How to start a sole proprietorship in Connecticut?

Sole Proprietorship in Connecticut

There are over 360,000 small businesses in the state of Connecticut, and many of them are sole proprietors. When you search for a sole proprietorship in Connecticut, you will be surprised to find that this type of business structure has permeated a wide variety of industries and specializations. Some of the most common specializations in sole proprietorships include Accountants, Professional photographers, Caterers, Cafe’s and Bakeries, Restaurants, Retail Stores, Consultants in any area, like legal or IT, Web and Graphic designers, and coding professionals, among others.

What is a sole proprietorship in Connecticut?

You can start a sole proprietorship in Connecticut in just about any industry, right from tourism to information technology, logistics & distribution, financial services, and green energy, among others. There are certain elements that play a key role in the growth and development of a sole proprietorship in this state, such as a robust startup ecosystem, the availability of grants and other funding, and low business costs, among others. The important question here is how to start a sole proprietorship in Connecticut. The business owners of this type of structure are known as sole proprietors or sole traders. This is because it is run by an individual, who will be responsible for all profits, liabilities, business assets, operations, finance, and marketing. This type of business is not required to be registered with the Connecticut Secretary of State and hence can be quickly formed.

Important features of sole proprietorship in Connecticut

When you search for sole proprietorship in Connecticut, you will find that this simple type of entity structure also has several advantages and promising characteristics. Some of the top key features are:

• The most important feature of a sole proprietorship is complete autonomy. You will be the decision-making authority for choosing a growth plan, allocating profits, targeting markets and customer segments, and even expanding the business.
• A sole proprietorship in Connecticut will have a different tax structure. Compared to other entities, such as an LLC or a Corporation, the tax liabilities of this structure will be lower.
• One of the remarkable features of a sole tradership is simplicity in establishing and closing. Most entities require long processes and a wide variety of documentation for registration, as well as dissolving or closure. A sole proprietorship doesn’t require such processes or documentation.
• Secrecy and confidentiality are other top characteristics of any sole proprietorship. This type of business is not required to disclose business information and financial accounts publicly.

Steps to Start a Sole Proprietorship in Connecticut

You will be confronted with the question of how to start a sole proprietorship in Connecticut and deliberate about the operational requirements. Although this type of entity is easy to form, there are certain state as well as business requirements that you need to fulfill to ensure overall smooth operations. Let’s look at some of the important areas to focus on.

1. Prepare a business plan

Once you have made a decision to form and operate a sole proprietorship in Connecticut, the first step will be to create a clear roadmap. This is known as a business plan or a business blueprint. It will help you in analyzing the potential markets, demographics, customer needs, buying behavior, and competition, among others. It will also encompass a brief overview of the business idea, objectives, and key strategies. A well-thought-out plan will help in clarifying the business model, enable good decision-making, and provide a framework for securing financial aid. Some of the most common aspects of a sole proprietorship business plan are:

• Executive Summary
• Business Idea
• Company Description
• Market analysis
• SWOT analysis
• Analyzing Competition
• Operational Plan
• Marketing and Sales Strategy
• Key performance indicators (KPIs)
• Financial Projections
• Future Expansion

2. Choose a Connecticut business name

The steps towards starting a sole proprietorship in Connecticut start with identifying a proper business name. There are certain rules and guidelines to be followed when naming your sole proprietorship. Your chosen name should be compliant with the 2024 Connecticut General Statutes. It is worth noting that a sole proprietorship can use the owner’s name as its own name. You need to consider several other factors when choosing a name, such as your products, services, and target audience. So, if you were to choose a name like Carla’s Baked Goods, your target audience would have a fair idea of the products you offer.

It is also important to conduct a name availability search for a sole proprietorship in Connecticut. Here are some easy tips that you can follow while choosing a company name:

• Follow Connecticut state’s naming guidelines, especially focusing on the permitted names section pursuant to CT Gen Stat § 34-243k. (2024)
• The name of a sole proprietorship should be similar to that of any other company or competitor
• Try to avoid company names that are hard to pronounce or spell
• When choosing a name, you may consider the products or services being offered
• Try to ensure that the chosen name can still be used when the business evolves in the future
• Search for a sole proprietorship in Connecticut for availability as a domain name for your website
• You can use AI-Powered business name generators like Wix, BrandCrowd, Namelix, Renderforest, etc., for creating a business name

3. File a trade name

A trade name is also known as a fictitious name or a DBA (Doing Business As) name. A sole proprietorship in Connecticut can be transacted using a trade name. This type of business name can be registered by an individual, a group of individuals, or even a legal business entity like a corporation or an LLC. If you want to operate a sole proprietorship and wish to conduct your business under any name, which is different from your or the owner’s name, then such a company will be required to file a Connecticut trade name. The trade name registration documentation has to be filed with the office of the local town clerk from where your company is primarily transacting. There are certain aspects to consider while choosing a trade name and name registration. Let’s look at some of them:

• You will need to follow trade name or fictitious name rules and regulations as governed by the 2024 Connecticut General Statutes, Title 35 – Trade Regulations, Trademarks and Collective and Certification Marks, Chapter 620 – Trade Names
• Once you have chosen a DBA name, it is important to conduct a trade name search, also known as a business entity search. This will reveal whether your chosen name is available or not.
• If your chosen name is available, then you will need to file the State of Connecticut, Trade Name Application for (Natural Persons) to register this name.
• The fee to file a Connecticut trade name is $20 and has to be deposited with the office of the town clerk pursuant to C.G.S. § 7-34

Let’s look at an example to understand how this works.

