How to Form an LLC in Connecticut!

Connecticut law imposes a few requirements for LLC names. First, the name must be distinguishable from every other business entity that has formed or qualified to do business in Connecticut. Second, the name must include “limited liability company, “ “L.L.C.,” or “LLC.” For the full spelled-out designator, “limited” can be abbreviated “ltd.” and company can be abbreviated “co.”

To start a Connecticut LLC, you must submit Articles of Organization to the Secretary of State with a $120 filing fee. To be accepted, these articles must include the LLC name, the names and addresses of the initial members and managers, whether members or managers will manage the LLC, the nature of the LLC’s business, the address of the principal office of the LLC, and the name, address, and signature of the Registered Agent.

Most Connecticut LLCs will have either a written or oral Operating Agreement, which binds the members and states how the affairs of the LLC will be conducted. We recommend that the Operating Agreement be written and signed by all members, in case of any future disputes.

EIN: Connecticut LLCs with multiple members or employees need to obtain an EIN for tax returns. This can be done directly from the IRS, or an incorporation service like Incnow® can do it for you.

Annual Report: To maintain their status, Connecticut LLCs must electronically file annual reports with the Secretary of State. This report includes the name of the LLC, the principal business address, the email address of the LLC, and the name and address of a manager or member. This is accompanied by a $20 filing fee.

The Connecticut LLC Act expressly endorses the freedom of contract.  This means you can write the agreement the way you want without running afoul of restrictions to best honor your intent in the business deal. It gives LLC members contractual freedom to customize their contributions, rights, duties, and distributions of profits and losses. In addition, it gives members contractual freedom to customize the duties each party to the LLC agreement owes to the other parties, and it allows members to protect their control of an LLC.

Connecticut Has a Large Market

Each year, Connecticut forms over 22,000 new LLCs. Connecticut has over 168,000 active LLCs.  According to the U.S. Chamber of Commerce, it has the third highest economic output per job.

The Connecticut LLC Act expressly gives maximum effect to the principle of freedom of contract and to enforceability of limited liability company agreements.

The Act enables members to create classes of membership. An LLC agreement may establish classes of membership interests with different rights, powers, and duties, including Voting and non-Voting interests. These provisions facilitate everything from complex, high-dollar-volume transactions to succession planning in family businesses and estate planning by gifts of non-Voting interests. This is sometimes referred to as a “Connecticut family limited partnership” or family LLC.

Formation

A “person” may form an LLC by filing its Articles of Organization, and the definition of “person” includes almost any kind of business or legal entity. An LLC’s members may therefore have an entity or person who is not a member file the LLC’s Articles of Organization with the Connecticut Secretary of State. The Act provides, however, that “[i]n addition to the articles of organization, the organizer or organizers shall file with the Secretary of the State a writing containing the name and respective business and residence addresses of a manager or a member of the limited liability company.”  Members must therefore choose a third-party manager if they want to avoid filing one or more of their business and residence addresses.

Dealing with Business Partners

The Connecticut LLC Act has a default rule that members in member-managed LLCs and managers in manager-managed LLCs owe fiduciary duties of care, loyalty, and good faith. Section 34-141 states: “A member or manager shall discharge his duties under section 34-140 and the operating agreement, in good faith, with the care an ordinary prudent person in a like position would exercise under similar circumstances, and in the manner he reasonably believes to be in the best interests of the limited liability company ….”

The Act gives members and mangers contractual freedom to “opt out” of the default rule, however, by including a provision in the LLC agreement.  Section 34-143 provides an LLC agreement may “[e]liminate or limit the personal liability of a member or manager for monetary damages for breach of any duty provided for in section 34-141.”

Preventing Unwanted Business Partners

The Connecticut LLC Act allows members to keep out outsiders. An LLC agreement may prohibit members from assigning their membership interests. If the LLC agreement is silent on the issue, then the assignee may receive only the distributions to which the assignor would have been entitled, and a majority of the other members must consent to the assignee becoming a member.

Creditors Only Get Passive Rights, Not Control Rights

If a member grants a security interest, lien, or encumbrance in or against his or her membership interest, the Act does not deem it an assignment. If a judgment creditor of a member obtains a charging order against the member’s membership interest, “the judgment creditor has only the rights of an assignee.” This keeps creditors from taking over your LLC.

In addition, the Act states that unless an LLC agreement provides otherwise or all members give written consent, a person ceases to be a member of an LLC when the person makes an assignment for the benefit of creditors, files a voluntary petition in bankruptcy, is adjudicated insolvent or bankrupt, or fails to contest a petition seeking his or her reorganization, liquidation, dissolution, or similar relief. These events are considered “events of dissociation.” This also helps you protect your business from takeover by creditors of your business partners.

A Connecticut LLC must continuously maintain an agent for Service of Process in the state. A Commercial Registered Agent service may act as a Connecticut Registered Agent. This is advisable for small businesses, especially ones operated from a residence, because the Registered Agent needs to be available at all times.

An unusual aspect of the Connecticut LLC Act is its penalties for failing to obtain a Certificate of Registration for a foreign LLC. This is sometimes called “qualifying” a foreign LLC to do business in the state. A foreign LLC is an LLC that is formed under the laws of a state other than Connecticut.

In most states, a foreign LLC may defend itself in state court if it has not qualified to do business in the jurisdiction, but it may not be a plaintiff in state court until it has qualified. Many states also require a foreign LLC to pay the taxes and fees that it would have paid if it had qualified when it first started doing business in the jurisdiction. In addition to these two penalties, Connecticut charges a civil penalty of $300 per month that a foreign LLC did business in Connecticut without being qualified. Because an application for a Certificate of Registration costs only $120, foreign LLCs should qualify to do business in Connecticut if there is any doubt about their status of “doing business” in Connecticut.

Because of the advantages of forming an LLC in Connecticut, over 22,000 new LLCs are formed in the state each year. Should you wish to have more flexibility and protection, you may instead form a Delaware LLC even if you operate in Connecticut. What are the advantages of a Delaware LLC? (Delaware LLC Advantages). We can then help you file an application for registration to do business in Connecticut with your Delaware LLC (Form Delaware LLC).