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Regulations Involved in Starting a Business

By Denis Jakuc

The government wants to keep records on everything. A baby born into the world gets a birth certificate issued by the town. Similarly, a business coming into existence is recorded by local, state, and federal organizations. Laws vary by business structure and by state, but here’s what you have to do in Connecticut.

Choose a business structure, or entity

A sole proprietorship, the most common form of business organization, is easy to form and gives complete managerial control to the owner. It is a business owned and operated by a single individual who reports income on an individual income tax return and makes quarterly estimated tax payments instead of having taxes withheld. It’s a simple, easy way to go, but the owner is personally liable for all the financial obligations of the business.

A partnership is a business of two or more people who have agreed to share in the profits or losses of the business. Just like the sole proprietor, profits or losses are “passed through” to the partners and reported on their individual tax returns. But each partner is also personally liable for the financial liabilities of the business.

A corporation is a legal entity formed to conduct business. This entity handles the responsibilities of the organization separate from those founded it. The corporation can make a profit, be taxed, and held legally liable for its actions. But the owners are not personally liable for those actions—a key benefit of being a corporation. The disadvantages? It costs more to form a corporation and more extensive record-keeping is required. Also, a regular C corporation can be subject to double taxation—of both corporate profits and owners’ incomes

. The solution may be to form an S corporation (Subchapter corporation) that allows income or losses to be passed through to individual owners’ tax returns.

Finally, the limited liability company (LLC) with a single member and the limited liability partnership (LLP) with more than one member are hybrid business entities that allow owners to pass through profits without taxing the business itself, while also shielding them from personal liability.

Consult with business advisors or attorneys to weigh the pros and cons of each structure and determine which one is best for your business.

Business entity documents

For each type of business entity, there may be government document requirements, such as an operating agreement for an LLC or LLP, bylaws for a corporation, or a partnership agreement for a partnership.

Register with the Connecticut Secretary of State

Once you’ve chosen your business entity and have a name for it, check whether you need to add LLC, Inc., or another designation. Then register the business on the Connecticut Secretary of State website. Also check whether you need to file a Trade Name Certificate with the Town or City Clerk where your business will be located.

Apply for a federal tax number

This is known as an EIN (Employer Identification Number) or FEIN (Federal Employer Identification Number). It is appropriate for every business to get one, even sole proprietors who can use their EIN/FEIN instead of giving out their Social Security numbers. Go to the IRS website.

Get a state tax registration number

This is issued by the Connecticut Department of Revenue Services (DRS), and every business operating in the state must have one. Your business may be required to collect sales tax, or to withhold state income taxes if you have employees. Check at the DRS website to see whether your business will have to pay other state taxes, such as the Business Entity Tax for an LLC.

Regulations for hiring employees

If you’ll be hiring employees, your business must register for a State Unemployment Tax Number with the Connecticut Department of Labor (DOL), Employer Status Unit. If you’ll be hiring foreign nationals, familiarize yourself with the rules regarding immigration and residency status. Find the I-9 form here.

Get required permits and licenses

Check with your Town or City Clerk and Zoning Office for any local regulations that apply to your business. These vary from town to town and rules also differ within a municipality depending on where a business is located, an especially important issue for home-based businesses. Also check Connecticut’s licensing rules here to see if your business must be licensed.

Federal regulations

Most businesses do not have federal requirements beyond paying federal taxes, including income and employer taxes. If you have 50 or more employees, you need to report to the IRS that you provide health coverage to comply with the Affordable Care Act. If your business activities are regulated by a federal agency, you’ll have to get a federal license or permit.

All businesses also must stay in compliance with all marketing and advertising laws, copyright laws, workplace poster and health and safety laws, and Americans with Disabilities Act (ADA) laws. You’ll find links to these federal requirements here.

There are specialized laws for different types of business, such as those making medical devices, commercial internet websites, pharmaceuticals, food products, agriculture, alcoholic beverages, and transportation and logistics. For almost every type of business, there is an industry association that can help with these requirements.

Insurance

If you have employees, you’ll be required to provide workers’ compensation and unemployment insurance. Also, contact a commercial insurance broker to see if you should carry business liability, product liability, errors and omissions, and business cyber-risk insurance. If your business is home-based, know that your homeowner’s insurance generally doesn’t cover liability for business activities or the loss of business property and equipment.

If you’d like more help with finding the right solution for housing your startup, InnovatorsLINK offers a detailed Bootcamp course where you’ll learn the details about all your options. Register here

Review the Executive Summaries associated with each course prior to attending the courses.

This Expert Summary is © InnovatorsLINK. For republishing, please contact dlangeveld@innovatorslink.com.

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