffee Inc.” and “Common Grounds Coffee, Inc.” are both acceptable.
If you want a name but are not ready to register the Corporation, you can file the Application for Reservation of Name (Form CNR-1-1.0) with the Connecticut Secretary of the State. The name reservation will hold a name for up to 120 days.
While a Corporation has to select a unique name that another Connecticut Corporation isn’t using, that doesn’t guarantee the name isn’t being used by someone else. Before registering a Corporation name, be sure to do a trademark search to verify it is available for you to use.
Step 2: Choose a Registered Agent
To have a Corporation in Connecticut, a Connecticut Registered Agent must be identified to act as a central point of contact to receive legal papers, tax notices, summons, subpoenas, etc. (service of process), on behalf of the Corporation. This can be a Connecticut resident or a commercial registered agent service.
You can act as your own registered agent in Connecticut, and you are not required to pay for a registered agent. The requirements to be a Registered Agent are generally available during normal business hours and have a physical street address in the state. A PO Box is not allowed.
Related: Do I Need A Registered Agent In Connecticut?
Step 3: File the Connecticut Certificate of Incorporation
Next, you can start filing the Certificate of Incorporation (called the Articles of Incorporation in many states) with the Secretary of the State. The Certificate of Incorporation can be filed online on the Secretary of the State’s website or print out the paper form.
The information requested includes:
- The name of the Corporation must contain the words “Corporation,” “Company,” “Limited,” “Incorporated,” or an abbreviation.
- Information regarding the shares of the Corporation. This section includes the number of shares authorized and the class of stock (common stock is most common) for Stock Corporations only.
- NAICS code – The NAICS (North American Industry Classification System) code is a six-digit number that classifies and categorizes different types of businesses. This information is used to report statistical data for each industry in the U.S.
- Registered Agent’s name and physical address. (A Post Office box isn’t allowed)
- The name, address, and signature of the incorporators. These are commonly the corporation’s owners but can also be someone helping with the formation of the entity.
The Connecticut Certificate of Incorporation can be filed online or submitted by mail. The mailing address is:
Business Services Division
Connecticut Secretary of the State
P.O. Box 150470
Hartford, CT 06115-0470
Step 4: Create Corporate Bylaws
Bylaws are basically the overall guiding principles and procedures of the business operations. The bylaws include the name of the corporation’s officers, responsibilities of the board members, terms of office, procedures for removing or adding a new director or shareholder, policies for authorizing new shares, when shareholder and director meetings will be held, and more.
Step 5: Hold the Initial Board of Directors Meeting
During the first board meeting, the board of directors will, at minimum, elect the corporation’s officers (the President, Vice President, Treasurer, and Secretary), review and approve corporate bylaws, choose a bank, issue shares of stock, and decide whether the Corporation will be taxed as a C corporation or S corporation.
It’s critical to remember that taking meeting minutes at all meetings is necessary to protect the shareholders from lawsuits and court actions. The minutes record all decisions and actions taken during the meeting. Minutes aren’t filed with the state; however, they need to be stored in other corporate documents.
Step 6: Issue Shares of Stock
The corporation can exchange shares of stock in exchange for money or services. The number of stock-issued shares cannot exceed the number of authorized shares listed in the Certificate of Incorporation.
Step 7: Obtain an EIN
The EIN or Employer Identification Number (also called a Federal Employer Identification Number, FEIN, or Tax ID Number) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Like an individual’s social security number, the EIN identifies the Corporation for tax purposes. The EIN will be needed to hire employees, open a bank account, register for business licenses and permits, file tax returns, and more.
The EIN is free when registering through the IRS. The number is available immediately when applying through the IRS website; however, you can also register by phone, fax, or mailing IRS Form SS-4.
Step 8: Elect the Corporation’s Form of Federal Income Taxation
By default, a new corporation will be taxed by the Internal Revenue Service (IRS) like a C-Corporation. C-Corporations pay corporate taxes on their profits, and the owners pay personal income taxes on their dividends.
A Corporation can elect to be taxed as an S-Corporation. S-Corporations are taxed as “pass-through entities,” meaning the Corporation does not file corporate taxes. Instead, the profits (or losses) “pass through” to the shareholders, who then report this income on their individual taxes.
For most small businesses, the S-Corporation tax election is the most beneficial because it eliminates the double taxation of the C-Corporation. This tax election can be changed, however, it is highly recommended to talk with an accountant before making this decision.
Step 9: Open a Bank Account
Opening a bank account for your Corporation is important for liability protection as the bank account separates the business’s funds from the member’s personal funds.
Several documents will be needed to open a business bank account, such as:
- A banking resolution is a document that authorizes the members to open a business bank account on behalf of the LLC.
- Copies of the original Certificate of Incorporation showing the creation of the Corporation in addition to the bylaws.
- Driver’s licenses of the members.
- Depending on the age of the Corporation, a Connecticut Certificate of Good Standing may be needed to prove the business entity is active and in good standing with the state.
Step 10: Apply for Business Licenses and Permits
Depending on what your business does and where it is located, various business licenses and permits will likely be needed before starting your business. Some common registrations include:
- General Business Licenses – The state of Connecticut does not require a general business license; however, many cities require one to operate.
- Connecticut Tax Registration Number – Businesses can register with the Connecticut Department of Revenue Services for their Sales Tax Permit, withholding taxes, and other state taxes.
- Trade Licenses – Some services, such as acupuncturists, family planners, landscape architects, and pharmacists, require licensing in Connecticut. While this isn’t a license for the business, it is required to operate.
- Zoning Permit – Many cities and/or counties require zoning approval before operating a business out of a location, sometimes including home-based businesses.
Related: How To Register A Business In Connecticut
Step 11: File the Organization and First Report
The Connecticut Secretary of State requires corporations to file the Organization and First Report (called an Initial Report in some states) within 90 days after filing the Certificate of Organization.
Step 12: File Annual Reports
Corporations are required to submit an annual report to the Connecticut Secretary of the State, which is due on the corporation’s anniversary date each year.
