In Connecticut, you can establish a sole proprietorship without filing any legal documents with the Connecticut Secretary of State. There are four simple steps you should take:
- Choose a business name.
- File a trade name with the town clerk (mandatory).
- Obtain licenses, permits, and zoning clearance.
- Obtain an Employer Identification Number from the IRS.
1. Choose a Business Name
In Connecticut, a sole proprietor may use his or her own given name or may use an assumed name. It is always a good idea to choose a name that is not too similar to another registered business because of common and federal law trademark protections. To make sure your business name is available, run a search in the following government databases:
- Connecticut Secretary of State (Search under registered name)
- U.S. Patent & Trademark Office: (Click on the TESS link under Tools.)
- The town clerk’s office where you plan to do business.
2. File a Trade Name
If you use a business name that is different from your legal name, Connecticut requires you to register the trade name. Business owners can file an application to register their trade name with the town clerk in the town or city where they do business. Registration applications must be notarized. It is also important to make your business name distinguishable from other registered business names. The filing fee is $5. Visit the State of Connecticut website for links to the various towns and cities where you can get more specific information from your town clerk.
3. Obtain Licenses, Permits, and Zoning Clearance
Your business may need to obtain a variety of licenses and permits depending on its business activities. Connecticut provides a comprehensive database of every license and permit that may be required by any sole proprietorship. A business can obtain this information by going to the Connecticut Online Licensing Information Center. In addition, local regulations, including building permits and zoning clearances, may apply to your business. You should check with your town clerk for more information.
4. Obtain an Employer Identification Number
Sole proprietors who wish to have employees need to obtain an Employer Identification Number, or EIN. This is a nine digit number issued by the IRS for tax reporting purposes. All businesses with employees are required to report wages to the IRS using their EIN. Registering for an EIN can be done online at the IRS website.
Sole proprietors without employees are not required to have an EIN because they can use their Social Security number to report taxes. Nevertheless, you may want to obtain one anyway for your business. Some banks require one to open a bank account and it can reduce the risk of identity theft.
In Connecticut, businesses that hire employees must register with the Connecticut Department of Labor for unemployment insurance tax. You will need to use your EIN when registering with the Department of Labor. For more information and to register, see the Connecticut Department of Labor UC-1A form.
It is important to consider doing the following once you have established your sole proprietorship:
- Open a business bank account. Using your fictitious business name and EIN, you should set up a bank account to keep your business and personal finances separate.
- Obtain general liability insurance. Because sole proprietors are personally liable for all debts and obligations of the business, a business liability insurance policy may be the only form of financial protection against unforeseen events.
- Report and pay taxes. Depending on your specific business activities, you may be required to report such items as sales tax and use tax. The Connecticut Department of Revenue publishes comprehensive information addressing Connecticut taxes for business. For detailed tax information for Connecticut businesses, you can review the brochure Getting Started in Business.