What is double taxation and how does it affect Connecticut C-Corporations?

Double taxation means C-Corporation profits are taxed twice: first at the corporate level (21% federal + 7.5% Connecticut corporate rate), then again when distributed as dividends to shareholders at personal income tax rates. This differs from Connecticut LLCs where profits are only taxed once at the member level.

When does a C-Corp actually save money on taxes compared to an LLC in Connecticut?

C-Corps can save money when retaining profits in the business rather than distributing them, especially for high-earning owners. The 21% federal corporate rate may be lower than personal income tax rates for wealthy business owners. C-Corps also get better deductions for employee benefits and business expenses.

Can I convert my Connecticut LLC to a C-Corporation later?

Yes, you can convert a Connecticut LLC to a C-Corporation through a statutory conversion process or by dissolving the LLC and forming a new corporation. However, this conversion may have tax consequences, so consult with a tax advisor before proceeding.

Why do venture capital firms prefer C-Corporations over LLCs?

VCs prefer C-Corps because they can easily buy and sell shares, issue different classes of stock (preferred vs common), and avoid complex tax reporting. Many institutional investors like pension funds cannot invest in pass-through entities like LLCs due to regulatory restrictions.

What are the ongoing state fees and taxes for Connecticut C-Corporations?

Connecticut C-Corporations pay annual franchise tax to the state based on authorized capital stock, with minimum fees starting around $150. They also pay Connecticut corporate income tax at 7.5% on profits and must file annual reports with the Secretary of State.

Which business structure is better for a small Connecticut business?

For most small Connecticut businesses, an LLC is better due to simpler taxes, fewer administrative requirements, and pass-through taxation that avoids double taxation. Choose a C-Corp only if you plan to raise venture capital, retain significant profits, or eventually go public.

Connecticut LLC vs C-Corp: Choose the Right Structure for Your Business

Compare formation costs, taxes, and ownership rules to decide between an LLC and C-Corporation in Connecticut. Get the facts you need to make an informed choice.

By Edmond Hui · Last updated: January 2026

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LLC vs C-Corp: Side-by-Side

Factor	LLC	C-Corp
Formation cost	$120 state filing fee	$120 state filing fee plus incorporation documents
Taxation structure	Pass-through taxation (profits taxed once at owner level)	Double taxation (corporate tax + shareholder dividend tax)
Ownership limits	Unlimited owners, flexible ownership percentages	Unlimited shareholders, must issue stock certificates
Self-employment / payroll tax	Members pay self-employment tax on all profits	Owner-employees pay payroll taxes only on salary
Investor appeal	Limited appeal to venture capital and institutional investors	Preferred by VCs and angel investors for equity investments
State taxes in Connecticut	No entity-level state income tax, members pay personal income tax	Connecticut corporate income tax (7.5% rate) plus shareholder taxes
Administrative complexity	Minimal ongoing requirements, operating agreement recommended	Board meetings, shareholder meetings, corporate resolutions required
Profit distribution	Flexible profit sharing based on operating agreement	Dividends distributed proportionally to stock ownership

When an LLC Makes More Sense

You want simple tax filing and avoid double taxation on business profits
Your business has 1-5 owners who actively participate in operations
You prefer flexible management structure without formal board requirements
You don't plan to raise venture capital or go public in the future

When a C-Corp Makes More Sense

You plan to raise money from venture capital firms or angel investors
You want to retain significant profits in the business for growth (lower 21% corporate rate)
You need to offer equity compensation like stock options to employees
You're considering going public or selling to another corporation eventually

Tax Deep Dive

Llc Default Tax

Connecticut LLCs are pass-through entities by default, meaning business profits flow directly to members' personal tax returns. Members pay Connecticut personal income tax (up to 6.99%) plus federal income tax on their share of LLC profits, whether distributed or not.

C Corp Tax

C-Corporations face double taxation in Connecticut: the corporation pays federal corporate income tax (21%) and Connecticut corporate income tax (7.5%), then shareholders pay additional taxes on any dividends received. This creates a higher overall tax burden for distributed profits.

When C Corp Wins

C-Corporations become tax-advantageous when retaining significant earnings in the business, as the 21% federal corporate rate may be lower than high-earning owners' personal tax rates. Additionally, C-Corps can fully deduct employee benefits like health insurance, and Connecticut's corporate tax structure becomes favorable for companies planning major reinvestment rather than immediate profit distribution.

Frequently Asked Questions

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