Example: Your name is Sofia Lucibello, and you want to start a sole proprietorship in Connecticut as an Italian Pastry Shop in Milford, CT. You can use your own name, like ‘Sofia Lucibello Italian Pastry Shop.’ Alternatively, you can choose to use a trade name like “Lucibello’s Italian Pastry Shop”. Now, if you conduct a DBA name search in Connecticut, then the results show that such a business already exists in New Haven, CT. You can modify the same name and make it ‘Sofia’s Italian Pastry Shop’. If you conduct the search again, then it reveals that this name is available. You can now go ahead and file a Connecticut trade name using the Certificate of Trade Name application. You have to file it with the Town Clerk, and the fee is $10.

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4. Get EIN

As per the Internal Revenue Service (IRS), most legal and profit-making entities are required to obtain an Employer Identification Number (EIN). This helps ensure their taxes are properly documented. However, there is an exception for sole proprietorship businesses. The IRS has not made it mandatory for this type of entity to obtain an EIN. As a sole proprietor, you can file your taxes using your Social Security Number (SSN). Of course, there are certain conditions under which a sole proprietorship in Connecticut will be required to apply for an EIN, and they are:

• When a sole proprietorship company hires employees
• The company plans to open a business bank account
• If you have a Keogh plan
• You have to file excise tax returns
• When you convert or change the entity structure from a sole proprietorship to a partnership or LLC
• If you file Chapter 7 (liquidation) or Chapter 11 (reorganization) bankruptcy

You will be required to fill out and file Form SS-4 with the Internal Revenue Service (IRS) to obtain an EIN.

5. Obtain necessary licenses and permits

Once you start a sole proprietorship in Connecticut, you will not be able to start transacting without getting proper licenses and permits. A business license is considered a legal document, granting permission to any entity to conduct operations within a specific industry or jurisdiction. Every business formed in the state of Connecticut needs to apply for some form of license or permit. Obtaining a license or permit also demonstrates that you are in compliance with all state and local laws and regulations. You can search for a sole proprietorship in Connecticut for the different licenses your company may require. Business licenses in this state are categorized as follows:

• Professional or Occupational licenses
• Sales Tax Permits
• Industrial or Regulated licenses
• County or Local Licenses
• Home Occupation Permit (HOP)
• Local Zoning Permits

Identifying the right type of license or permit for your sole proprietorship company in Connecticut can be a challenging task. We at IncParadise have made this process easier by offering our Business License Research Report service. This is a detailed research report that contains a list of filing instructions, supporting document requirements, and fees for all Connecticut business licenses and permits.

6. Open a bank account for your Connecticut business

When you start a sole proprietorship in Connecticut, one of the most important areas to focus on is finances. Generally speaking, sole proprietors prefer using their personal savings account for business transactions. Although it seems easy, it can create complex tax situations in the future. It is always recommended to have a separate business bank account for managing company-related transactions. This bank account will be used for everything from recording business profits and losses to making payments to the state for business-related processes. Whether you apply for a state grant or file a Connecticut trade name, the incoming or outgoing transaction will take place using this account. This type of bank account increases credibility and helps build fiscal discipline.

Alternatively, you can open a business account online with Cheqly. This is a USA bank account that offers several benefits, including access to banking from anywhere in the world. It has a strong and user-friendly onboarding interface. This is a Neobank for sole proprietorships where you can enjoy no minimum balance and basic FDIC insurance.

7. Report and pay taxes

The tax requirements in Connecticut always vary according to the entity structure chosen. If you form a sole proprietorship in Connecticut, then the taxes for this type of business will be different from those of an LLC, corporation, or partnership. Since it is owned and operated by one individual or a sole proprietor, they will have to report any income earned by filing their individual income tax return. Sole proprietors are business owners and not employees; hence, there may be a requirement for estimated income tax payments. As a sole proprietor, you will be required to file Form CT-1040 (Connecticut Resident Income Tax Return) or Form CT-1040NR/PY (Connecticut Nonresident and Part-Year Resident Income Tax Return). Apart from this, you may be required to file sales and use tax depending on the business activity. You may have to search for sole proprietorship in Connecticut for any local or municipal taxes.

Ready to Start a Sole Proprietorship Business in Connecticut

Starting a sole proprietorship in Connecticut is quite easy, although the consequent processes can be complex and time-consuming. You have to basically create a business from scratch and file a Connecticut trade name, followed by obtaining licenses and filing taxes, among others. It is important to be compliant with all business laws and regulations, as it helps any company to enjoy a good standing with the state.

IncParadise, one of the top registered agents in the state of Connecticut and can provide guidance and information to help you form a sole proprietorship in this state. We also offer a wide variety of additional services like filing a DBA, opening a bank account, and getting an EIN, among others.