Start an S Corporation in Connecticut

Forming an S corporation in Connecticut is about far more than making a declaration to the Internal Revenue Service (IRS). Small business owners are making a vital choice about the type of business entity they’ll create. Here we explain everything you need to know about S corporations.

S Corporation in Connecticut: Key Points

• An S corporation is a tax classification that enables income and losses to flow through to individual shareholders, avoiding double taxation.

• S corps in Connecticut must adhere to both federal IRS criteria and specific state-imposed requirements.

• Business owners can streamline the S corp formation process and save time by utilizing a third-party business formation service.

What Is an S Corporation?

The IRS defines an S corporation (S corp) as any business entity that chooses to pass all of its corporate gains, losses, credits, distributions, and deductions to its shareholders.[1] In doing so, the business owners avoid paying corporation business tax on these earnings. Instead, tax is paid via each shareholder’s personal tax returns.

As such, an S corp isn’t a business structure or entity, as many claim it to be. Instead, it’s a tax classification that enables flow-through income and losses assessed on individual tax rates.

This structure makes S corps similar to limited liability companies (LLCs). Both are pass-through models, though an LLC offers more freedom in exchange for less liability protection than an S corp.

An S corp setup is also similar to a C corporation (C corp), at least in business governance. Both need to have boards of directors and a formal corporate structure. However, a C corp setup requires the business to pay tax on earnings in addition to individuals paying tax. This double taxation structure is what most business owners wish to avoid when they opt for S corp status.

Tax Considerations for an S Corporation in Connecticut

Given that S corp status is a tax classification, you must know more about the tax treatment such a structure receives, both from the IRS and the state of Connecticut.

Connecticut Tax Treatment of S Corporations

Like most states, Connecticut treats S corps as pass-through tax entities. As mentioned, this means the company's income passes through to the shareholders, who declare that income on their income tax return.

In some cases, a shareholder of an S corp may also have to pay self-employment tax on their earnings. This is often the case for sole proprietorships and single-member LLCs that adopt the S corp tax structure.

Connecticut Franchise Tax for S Corporations

The state of Connecticut collects a franchise tax from the creators of any corporations formed under the state’s laws. This tax goes directly to the Connecticut Secretary of State.[2]

In addition, the Secretary of State collects a further franchise tax whenever a corporation increases the number of shares of capital stock it makes available.

Pass-Through Taxation

As mentioned, Connecticut treats S corps as pass-through taxation entities. Ultimately, this means an S corp doesn’t pay corporation tax on its income. Instead, the money passes through to the corporation’s shareholders, who pay income tax at the appropriate rate.

Assuming you’re one of those shareholders, you’ll pay federal income tax alongside any state or local taxes that apply to your income. According to Tax Foundation, Connecticut has a graded personal income tax rate, ranging from 3% to 6.99%.[3]

Requirements for Forming an S Corporation in Connecticut

Achieving S corp status requires your Connecticut business to meet strict criteria.[1] The IRS oversees the majority of these criteria, with the following being vital:

• Be a domestic limited liability company or corporation

• Have individuals, estates, and certain types of trusts as your shareholders

• Offer a single class of stock

• Not be an ineligible corporation, including certain types of insurance companies,  financial institutions, or domestic international sales corporations

Connecticut laws regarding S corporation shareholders differ from federal laws. According to the IRS, an S corp can have no more than 100 shareholders. But in Connecticut, this number drops to 75.[4]

Connecticut also views S corporations as individual legal entities separate from the S corporation shareholders. This view is good for those who want to maximize personal liability protection via their business and tax structures.

Finally, Connecticut has its own rules you must follow before you can create a C corp:

• Every shareholder must agree to the formation of the S corp for the vote to be valid

• Every stockholder and board of directors meeting must have detailed meeting and documentation notes

• Your S corp status remains effective permanently after election

Filing as an S Corp in Connecticut

Let’s assume you’re interested in creating an S corporation in Connecticut. The best way to do this is to form an appropriate Connecticut corporation or LLC before applying for S corp status. Swyft Filings’ six-step process guides you through the necessary actions.

Step 1: Choose a Business Name

Before starting a company, you must choose an appropriate business name. Crucially, this name can’t be in use by any other Connecticut-based company. Choosing a name already in use may lead to the rejection of your formation documents and trademark issues with the company in question.

Thankfully, you can find out if your name is available with our free business name search. 

The state also allows you to choose a “Doing Business As” (DBA) name for your company. A DBA is an alternative name you may use if your official business name isn’t marketable.

