Tue 13 Oct 2015 | By:

Pros and Cons to Forming a Connecticut Corporation

Pros and Cons to Forming a Corporation

Starting a business in Connecticut is a more prestigious approach to building your business. It can also provide you with the protection you need: personal, legal and financial. Many of the most successful businesses in the world, including Walmart, Microsoft, and Apple, are corporations.

While the entrepreneurs behind them have propelled these businesses to success, it can’t be denied that there are certain benefits of corporations that other business structures can’t provide.

Incorporating your Connecticut startup is a good move, as corporations have substantial advantages over other structures.  However, corporations do not fit every business. Before you decide to go through the process of forming a corporation, consider the pros and cons first.

What exactly are the advantages and disadvantages of creating a Connecticut Corporation? Keep reading!


Pros of a Connecticut Corporation

1) Limited Personal Liability

This is the greatest advantage of forming a corporation. When you incorporate your business under corporation, you create an independent entity.  That means that your business will be treated as a person, with its own rights, transactions and dealings. Anything related to your business is not related to you.  You and your business are no longer one.

Therefore, any business debts, wrong actions and legal liabilities will not be your responsibility.  If problems arise, you won’t be held accountable. Your personal assets will also be fully protected by Connecticut law.

2) Lower State Taxes

Compared to individuals or other business structures, a Connecticut Corporation pays much lower state taxes.  Since it is considered a separate legal entity, your Connecticut small business automatically becomes a taxpayer apart from its owner.

Your business will have its own taxpayer identification number.   It will pay taxes, including: corporate income tax, withholding tax, business tax, and others.  Likewise, business owners will also have to pay their own taxes from their compensation or profit.

3) Perpetual Existence

Perpetual Existence ensures the continuation of your business in the event that an unfavorable and/or unexpected situations occurs. It’s easy for a business to fail when it is shaken by circumstances that affects its business operations, however, if you form a corporation, you will be able to fully establish Perpetual Existence.

How does it work? It is through the power of succession. For example, if one owner dies, his or her share of ownership can easily be transferred to another owner. This ensures that your business will continuously conduct business by avoiding the dissolvement, which leads us to the next advantage.

4) Ownership Is Freely Transferable

Again, since your Connecticut startup is a separate entity, ownership is transferable. Your business does not simply exist indefinitely.  You can transfer your shares or stocks whenever you feel like it, or, sell them to investors and other interested parties.

5) Attracts More Investors

If you’re looking for financing, incorporating your startup as a corporation is your best option.  It is attractive to investors due to its stock structure, perpetual existence, easy transfer of ownership and limited liability.

Having a corporation will earn the trust of investors more readily, as they’ll feel safer investing in your venture.  In addition, your employees and customers will also have the confidence to continue working with you.

These are just some of the advantages of forming a Connecticut Corporation. If you want to make sure that your business is fit to be incorporated as a Corporation, you can consult with an attorney or (if you want to save money) use a business entity comparison chart.


Cons of a Connecticut Corporation

1) Costly

In addition to a number of fees and government charges you must pay, the entire process of forming a corporation is a bit complicated. You may be required to hire professional help, such as an attorney or accountant.

Corporations also have higher amounts of initial capital. Subscribed capital is also charged with documentary stamp tax, which has an associated cost.

2) Double Taxation

Once you form a corporation, your business will be automatically be taxed based upon its income.  When you divide this among your co-owners through dividends, this may result in double taxation.

This is because the dividend income received by you and other business owners are taxed for personal income tax returns.

3) Highly Regulated

Corporations are subject to strict government regulations. They are governed by different agencies in the state. Numerous compliance requirements also need to be obtained so your business can continue its operations.

The more compliance requirements you complete and the more paperwork you process, the more this process will cost.  Additionally, you will also have to pay more expensive penalties if you fail to comply.

4) Difficult to Dissolve

Corporations are not only hard to form, they are also as difficult to dissolve.  All aspects of a corporation are strictly regulated: the formation, operation and even dissolution. To avoid prejudice on the part of the creditor, the liquidation process of a corporation is also regulated.

5) Too Many Corporate Formalities

Establishing your corporation as a separate entity doesn’t come easy.  Just because you’ve completed the incorporation process does not mean your business is automatically considered an independent entity. You have to work hard to establish that; following and observing corporate formalities is a must.

Some corporate formalities include: board of director regular meetings, record keeping of business activities, annual shareholder meetings, employee conferences and more.

Before you learn how to start a Corporation in Connecticut, you have to first decide whether the business structure is suitable for you or not. If you feel like you can handle the disadvantages well, then go ahead and form a Connecticut Corporation.

Most importantly, you’ve decided to incorporate your business in the state of Connecticut. You’re one step ahead of the competition because you choose to legally go through the process of starting a Connecticut small business.

Please be aware that this is not legal advice – it is solely an informational guide. For details on how to form a Corporation in Connecticut or starting a business in Connecticut, a lawyer has the best answers for you.

About Ryan James

Half hardworking hermit, half avid adventurer, Ryan founded Startup Savant to simplify entrepreneurship and pay it forward by donating a portion of all revenue to support children's education via DonorsChoose.org.