Incorporation (business) - AbsoluteAstronomy.com

Incorporation is the forming of a new corporation

Corporation

A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...

(a corporation being a legal entity that is effectively recognised as a person under the law). The corporation may be a business, a non-profit organisation, sports club

Sports club

A sports club or sport club, sometimes athletics club or sports association is a club for the purpose of playing one or more sports...

, or a government

Government

Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...

of a new city

City

A city is a relatively large and permanent settlement. Although there is no agreement on how a city is distinguished from a town within general English language meanings, many cities have a particular administrative, legal, or historical status based on local law.For example, in the U.S...

or town

Town

A town is a human settlement larger than a village but smaller than a city. The size a settlement must be in order to be called a "town" varies considerably in different parts of the world, so that, for example, many American "small towns" seem to British people to be no more than villages, while...

. This article focuses on the process of incorporation; see also corporation

Corporation

Legal benefits

Protection of personal assets. One of the most important legal benefits is the safeguarding of personal assets against the claims of creditors and lawsuits. Sole proprietors and general partners in a partnership
Partnership
A partnership is an arrangement where parties agree to cooperate to advance their mutual interests.Since humans are social beings, partnerships between individuals, businesses, interest-based organizations, schools, governments, and varied combinations thereof, have always been and remain commonplace...

are personally and jointly responsible for all the liabilities
Legal liability
Legal liability is the legal bound obligation to pay debts.* In law a person is said to be legally liable when they are financially and legally responsible for something. Legal liability concerns both civil law and criminal law. See Strict liability. Under English law, with the passing of the Theft...

of a business such as loans, accounts payable, and legal judgments. In a corporation, however, stockholders, directors
Board of directors
A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. Other names include board of governors, board of managers, board of regents, board of trustees, and board of visitors...

and officers
Chief executive officer
A chief executive officer , managing director , Executive Director for non-profit organizations, or chief executive is the highest-ranking corporate officer or administrator in charge of total management of an organization...

typically are not liable for the company's debts and obligations. They are limited in liability to the amount they have invested in the corporation. For example, if a shareholder purchased $100 in stock, no more than $100 can be lost. Corporations and limited liability companies
Limited liability company
A limited liability company is a flexible form of enterprise that blends elements of partnership and corporate structures. It is a legal form of company that provides limited liability to its owners in the vast majority of United States jurisdictions...

(LLCs) may hold assets such as real estate, cars or boats. If a shareholder of a corporation is personally involved in a lawsuit or bankruptcy
Bankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....

, these assets may be protected. A creditor of a shareholder of a corporation or LLC cannot seize the assets of the company. However, the creditor can seize ownership shares in the corporation, as they are considered a personal asset.
Transferable ownership. Ownership in a corporation or LLC is easily transferable to others, either in whole or in part. Some state laws are particularly corporate-friendly. For example, the transfer of ownership in a corporation incorporated in Delaware
Delaware corporation
The Delaware General Corporation Law is the statute governing corporate law in the state of Delaware. Delaware is well known as a corporate haven. Over 50% of U.S...

is not required to be filed or recorded.
Retirement funds. Retirement funds and qualified retirements plans, such as a 401(k)
401(k)
A 401 is a type of retirement savings account in the United States, which takes its name from subsection of the Internal Revenue Code . A contributor can begin to withdraw funds after reaching the age of 59 1/2 years...

, may be established more easily.
Taxation. In the United States, corporations are tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...

ed at a lower rate than individuals are. 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. A corporation can easily raise capital from investors 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 score
Credit score
A credit score is a numerical expression based on a statistical analysis of a person's credit files, to represent the creditworthiness of that person...

s, a corporation can acquire its own credit rating
Credit rating
A credit rating evaluates the credit worthiness of an issuer of specific types of debt, specifically, debt issued by a business enterprise such as a corporation or a government. It is an evaluation made by a credit rating agency of the debt issuers likelihood of default. Credit ratings are...

, and build a separate credit history by applying for and using corporate credit.

Steps required for incorporation

The articles of incorporation
Articles of Incorporation
The Articles of Incorporation are the primary rules governing the management of a corporation in the United States and Canada, and are filed with a state or other regulatory agency.An equivalent term for LLCs in the United States is the Articles of Organization...

(also called a charter
Charter
A charter is the grant of authority or rights, stating that the granter formally recognizes the prerogative of the recipient to exercise the rights specified...

