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Incorporation (abbreviated Inc. in U.S. and Canadian business names) is the forming of a new corporation (a corporation being a legal entity that is effectively recognised as a person, albeit a fictitious one, under the law). The corporation may be a business, a non-profit organization, sports club or a government of a new city or town. This article focuses on the process of incorporation; see also corporation.
Contents |
Incorporation in the United States of America
Legal benefits
- Protection of personal assets. Safeguarding personal assets against the claims of creditors and lawsuits. Sole proprietors and general partners in a partnership are personally and jointly responsible for all the liabilities of a business such as loans, accounts payable, and legal judgements. In a corporation, however, stockholders, directors and officers typically are not liable for their company's debts and obligations. They are limited in liability to the amount they have invested in the corporation (eg: If $100 in stock was purchased, no more than $100 can be lost). Corporations and Limited Liability Companies (LLCs) may hold personal assets like houses, cars or boats. If one is personally involved in a lawsuit or bankruptcy, these assets may be protected. A creditor of the owner of a corporation or LLC cannot seize the assets of the company; however, they can seize their ownership shares in the corporation, as that is considered a personal asset.
- Transferable ownership. Ownership in a corporation or LLC is easily transferable to others, either in whole or in part. Some states' laws are particularly attractive to this end. For example, with a Delaware Corporation, the transfer of ownership in a corporation is not required to be filed or recorded.
- Retirement funds. Retirement funds and qualified retirements plans, such as a 401(k), may be established more easily.
- Taxation. In the United States, corporations are taxed at a lower rate than individuals. Also, they can own shares in other corporations and receive corporate dividends 80% tax-free. There are no limits on the amount of losses a corporation may carry forward to subsequent tax years. A sole proprietorship, on the other hand, cannot claim a capital loss greater than $3,000 unless the owner has offsetting capital gains.
- Raising funds through sale of stock. Capital from investors can be raised for corporations easily through the sale of stock.
- Durability. A corporation is capable of continuing indefinitely. Its existence is not affected by the death of shareholders, directors, or officers of the corporation.
- Credit rating. Regardless of an owner's personal credit scores, corporations acquire their own credit rating, and build a separate credit history by applying for and using corporate credit.
Steps required for incorporation in the U.S.
- The Articles of Incorporation (also called a Charter, Certificate of Incorporation or Letters Patent) are filed with appropriate state office, listing the purpose of the corporation, its principal place of business and the number and type of shares of stock.1 A registration fee is due which will usually be between $25 and $1,000, depending on the state.
- A corporate name is generally made up of 3 parts: "Distinctive element", "Descriptive element", and a legal ending. All corporations must have a distinctive element and (in most filing jurisdictions) a legal ending to their names. Some corporations choose not to have a descriptive element. In the name "Tiger Computers Inc." the word "Tiger" is the distinctive element; the word "Computers" is the descriptive element; and the "Inc." is the legal ending. The legal ending indicates that it is in fact a legal corporation and not just a business registration or partnership. Incorporated, Limited and Corporation, or their respective abbreviations (Inc., Ltd., Corp.) are the possibilities for this legal ending in the U.S.
- Usually there are also Corporate Bylaws which must be filed with the state. These will outline a number of important corporate housekeeping details such as when annual shareholder meetings will be held, who can vote and the manner in which shareholders will be notified if there is need for an additional "special" meeting.
Taxation
Corporations can only deduct net operating losses going back two years and forward 15 years.
Reporting after incorporation
Assuming a corporation has not sold stock to the public, conducting corporate business is remarkably straightforward and uncomplicated. Often it amounts to little more than recording key corporate decisions (for example, borrowing money or buying real estate) and holding an annual meeting. Even these formalities can often be done by written agreement and do not usually necessitate a face-to-face meeting.
Incorporation in the United Kingdom
In the UK the process of Incorporation is generally called Company Formation. The United Kingdom is one of the quickest locations to Incorporate, with a fully electronic process and a very fast turn around by the national registrar of companies Companies House. The current Companies House record is 5 minutes to vet and issue a Certificate of Incorporation for an electronic application.
Types Of UK Company
There are many different types of UK company::
- Public Limited Company (PLC)
- Private company limited by shares (Ltd, Limited)
- Company Limited by Guarantee
- Unlimited company
- Limited Liability Partnership (LLP)
- Limited partnership (LP)
- Societas Europaea (SE): pan-European Union company structure
- Royal Charter (RC)
- Community interest company
- Industrial and Provident Society (IPS)
International perspective on incorporation
The legal concept of incorporation is recognized all over the world. In the United States, corporations are identified by the term "incorporated" added after the business name, such as "Texas Instruments, Incorporated", or by putting the word "corporation" in the name of the company, as in "Netscape Communications Corporation". In Germany, Austria and Switzerland the GmbH ("Gesellschaft mit beschränkter Haftung", meaning "limited liability business association"), as well as the AG ("Aktiengesellschaft", meaning "business association with shares") are the most common comparable concepts. In the United Kingdom the titles Ltd. (abbreviation for limited company) or plc (abbreviation for public limited company) are used for corporations. In France, Switzerland, Belgium and Luxembourg the term "SARL" or "société à responsibilité limitée" ("company with limited liability") or SA "société anonyme" (abbreviation for anonymous partnership) is used, while Spain, Portugal, Poland, Romania and Latin America use the title SA (Anonymous Partnership) for corporations. Denmark and Norway uses the title A/S for stock corporations (Danish: Aktieselskab, Norwegian: Aksjeselskap), while Sweden uses the similar AB (Swedish: aktiebolag). Finland uses OY (Finnish:Osakeyhtiö), OYj for stock corporations (Osakeyhtiö, julkinen) and KY (Kommandiittiyhtiö) for private enterprises. Italy uses "Srl", or "Società a Responsabilità Limitata" (limited liability company) and "SpA" or "Società Per Azioni" (stock corporation). The Netherlands uses NV and BV. Singapore uses Pte. Ltd., meaning "private limited" which is the equivalent of a U.S. incorporated entity. Malaysia uses Sdn. Bhd., meaning "private limited" which is the equivalent of a U.S. incorporated entity. Most commonly used title of a corporation in Latvia are "S.I.A." (Latvian: Sabiedrība ar Ierobežotu Atbildību) for "Limited Liability Company", or "LLC" ; and "A/S" (Latvian: Akciju Sabiedrība) for "Joint Stock Company", or "JSC". In Latvia titles "S.I.A." or "A/S" are put before the name of the corporation. Albania uses "Sh.p.k" (Albanian: Shoqëri me Përgjegjësi të Kufizuar) for "Limited Liability Company", "Sh.a." (Albanian: Shoqëri Anonime) meaning "Anonymous Partnership", for stock corporations and Slovakia uses s.r.o. (spoločnosť s ručením obmedzeným meaning "business with limited liability) and a.s. (akciová spoločnosť meaning"business with shares").