In Connecticut, a DBA is called a trade name. Instead of filing for this name with the Secretary of State, you file a Trade Name Certificate with the town clerk where you conduct business.[5]

Once you’ve thought of a good name for your S corporation in Connecticut, follow these steps:

1. Check the business name search database to ensure the name, and any trade names, aren’t already taken

2. Complete the name reservation process to claim the name for 120 days[6]

3. Upon completing your Articles or Organization or Articles of Incorporation, trademark the name so you can contest illegitimate uses in court

Step 2: Appoint Directors and a Registered Agent

All corporations formed in Connecticut must have at least one director. The state’s laws declare that S corp directors can be S corporation shareholders with a physical address in the state. A P.O. box doesn’t count as a physical address.

Beyond this, the state has no age requirements for directorship. It also doesn’t require you to name your directors in your Certificate of Incorporation.

However, you must also elect a Connecticut registered agent for your business. This agent has several responsibilities:

• Receiving legal documents, such as service of process, on your S corp’s behalf

• Maintaining a physical street address that serves as the agent’s registered office

• Keeping normal business hours to ensure they’re available to receive documents

• Ensuring important documents reach you in a timely manner

The following can serve as your registered agent:[7]

• Any Connecticut resident aged 18 or over

• Business entities with Connecticut addresses registered with the Secretary of State

• Yourself, assuming you live in Connecticut

• The Secretary of State, if you form a foreign business entity

The idea of serving as your own registered agent is attractive, especially given that you can save money. But there are several downsides. For example, you may receive sensitive documents at inopportune moments. Plus, you have to dedicate time and resources to the role.

These downsides lead to many S corps using a third-party registered agent service. Swyft Filings can serve as your registered agent in Connecticut. We offer expertise and access to your own online dashboard, which you can use to access all essential documents whenever you need them. 

Step 3: File Articles of Organization

With a registered agent selected and your business name reserved, you can move on to forming your business. This process differs depending on whether you form an LLC or a corporation.

For an LLC, you must complete and file a Certificate of Organization either online or physically.[8] You can complete the form online or mail your Certificate of Organization to the following address:

Business Service Division, Connecticut Secretary of the State

P.O. Box 150470

Hartford, CT 06115

The state of Connecticut charges a $120 filing fee for a Certificate of Organization.

For a corporation, you must complete the Certificate of Incorporation form. Again, you can do this online or via mail, with the form going to the same address as a Certificate of Organization. The state charges a filing fee of $250, which includes franchise tax up to 20,000 shares.[9]

Connecticut law requires you to file an annual report for S corps. This report ensures you stay in good standing with the state by providing updated information about your business. It costs $80 to file the report, which you can do for the CT.gov website.[10]

Step 4: Create an S Corp Operating Agreement

You may consider drafting an operating agreement if you've created an LLC. The state of Connecticut doesn’t have any legal requirements for whether you should create this document, but it’s beneficial to do so for the following reasons.

An operating agreement is a document created by business owners that establishes company rules. In many cases, you’ll use an operating agreement to define the company’s bylaws and document ownership percentages, roles, and responsibilities for each LLC member.

It’s a good idea to create this operating agreement for several reasons:

• Ensures the state doesn’t use its default rules when handling issues related to your S corp

• Serves as a vital reference document when internal conflicts arise

• Solidifies the personal liability protection you receive via the LLC business structure

• Prevents any claims of an oral agreement because you have a physical document to which you can refer

Step 5: Apply for an Employer Identification Number

An Employer Identification Number (EIN) is a unique nine-digit code assigned to your business. It’s similar to your Social Security Number, with the IRS using your EIN to help determine what employment taxes you need to pay.

Your company only legally requires an EIN if it has employees. As such, you may not need to apply for one if you have a sole proprietorship or a single-member LLC. However, it’s still a good idea to get an EIN, even in these cases, for the following reasons:

• Lends an air of legitimacy to your business

• Is required open a business banking account at most banks

• Makes it easier for the IRS to examine your business and income tax returns

We can obtain your EIN for you, or you can apply for an EIN online through the IRS website.[11]

Step 6: File Form 2553 for S Corporation Election

Though the previous five steps help you to form your business, you still haven’t applied for S corp status. To do that, you must complete and file Form 2553 and submit it to the IRS.[12]

You can complete this form online via the IRS website or mail it to the following address:

Department of the Treasury

Internal Revenue Service

Kansas City, MO 64999

The form asks for general details about your business and information about each of its shareholders. You must name the shareholders, get their consent, and define how much stock they own.

Ideally, you’ll file Form 2553 in the tax year before the year you intend your business to become an S corp. However, you can file up to two months and 15 days into the current tax year, giving you some leeway when filing.