, certificate of incorporation
Certificate of incorporation
A certificate of incorporation is a legal document relating to the formation of a company or corporation. It is a license to form a corporation issued by state government. Its precise meaning depends upon the legal system in which it is used, but the two primary meanings are:* In the U.S.A...

or letters patent
Letters patent
Letters patent are a type of legal instrument in the form of a published written order issued by a monarch or president, generally granting an office, right, monopoly, title, or status to a person or corporation...

) are filed with the appropriate state office, listing the purpose of the corporation, its principal place of business and the number and type of shares of stock. A registration fee is due, which is usually between $25 and $1,000, depending on the state.
A corporate name is generally made up of three 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
Business license
Business licenses are permits issued by government agencies that allow individuals or companies to conduct business within the government's geographical jurisdiction. It is the authorization to start a business issued by the local government....

or partnership
Partnership
A partnership is an arrangement where parties agree to cooperate to advance their mutual interests.Since humans are social beings, partnerships between individuals, businesses, interest-based organizations, schools, governments, and varied combinations thereof, have always been and remain commonplace...

. Incorporated, limited, and corporation, or their respective abbreviations (Inc., Ltd., Corp.) are the possible legal endings in the U.S.
Usually, there are also corporate bylaws
Bylaw
By-law can refer to a law of local or limited application passed under the authority of a higher law specifying what things may be regulated by the by-law...

which must be filed with the state. Bylaws outline a number of important administrative 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 20 years.

Reporting after incorporation

Assuming a corporation has not sold stock

Stock

The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...

to the public, conducting corporate business is remarkably straightforward. Often, it amounts to little more than recording key corporate decisions (for example, borrowing money or buying real estate) and holding an annual meeting. However, even these formalities can often be done by written agreement and do not usually need a face-to-face meeting.

In the United Kingdom

In the U.K., 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, the Companies House

Companies House

Companies House is the United Kingdom Registrar of Companies and is an Executive Agency of the United Kingdom Government Department for Business, Innovation and Skills . All forms of companies are incorporated and registered with Companies House and file specific details as required by the...

. The current Companies House

Companies House

record is five minutes to vet and issue a certificate of incorporation

Certificate of incorporation

A certificate of incorporation is a legal document relating to the formation of a company or corporation. It is a license to form a corporation issued by state government. Its precise meaning depends upon the legal system in which it is used, but the two primary meanings are:* In the U.S.A...

for an electronic application.

Types of companies

There are many different types of UK companies:

Community interest company
Community interest company
A community interest company is a new type of company introduced by the United Kingdom government in 2005 under the Companies Act 2004, designed for social enterprises that want to use their profits and assets for the public good...
Company limited by guarantee
Company limited by guarantee
In British and Irish company law, a private company limited by guarantee is an alternative type of corporation used primarily for non-profit organisations that require legal personality. A guarantee company does not usually have a share capital or shareholders, but instead has members who act as...
Industrial and provident society
Industrial and Provident Society
An industrial and provident society is a legal entity for a trading business or voluntary organisation in the United Kingdom, the Republic of Ireland, and New Zealand...

(IPS)
Limited liability partnership
Limited liability partnership
A limited liability partnership is a partnership in which some or all partners have limited liability. It therefore exhibits elements of partnerships and corporations. In an LLP one partner is not responsible or liable for another partner's misconduct or negligence. This is an important...

(LLP)
Limited partnership
Limited partnership
A limited partnership is a form of partnership similar to a general partnership, except that in addition to one or more general partners , there are one or more limited partners . It is a partnership in which only one partner is required to be a general partner.The GPs are, in all major respects,...

(LP)
Private company limited by shares
Private company limited by shares
A private company limited by shares, usually called a private limited company , is a type of company incorporated under the laws of England and Wales, Scotland, that of certain Commonwealth countries and the Republic of Ireland...

(Ltd, limited)
Public limited company
Public limited company
A public limited company is a limited liability company that sells shares to the public in United Kingdom company law, in the Republic of Ireland and Commonwealth jurisdictions....

(PLC)
Royal charter
Royal Charter
A royal charter is a formal document issued by a monarch as letters patent, granting a right or power to an individual or a body corporate. They were, and are still, used to establish significant organizations such as cities or universities. Charters should be distinguished from warrants and...

(RC)
Societas Europaea (SE): pan-European Union company structure
Unlimited company
Unlimited Company
An unlimited company or private unlimited company is a hybrid company incorporated either with or without a share capital but where the liability of the members or shareholders is not limited - that is, its members or shareholders have a joint, several and unlimited obligation to meet any...

International perspective

The legal concept of incorporation is recognized all over the world.

In the United States, most (but not all) 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
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...

