You can choose from different types of partnerships, each with different advantages. Find out about the different partnerships available in Connecticut, how to start one, and more.
Find out more about Forming a Partnership
Excellent
by Mary Wenzel, J.D.
Mary is a freelance writer and owner of Write Law. Mary ghostwrites marketing content for law firms throughout the Un...
Updated on: December 8, 2023 · 5 min read
Connecticut offers a wide variety of opportunities for small business owners. If you are interested in starting a business with at least one other individual, you can choose different legal structures for your business. One popular structure is a partnership. In Connecticut, business owners can choose from four different partnership structures.
If you decide to form a partnership in Connecticut, you will be required to file an annual report for the business with the IRS. This report is required even though a partnership is considered a pass-through entity for federal tax purposes, and you will be required to report the income generated by the business on your personal income tax returns.
Although the type of partnership you choose in Connecticut does not have an effect on your federal income taxes, it may have an effect on the tax status of the business within the state.
Personal liability is the other important topic to consider when forming a business. Personal liability is a legal term that explains how closely your personal debts and assets are tied up with your business. If you have no personal liability, then none of your business’s debts are counted against your personal assets. In effect, the business is totally separate from you. This means if you have to settle a business debt, such as a loan or lawsuit, then the creditors can’t seize your home, cash, or other personal assets to settle the debt. While no legal structure gives you complete liability protection, some grant more options than others.
The types of partnerships offered in Connecticut are compared below, with information highlighting the differences in liability and tax considerations.
Liability of partners: In a general partnership, all of the partners are personally responsible for the debts incurred by the business. There is no personal liability protection, meaning all of the partners are personally accountable for all business debts. If you’re a partner in a GP, then all of your property, cash, and savings are able to be seized to settle the company’s debts.
Tax overview: GPs are considered pass-through entities in Connecticut. This means that the partners are responsible for reporting the income generated by or lost by the partnership on their individual tax returns.
Liability of partners: A limited partnership is a business made up of at least one general partner and one limited partner. The general partner is personally responsible for the debts of the business, but the limited partner is only responsible for the business debts that are equal to his or her investment in the company. For their trouble, the general partners are given full authority to run the business while the limited partners do not.
The LP structure is popular with new companies that need to raise startup money quickly. The limited partners can invest knowing they aren’t going to be responsible for more than their invested share if the company faces creditors.
Tax overview: LPs are considered pass-through entities. As a result, Connecticut business owners with an LP must report the profits earned or the losses sustained by the business on their personal tax returns.
Liability of partners: Limited liability partnerships provide liability protection for a partner that extends to the actions of the other partners. This means that each partner is only legally responsible for his or her own actions.
Tax overview: As a pass-through entity, each partner is responsible for reporting the income generated by the partnership on his or her personal tax returns.
If you need additional taxation choices or greater protection from personal liability, you may want to consider forming a limited liability company (LLC). The LLC business structure combines many of the advantages of partnerships while offering greater flexibility in tax structures. On the downside, they often require more effort to maintain than a partnership but even then, they are known for their simplicity.
After carefully considering your options, there are a number of steps you will need to take to get your business up and running in Connecticut. Luckily, the state has created an online guide to help business owners get started.
Before you can select a business name for your company, you need to verify that the name is available for use in Connecticut. No two companies should share a name, as this is very confusing for the public.
You can search for available names and register your own at the Secretary of State website. If your business will be operated as anything other than a general partnership, you must include the appropriate designation (LP, LLP, LLC) within the company name.
In Connecticut, all businesses operating under a fictitious business name or a “dba” must register the business name with the local/municipal clerk’s office.
After registering your business name and filing the appropriate forms with the Secretary of State, there are a couple of additional steps you need to take before you can legally operate your business in Connecticut.
All businesses operating as a partnership in Connecticut must obtain a state tax id in order to do business within the state. Depending on the industry, you may also be required to apply for a trade or occupational license.
Partnerships with employees should obtain an Employer Identification Number (EIN) from the IRS. Additionally, some businesses require additional licenses from the state in order to operate. Further taxes may be required as well, depending on your business.
After you’ve complied with all of the formal filing requirements, you should take a couple of additional steps to get your business off to a smooth start:
Ready to start a partnership? LegalZoom will help you choose which one may be right for you. We can also file the paperwork to form your business, help you find a registered agent, and get you in touch with an attorney or tax professional.
You may also like
Why Do I Need to Conduct a Trademark Search?
By knowing what other trademarks are out there, you will understand if there is room for the mark that you want to protect. It is better to find out early, so you can find a mark that will be easier to protect.
July 31, 2024 · 4min read
What Is a Power of Attorney (POA)? A Comprehensive Guide
A power of attorney can give trusted individuals the power to make decisions on your behalf—but only in certain situations.
August 29, 2024 · 20min read
How to Start an LLC in 7 Easy Steps (2024 Guide)
2024 is one of the best years ever to start an LLC, and you can create yours in only a few steps.
July 29, 2024 · 22min read