If you have an LLC business entity that you wish to classify as an S corp, and you’re past the deadline for filing, you can still file with Form 8832. Submit this form alongside Form 2553 to ask for your LLC to get taxed as a corporation.[13]

Connecticut S Corp vs. Connecticut LLC

As you read through this article, you may wonder why it’s a good idea to transform your Connecticut LLC into an S corp. Of course, S corp status offers several benefits regarding tax treatment over C corp status. But are there reasons to do it when you have a limited liability company?

These are the pros and cons of maintaining an LLC and switching to an S corp tax structure.

Advantages of Starting an LLC in Connecticut

• Access flow-through taxation benefits

• Gain more flexibility in terms of how you arrange your leadership

• Get limited liability protection, meaning creditors generally can’t claim personal assets for business-related debts

Disadvantages of Starting an LLC in Connecticut

• Limitations in liability protection mean a judge can rule that your LLC doesn’t protect your personal assets

• Dissolution is likely if a member leaves your LLC

Advantages of Forming an S Corporation in Connecticut

• Get more liability protection than you do with an LLC

• Lower self-employment taxes because you can elect to only pay Medicare and Social Security on the income you draw from the business

• Gain a defined corporate structure

• Avoid double taxation, as the business isn’t taxed on the federal level

• Transfer ownership easily and avoid dissolution if a shareholder leaves

Disadvantages of Forming an S Corporation in Connecticut

• Less freedom in your leadership structure

• More oversight due to being a corporation

• More restrictions on stock ownership, particularly in terms of how many stockholders your S corp can have

Ready to File for S Corp Status in Connecticut?

Now that you understand how to create an S corp, it’s time to get to work. You can use the steps in this article to complete the process yourself, though doing so is time-consuming. If you want to ensure everything goes smoothly, Swyft Filings is here to help.

We can help you to create your LLC, including finding the right name and ensuring you submit the appropriate Certificate of Formation for your business. From there, we’ll work with you to help you achieve S corp status. Our service is fast, accurate, and personalized, which is why more than 300,000 business owners have trusted us with their filing needs since 2015.

Use our S corp filing service today, and we’ll show you how to transform your small business into an S corporation in Connecticut.

Frequently Asked Questions

What is an S corporation in Connecticut?

An S corporation in Connecticut is a pass-through tax entity that allows you to avoid double taxation.

Does Connecticut recognize S corporations?

Connecticut recognizes S corps if you follow the state’s rules for forming this tax entity.

What is the turnaround time for filing for S corp status with the IRS?

The IRS will notify you within 60 days of filing with your application’s status.

What is the difference between an S corp and an LLC?

The main difference between an S corp and LLC is leadership structure.

What are the requirements for an S corporation in Connecticut?

S corps in Connecticut can have no more than 75 shareholders and must meet the IRS’s rules for S corp formation.

Are taxes for LLCs and S corps the same?

Taxes can vary depending on your business structure. S corps also have to pay a franchise tax to the state of Connecticut.

What is the S corp tax rate?

The S corp Tax rate matches your individual personal tax rate, including state and local income taxes.

How do I dissolve an S corporation in Connecticut?

You must file a Certificate of Dissolution with the state to dissolve an S corporation.[14]

Bibliography

1. Internal Revenue Service. “S corporations.” Accessed March 7, 2023.

2. Connecticut Department of Revenue Services. “IP 2010(20) Business Taxes.” Accessed March 7 2023.

3. Tax Foundation. “Taxes in Connecticut.” Accessed March 7, 2023.

4. Connecticut State Department of Revenue Services. “SN 99(3), Effect of Federal Tax Law Changes on the Taxation of Limited Liability Companies and S corporations and Their Shareholders.” Accessed March 7, 2023.

5. CT.gov Business. “Trade Names, or ‘Doing Business As’”. Accessed March 7, 2023.

6. CT.gov Business. “Purpose of Reserving a Business Name.” Accessed March 7, 2023.

7. CT.gov Office of the Secretary of State. “Frequently Asked Questions (FAQ), Business Entities.” Accessed March 7, 2023.

8. Secretary of State of Connecticut. “Certificate or Organization.” Accessed March 7, 2023.

9. Secretary of State of Connecticut. “Certificate of Incorporation.” Accessed March 7, 2023.

10. CT.gov Business. “File Annual Report.” Accessed March 7, 2023.

11. Internal Revenue Service. “How to Apply for an EIN.” Accessed March 7, 2003.

12. Internal Revenue Service. “Form 2553, Election by a Small Business corporation.” Accessed March 7, 2003.

13. Internal Revenue Service. “About Form 8832, Entity Classification Election.” Accessed March 7, 2023.

14. CT.gov Business. “Business Dissolution (Closing a Business.” Accessed March 7, 2023.