, Austria
Austria
Austria , officially the Republic of Austria , is a landlocked country of roughly 8.4 million people in Central Europe. It is bordered by the Czech Republic and Germany to the north, Slovakia and Hungary to the east, Slovenia and Italy to the south, and Switzerland and Liechtenstein to the...

and Switzerland
Switzerland
Switzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....

, the GmbH
Gesellschaft mit beschränkter Haftung
Gesellschaft mit beschränkter Haftung is a type of legal entityvery common in Germany, Austria, Switzerland, and other Central European countries...

("Gesellschaft mit beschränkter Haftung", meaning "limited liability business association"), as well as the AG
Aktiengesellschaft
Aktiengesellschaft is a German term that refers to a corporation that is limited by shares, i.e. owned by shareholders, and may be traded on a stock market. The term is used in Germany, Austria and Switzerland...

("Aktiengesellschaft", meaning "business association with shares"), are the entities most similar to the corporations in the U.S.
In the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...

, with the exception of an unlimited company
Unlimited Company
An unlimited company or private unlimited company is a hybrid company incorporated either with or without a share capital but where the liability of the members or shareholders is not limited - that is, its members or shareholders have a joint, several and unlimited obligation to meet any...

or corporation which requires no designation as part of its legal company name, the titles Ltd.
Limited company
A limited company is a company in which the liability of the members or subscribers of the company is limited to what they have invested or guaranteed to the company. Limited companies may be limited by shares or by guarantee. And the former of these, a limited company limited by shares, may be...

(limited company) or plc
Public limited company
A public limited company is a limited liability company that sells shares to the public in United Kingdom company law, in the Republic of Ireland and Commonwealth jurisdictions....

(public limited company) are used for corporations.
In France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...

, Switzerland
Switzerland
Switzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....

, Belgium
Belgium
Belgium , officially the Kingdom of Belgium, is a federal state in Western Europe. It is a founding member of the European Union and hosts the EU's headquarters, and those of several other major international organisations such as NATO.Belgium is also a member of, or affiliated to, many...

and Luxembourg
Luxembourg
Luxembourg , officially the Grand Duchy of Luxembourg , is a landlocked country in western Europe, bordered by Belgium, France, and Germany. It has two principal regions: the Oesling in the North as part of the Ardennes massif, and the Gutland in the south...

, the term "SARL
SARL
SARL is an acronym with many potential meanings:* South Australian Rugby League, governing body for rugby league football in South Australia* Société à responsabilité limitée* South African Radio League...

" (société à responsibilité limitée, company with limited liability) or SA
S.A. (corporation)
S.A. designates a particular type of corporation in various countries, mostly those employing the civil law. It originated in Spain during the 16th century. Depending on language, the abbreviation stands for various phrases meaning anonymous society, anonymous company, anonymous partnership, or...

(société anonyme, anonymous partnership) is used.
Spain
Spain
Spain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...

, Portugal
Portugal
Portugal , officially the Portuguese Republic is a country situated in southwestern Europe on the Iberian Peninsula. Portugal is the westernmost country of Europe, and is bordered by the Atlantic Ocean to the West and South and by Spain to the North and East. The Atlantic archipelagos of the...

, Poland
Poland
Poland , officially the Republic of Poland , is a country in Central Europe bordered by Germany to the west; the Czech Republic and Slovakia to the south; Ukraine, Belarus and Lithuania to the east; and the Baltic Sea and Kaliningrad Oblast, a Russian exclave, to the north...

, Romania
Romania
Romania is a country located at the crossroads of Central and Southeastern Europe, on the Lower Danube, within and outside the Carpathian arch, bordering on the Black Sea...

and Latin America
Latin America
Latin America is a region of the Americas where Romance languages – particularly Spanish and Portuguese, and variably French – are primarily spoken. Latin America has an area of approximately 21,069,500 km² , almost 3.9% of the Earth's surface or 14.1% of its land surface area...

use the title SA
S.A. (corporation)
S.A. designates a particular type of corporation in various countries, mostly those employing the civil law. It originated in Spain during the 16th century. Depending on language, the abbreviation stands for various phrases meaning anonymous society, anonymous company, anonymous partnership, or...

