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    Small Business

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    Starting A Business

    Q. "What's my first step?"

    A. The first step is the most critical: educate yourself. You will need to know about everything from insurance and taxes to marketing and promotion. However, there is plenty of help readily available. Many groups offer free or low-cost counseling and workshops. They cover everything from writing a business plan to setting up accounting procedures and controlling cash flow.

    Q. "What form of business is right for me?"

    A. This is a complex question with far-reaching implications for both your business as well as your personal assets and liabilities. Basically, there are eight ways to set up a business: sole proprietorship, general partnership, limited partnership, limited liability partnership, limited liability company, and corporation - "S" corporation, "C" corporation, and non-profit corporation. The descriptions provided below are brief and provide general guidance, however, you should consult a qualified business counselor, attorney or accountant as to the best form for your business.

    Types Of Business Ownership

    • Sole Proprietorship: You assume all responsibility for your business. Your earnings are taxed as personal income. All assets and liabilities are yours. Creditors can make claims on both your business and personal assets.
    • General Partnership: Two or more people share business profits and liabilities by mutual agreement. Each partner's actions are binding
    • Limited Partnership: Limited partnerships are designed to attract investors. Limited partners invest capital, but do not take part in day-to-day operations. Their liability is limited to the amount of their investment. The general partner manages the business and has unlimited liability.
    • Limited Liability Partnership (LLP): Similar to a limited partnership, with the exception that the general partner does not have unlimited liability
    • Limited Liability Company (LLC): A form of business organization combining features of a corporation and a partnership. Like shareholders of a corporation and limited partners in a limited partnership, the owners of an LLC (called "members") are not personally liable for the LLC's debts; the members' losses are limited to the amount of their investment. Unlike limited partners, members of an LLC can take part in day-to-day operations. Like an "S" corporation and a limited partnership, an LLC does not have to pay federal income tax; its members pay taxes on their share of the income on their personal tax returns
    • Corporation: This is the most formal of all business organizations: a state-chartered legal entity. It is owned by shareholders, whose losses are limited to the amount of their investment. A corporation may own real property and can sue or be sued in the corporate name. Shareholders are not personally liable for the corporation's debts; the corporation's assets are protected from individual shareholders' debts. There are three types of corporations, "C", "S" and non-profit. The difference is in the way they are taxed:
      • A "C" corporation pays federal and state income taxes on earnings; when shareholders receive dividends, they are taxed again.
      • An "S" corporation does not have to pay federal income tax; its shareholders pay taxes on their share of the income on their personal tax returns. The "S" corporation therefore escapes the double taxation of a "C" corporation.
      • Tax filing status varies according to type of non-profit.There are many filing types and the type must be determined when filling out corporation papers.

     

    Q. "What registrations, licenses and permits does my business require?"

    A. Depending on the type of business, you may be required to file other state licenses, registrations, or permits in addition to those listed below. Contact Smart Start.
    All business types should contact the Town Clerk and Town Zoning Office for local regulations. Principles of a corporation and members of a limited liability company may be considered employees of the business.

    • General and limited partners are not considered employees of the business.
    • Members of a Limited Liability Company are not considered employees unless the business chooses to be taxed as a corporation (rather than a partnership) and the members are collecting a wage. At time of organization, the business has the option to be taxed as a partnership or as a corporation.
    • All principals of a corporation are considered employees if the principals collect wages.
    • If the business has employees:
      • Register with the Connecticut Department of Labor's Employment Security Division for Unemployment Compensation as well as register for the Unemployment Compensation Tax with the Department of Revenue Services.
        • Obtain a Federal Employer Identification Number (FEIN) - (the number serves as a tax ID number even if the business does not hire employees) from the Internal Revenue Service. Although a sole proprietor with no employees may simply use his or her social security number on tax returns, the IRS recommends the use of a FEIN when filing returns. If the business pays wages to one or more employees or files an Excise Tax Return the business needs to obtain a FEIN.
        • Register with the Social Security Administration to establish Social Security deductions.
        • By law each employee must complete the Employment Eligibility Verification Form 1-9 from Immigration and Naturalization Services (INS). Form should be kept in employee's file.

    Sole Proprietorship:

    • File a Trade Name Certificate with Town/City Clerk. Also check with the Zoning Office for local regulations.
    • Obtain a State Tax Registration Number from the Connecticut Department of Revenue Services. If the business is liable for collecting sales tax, the business must also obtain a Sales and Use Tax Certificate. Check to see if it will be liable for other state taxes as a business.

    General Partnership, Limited Partnership, Limited Liability Partnership:

    • Limited Partnership and Limited Liability Partnership should file an original Certificate of Partnership with the Connecticut Secretary of the State prior to registering with other state agencies. When filing with the Connecticut Secretary of the State's office, the business name must be unique, in that no other business can have the same name. If a business registers with other state agencies prior to getting name confirmation from the Secretary of the State's office, and later finds out that they are required to change their name, the business would be required to register and pay the fees again with the proper agencies.
    • Note: A General Partnership is not required to file with the Secretary of the State.
    • File a Trade Name Certificate with Town/City Clerk. Also check with the Zoning Office for local regulations. Limited Partnerships and Limited Liability Partnerships are not required to file a Trade Name Certificate with the Town/City Clerk, but it is recommended.
    • Obtain a State Tax Registration Number from the Connecticut Department of Revenue Services. If the business is liable for collecting sales tax, the business must also obtain a Sales and Use Tax Certificate. Check to see if it will be liable for other state taxes as a business.

