Business Startups

State of Connecticut

Researching a Business Name

In order to avoid legal disputes regarding a protected business name, a new business owner should always check to make sure that the name is available for use. Check the Concord database online. http://www.concord.sots.ct.gov

Registering your business with the Secretary of State

Corporations and LLCs must file with the Connecticut Secretary of State. Some registrations with other agencies will not be processed until the structure has been formed.

Corporations and LLCs must file with the Connecticut Secretary of State. Some registrations with other agencies will not be processed until the structure has been formed. If you do not intend on filing the Articles of Organization or Certificate of Incorporation immediately, you may want to reserve the business name with the Connecticut Secretary of the State prior to filing an application on-line at www.sots.state.ct.us. It is important to know that SOTS does not allow more than one business to use the same name. In order to avoid legal disputes regarding a protected business name, a new business owner should check to make sure that the name is available for use.

Registering with the Connecticut Department of Revenue

Registration:
Any entity not currently registered with the Department of Revenue Services must register by completing Form REG-1, Business Taxes Registration Application. Businesses may register a new business by visiting www.CT.gov/drs. Choose Businesses and follow the instructions for ‘Starting a New Business’.

Business Entity Tax:
Beginning in 2002, certain entities are subject to the new Business Entity Tax. This tax applies to:

• S Corporations
• Limited Liability Companies, which are for federal income tax purposes either treated as a partnership, or disregarded as an entity separate from its owner (single member limited liability company 'SMLLC');
• Limited Liability Partnerships; and
• Limited Partnerships, where the entity is required to file an annual report with the Connecticut Secretary of State.

Currently, the Connecticut Entity Tax is $250 per business. The Entity Tax Return (Form OP-424) is due on or before April 15. Beginning April 1, 2004, businesses will be able to use Fast File to file the Business Entity Tax.

Internal Revenue Service

Generally, businesses wanting to open a business bank account or planning on hiring employees must obtain a federal tax identification number. You may file the Form SS-4, Application for Employer Identification Number on-line at www.irs.gov. Choose Business and follow the instructions under ‘Related Topics/Starting a Business’.

Know the Rules before Playing the Game:

Independent Contractor versus Employee

In some instances, a business owner may elect to hire an outside contractor to perform services instead of hiring an employee. Generally, the IRS holds that an employer-employee relationship exists when the person performing the services is under the ‘control’ of the person for which the services are being performed. Employers who misclassify employees as independent contractors run the risk of being liable for the employment taxes on wages paid to the misclassified worker subject to penalties and interest.

Behavioral Controls - Who provides the training or instruction for how the work is performed? Does the work require use of a company vehicle or other equipment? Does the worker bring their own supplies, instruments or vehicle to this job and others engagements?

Financial Controls - Does the worker have significant investment or the opportunity to make a profit? Do they have other contracts or outside work other than this contract? Do they make decisions on how to do the work or purchase the materials needed for the job?

Relationship of the Parties - Does the worker have the right to set their own schedule and hours. Are they eligible for employee benefits or have the right to terminate the relationship altogether? Is there a formal contractual obligation? Does the contractor carry their own insurance?

If you want to ask the IRS to make a determination of the hired help, you should file a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding with the IRS. It could save you the time and money in event of an IRS payroll tax audit.

Other Examples of Employment Tax Non-Compliance

Besides the misuse of employees as independent contractors, other business owners have found themselves in serious trouble for employment tax non-compliance. Here are just a few:

1. Pyramiding – a fraudulent practice where an owner withholds employment taxes but does not remit them to the IRS. This often happens when a business is low on operating funds and ‘borrows’ the government money thinking they can catch up relatively soon. The quarterly employment tax liabilities accumulate (or pyramid) until there is little hope of catching up.
   
   
2. Unreliable Third Party Payers – when independent tax preparers or payroll processing companies take over the administration of payroll and payroll taxes and fail to pay the IRS the collected employment taxes. When these employment service companies dissolve, millions in employment taxes can be left unpaid.
   
   
3. Frivolous Arguments – when owners use various excuses and arguments to keep from paying employment taxes.
   
   
4. Paying employees in Cash – Paying employees in cash is another way of evading income and employment taxes. Even though there is nothing wrong with compensating is cash, employment taxes are owed regardless of the way the employee was paid. In some cases, the IRS can build a case for the amount of wages by using other means even if there are no payroll records or checks.

In each of these cases, the IRS can hold employer participants responsible for back payments of employment taxes, plus penalties and interest and in some cases, liens can be imposed against the owner’s business and personal assets. During recent years, individuals have been sentenced to confinement in a federal prison, halfway house or home detention for criminal violations relating to employment taxes.