Small Business & Organization

If you are interested in starting a new business, you may want to consider forming a Limited Liability Company (LLC). Since the adoption of Connecticut’s Limited Liability Company Act in 1993, the LLC has quickly become the preferred entity for small businesses in Connecticut. The reasons for this are quite simple: the LLC provides the tax advantages of a partnership while still affording the liability protections of a corporation.

For tax purposes, the LLC is treated like a partnership whereby the income is passed through the LLC and through a K-1, taxed at the individual member’s personal tax rate. The LLC itself is not subject to federal or state taxes. This differs from an S-Corporation which may be subject to both taxes twice – once at the corporate and again at the shareholder level. Use of the LLC eliminates the tax at the business entity level.

The second advantage to the LLC is the limited liability feature. The entity separates your personal assets from your business assets. LLC members are not personally liable for the debts or obligations of the LLC. Accordingly, a member’s liability with respect to the conduct of the business is protected in a way similar to that of a corporation shareholder. By contrast, partners in a general partnership may be held personally liable for the debts of the partnership. Please note, however, that if the LLC is applying for credit, the bank often requires a personal guaranty since the new LLC will not have an established credit history. Obviously the signing of the personal guaranty creates personal liability for this credit debt but only for this credit debt. The LLC member will not assume personal liability for any of the actions of the LLC. For example, if you are a member of an LLC which owns property and someone is injured on that property, you personally will not be held liable for the injuries, although the LLC could certainly be found liable. The injured party would be limited to seek compensation from the assets of the LLC.

Finally, another advantage to the LLC format is the flexibility with which it can be administered. LeFoll & LeFoll, LLC researches your chosen business name to verify that it is not already in use, obtains the Federal Tax Identification for the new LLC, prepares the Operating Agreement and the Articles of Organization, and files the necessary forms with the Secretary of State’s office. The filing fee is only $60 which is far less than the fee for corporations. In addition, the member of an LLC is not required to maintain the annual corporate records. However, you should be aware that the LLC will be subject to a State of Connecticut business entity tax in the current amount of $250.00 per year which is due each tax day, April 15th.