    Limited Liability Company:

    • File with the Connecticut Secretary of the State. The business should register with the Secretary of the State prior to registering with other state agencies. When filing with the Connecticut Secretary of the State's office, the business name must be unique in that no other business can have the same name. If a business registers with other state agencies prior to getting name confirmation from the Secretary of the State's office, and later finds out that they are required to change their name, the business would be required to register and pay the fees again with the proper agencies.
    • Filing for Trade Name Certificate with the Town/City Clerk is not necessary, however, is recommended. Also check with the Zoning Office for local regulations.
    • Obtain a State Tax Registration Number from the Connecticut Department of Revenue Services. If the business is liable for collecting sales tax, the business must also obtain a Sales and Use Tax Certificate. Check to see if it will be liable for other state taxes as a business.

    Corporations (including non-profits):

    • File with the Connecticut Secretary of the State. Businesses should register with the Secretary of the State prior to registering with other state agencies. When filing with the Connecticut Secretary of the State's office, the business name must be unique in that no other business can have the same name. If a business registers with other state agencies prior to getting name confirmation from the Secretary of the State's office, and later finds out that they are required to change their name, the business would be required to register and pay the fees again with the proper agencies.
    • Filing for a Trade Name Certificate with the Town/City Clerk is not necessary, however, is recommended. Also check with the Zoning Office for local regulations.
    • Obtain a State Tax Registration Number from the Connecticut Department of Revenue Services. If the business is liable for collecting sales tax, the business must also obtain a Sales and Use Tax Certificate. Check to see if it will be liable for other state taxes as a business.

    Q. "How do I contact the key agencies for licensing, permitting and registration?"

    A. We know the licensing, registration, and permitting process can be daunting. Smart Start offers one-on-one assistance to simplify the registration process. Smart Start provides information as well as a Smart Start center whe're businesses, especially start-up and expanding businesses, can file registration, licensing and permitting forms with the appropriate state agencies at one central location and write one check to pay for all the registration fees (Though not all state agencies participate at this time, more agencies will be added as resources permit).

    Q. "What are the most common mistakes new business owners make?"

    A. First, they are undercapitalized. They do not have a firm grip on the financial realities of running a business. Second, they overlook important details. For example, they open for business without a State Tax Number. Be sure to refer to the checklist above. One final pitfall to avoid: many new entrepreneurs believe they can do everything themselves. You should depend on qualified advisors: an attorney, accountant, banker and business counselor. You also need to keep abreast of changing legislation that can affect your business. Call us at 1-800-392-2122 if you have any questions that you're having trouble finding answers to.

    Q. "Do I need a written business plan?"

    A. Yes. Financing sources won't take you seriously without one. For a start-up business, it is crucial. A written plan demonstrates that you have carefully defined your market, studied your competition and understand your financial obligations for at least your first three years in business. http://www.youbelonginct.com/user- sample business plan

    Q. "What about financing?"

    A. Financing comes from many sources: first your personal funds; next, through conventional lenders; and then through the loan programs of the U.S. Small Business Administration (SBA) or the State. SBA and state loan programs are designed to fill gaps - not provide primary financing. A typical business loan is for $25,000 or more. If you are starting a high-tech business and plan to do research and development, the Federal Small Business Innovation Research (SBIR) grant program may be worth considering. Please remember:
    State and Federal loan programs are not entitlements. They are public funds, made possible through taxpayer dollars. Your application will be carefully scrutinized. Only the most well thought out plans will qualify for funding.
    For a start-up business (open less than two years), start-up financing is hard to get. First, you must tap personal funds (i.e. savings or a home equity loan). lenders want to see this as a measure of your commitment before they'll consider financing. Plan to provide at least 30% of the money you'll need. Do not be surprised if you're asked for personal financial statements or guarantees.
    For an established business, in addition to your personal financial commitment, you must show a current business plan, personal and business financial statements, and three years of personal and business tax returns.

    Q. "What kinds of insurance will I need?"

    A. Work with an insurance professional. Consider:

    • Workers' Compensation
    • Business Liability Coverage
    • Auto Liability
    • Equipment/Contents Coverage
    • Loss of Income/Business Interruption
    • Life Insurance
    • Health Insurance
    • Disability
    • Key Person Insurance
    • Q. "What professional services will I need?"

      A. An accountant, attorney and business advisor are essential

    • Accounting Service
      A CPA can help your business with a multitude of services from compliance work such as accounting and taxes, to management advisory services and even personal financial planning. Contact the Connecticut Society of Certified Public Accountants (CSCPA) CPA Referral Service at 800-232-2232.(CMS).

     

     

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