A sole proprietorship is the simplest form of business entity. However, an individual doing business in this manner personally assumes all liability for the business operation. Typically, the individual will be taxed at the individual's rate. A tradename must be filed with the local Town Clerk's office if the individual's real name is not being used and both the filing and use of the tradename are regulated by Connecticut law.

In Connecticut, there are various forms of partnerships allowed. These are the general partnership, limited partnership and limited liability partnership. (1) A general partnership is defined by Connecticut statutes as as association of two or more persons to carry on a business as co-owners for profit. No formal written agreement is required. Merely the fact of the association creates the entity. However, the rights of partners can be changed by agreement, in the absence of which the provisions of Connecticut statutes set forth many of the respective rights and obligations of the partners. Partnerships may need to file a tradename certificate with the proper Town Clerk's Office and as of July 1, 1997 may register with the Secretary of State of Connecticut. According to Connecticut statutes, unless otherwise specified, all partners are general partners and general partners control equally. In general, the action of one partner binds all partners. Also, unless otherwise specified general partners share all profits and are taxed at each partner's individual rate. Also general partners typically share all liabilities jointly and severally. Unless otherwise specified, a partnership dissolves upon the death, withdrawal or removal of a partner. (2) A limited partnership is defined as a partnership formed by two or more persons under the laws of a state and having one or more general partners and one or more limited partners. In Connecticut, a limited partnership must have at least one general partner who has unlimited liability. This general partner can be a corporation or other type of legal entity. Limited partners have limited control and limited liability. Limited partners do not participate in the running of the business but can elect a new general partner. A limited partner is liable only to the extent of his or her own capital contribution. However, if a limited partner begins to act like a general partner, the limited partner will be exposed to unlimited liability. Also, the limited partnership agreement specifies the length of its existence. (3) A limited liability partnership is primarily designed for professional practices for attorneys and/or accountants. The limited liability partnership is liable for contractual obligations and for the acts of its partners, agents, and/or employees. The assets of the entity are exposed to liability. A partner in the limited liability partnership is personally liable for his own negligent acts or wrongful conduct and for the negligent acts or misconduct of a person under his direct supervision and control. A partner is not directly or indirectly liable for the negligent acts or wrongful conduct of another partner, employee, agent or representative of the partnership committed in the course of the partnership business. Effective July 1, 1996, partners are not personally liable for the debts of the partnership under contract theories. As this is a new form of entity in Connecticut, there are certain areas of potential liability which have yet to be clearly defined by the courts. Also, limited liability partnerships are required to continuously maintain professional liability insurance in an amount of at least $250,000.00. One primary consideration in forming this entity is to provide protection from vicarious malpractice liability. For tax purposes, this entity is treated as a general partnership. To form a limited liability partnership, there must be at least two members. Also, the entity must file a Certificate of Limited Liability Partnership with the Connecticut Secretary of State containing the required information. Existing general partnerships may register to become a limited liability partnership, but will not obtain retroactive protection thereby.

In Connecticut, there are two basic forms of the traditional corporation, the "S" Corporation and the "C" Corporation. The "S" Corporation is taxed somewhat like a partnership while the "C" Corporation is the most formal for tax purposes. In general, the advantages of incorporation are as follows. A corporation provides limited liability for investors, although under certain circumstances the corporate veil can be pierced by creditors. Officers and directors are liable for criminal acts of the company and officers and directors have fiduciary duties to shareholders. Connecticut requires at least one director, with the number specified in accordance with the certificate of incorporation or the bylaws. Connecticut also requires at least one officer. In Connecticut, numerous statutory rules exist which govern the existence, structure and other aspects of corporations of all types. Generally, interests in corporations a freely transferable. However, there are numerous state and federal securities laws which may regulate, prohibit or effect the legality of any such transfer. Also, depending upon a particular circumstance there may be no market for such shares. Generally, the legal existence of a corporation is not affected by the death, withdrawal, or removal of a principal or owner. Connecticut law also provides for the existence of Professional Service Corporations. This entity is appropriate where its principal activity is the performance of personal services that are substantially performed by employee-owners. It must engage in one of the specified personal service fields set forth in the applicable Connecticut Statutes and is also be governed by particular Internal Revenue Code sections. BE AWARE THAT TAX CONSIDERATIONS AND TREATMENT OF CORPORATIONS OF ALL TYPES INVOLVE COMPLICATED ISSUES ALL OF WHICH REQUIRE THE ADVICE AND COUNSEL OF A QUALIFIED PROFESSIONAL. SUCH ISSUES ARE TOO COMPLEX TO ADDRESS IN THE CONTEXT OF THESE ANSWERS TO FREQUENTLY ASKED QUESTIONS AND THESE GENERAL OBSERVATIONS SHOULD NOT BE RELIED UPON AS LEGAL ADVICE.

A limited liability company is a hybrid form of business entity that combines attributes of both partnerships and corporations. Like a corporation, the owners, known as members, of a Limited Liability Company are not individually liable for the obligations or liabilities of the company. However, if properly structured, a Limited Liability Company avoids corporate-level taxation by passing through income and loss to its members. A member is an owner of an interest and a party to the contract generally known as the operating agreement. Articles of Organization must be filed with the Secretary of State. They contain certain basic provisions that govern the operation of the Limited Liability Company. To properly form a Limited Liability Company, the members must also have an Operating Agreement which sets forth the members respective rights and duties. It is a cross between a partnership agreement and corporate bylaws. While Connecticut law does not require that a written operating agreement, for practical purposes it and for purposes of taxation, a written agreement should be used. These entities may also be used for professional practices, but generally it must render only one specific type of professional service and ancillary services. Exceptions do exist whereby it can render two or more of specified professional services. State agency licensing is a factor to consider as if the entity will require such a license you should be aware that some agencies may not recognize this form of business entity.