(anonymous partnership) for stock corporations or Ltda (limitada or limited liability) for limited companies. (Ltda is denoted SL in Spain, for "Sociedad Limitada", and SRL in Argentina, for ("Sociedad de Responsabilidad Limitada").
Denmark
Denmark
Denmark is a Scandinavian country in Northern Europe. The countries of Denmark and Greenland, as well as the Faroe Islands, constitute the Kingdom of Denmark . It is the southernmost of the Nordic countries, southwest of Sweden and south of Norway, and bordered to the south by Germany. Denmark...

and Norway
Norway
Norway , officially the Kingdom of Norway, is a Nordic unitary constitutional monarchy whose territory comprises the western portion of the Scandinavian Peninsula, Jan Mayen, and the Arctic archipelago of Svalbard and Bouvet Island. Norway has a total area of and a population of about 4.9 million...

uses the title A/S for stock corporations (Danish
Danish language
Danish is a North Germanic language spoken by around six million people, principally in the country of Denmark. It is also spoken by 50,000 Germans of Danish ethnicity in the northern parts of Schleswig-Holstein, Germany, where it holds the status of minority language...

: Aktieselskab, Norwegian
Norwegian language
Norwegian is a North Germanic language spoken primarily in Norway, where it is the official language. Together with Swedish and Danish, Norwegian forms a continuum of more or less mutually intelligible local and regional variants .These Scandinavian languages together with the Faroese language...

: Aksjeselskap), while Sweden uses the similar AB . Finland
Finland
Finland , officially the Republic of Finland, is a Nordic country situated in the Fennoscandian region of Northern Europe. It is bordered by Sweden in the west, Norway in the north and Russia in the east, while Estonia lies to its south across the Gulf of Finland.Around 5.4 million people reside...

uses Oy (Finnish:Osakeyhtiö), Oyj for stock corporations (Osakeyhtiö, julkinen) and Ay (Avoin yhtiö) or Ky (Kommandiittiyhtiö) for private enterprises.
In India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...

, the term Pvt. Ltd. is used for a company that is private, an entity similar to LLC
Limited liability company
A limited liability company is a flexible form of enterprise that blends elements of partnership and corporate structures. It is a legal form of company that provides limited liability to its owners in the vast majority of United States jurisdictions...

in U.S. Ltd. is used for public unlisted company
Publicly unlisted company
A publicly unlisted company is a company that can have an unlimited number of shareholders to raise capital for any commercial venture. Companies which are not listed publicly are more likely to engage in profit maximising behavior as their share capital structure makes it very easy to give its...

or a public corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...

, a similar entity to a corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...

in the U.S.
Italy
Italy
Italy , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...

uses "Srl" or "Società a Responsabilità Limitata" (limited liability company), and "SpA" or "Società Per Azioni" (stock corporation).
In the Netherlands
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...

, NV
Naamloze Vennootschap
is the Dutch term for a public limited liability company. The company is owned by shareholders, and the company's shares are not registered to certain owners, so that they may be traded on the public stock market....

and BV are used.
Malaysia uses Sdn. Bhd. , meaning "private limited", which is the equivalent of an incorporated entity in the U.S.
Indonesia
Indonesia
Indonesia , officially the Republic of Indonesia , is a country in Southeast Asia and Oceania. Indonesia is an archipelago comprising approximately 13,000 islands. It has 33 provinces with over 238 million people, and is the world's fourth most populous country. Indonesia is a republic, with an...

uses P.T. , meaning "private limited", which is the equivalent of an incorporated entity in the U.S. This legal title is stated in front of the corporation name. If the shares become publicly listed for trading in stock exchange, it's called Tbk. , appended after the corporation name.
Slovakia
Slovakia
The Slovak Republic is a landlocked state in Central Europe. It has a population of over five million and an area of about . Slovakia is bordered by the Czech Republic and Austria to the west, Poland to the north, Ukraine to the east and Hungary to the south...

uses s.r.o. ("spoločnosť s ručením obmedzeným" meaning "business with limited liability") and a.s. ("akciová spoločnosť" meaning "business with shares").
In Latvia
Latvia
Latvia , officially the Republic of Latvia , is a country in the Baltic region of Northern Europe. It is bordered to the north by Estonia , to the south by Lithuania , to the east by the Russian Federation , to the southeast by Belarus and shares maritime borders to the west with Sweden...

, the most commonly used title of a corporation is "S.I.A." for "limited liability company", or "LLC", and "A/S" for "joint stock company", or "JSC". The title "S.I.A." and "A/S" are put before the name of the corporation.
Albania
Albania
Albania , officially known as the Republic of Albania , is a country in Southeastern Europe, in the Balkans region. It is bordered by Montenegro to the northwest, Kosovo to the northeast, the Republic of Macedonia to the east and Greece to the south and southeast. It has a coast on the Adriatic Sea...

uses "Sh.p.k" for "limited liability company", "Sh.a." (Albanian: Shoqëri Anonime), meaning "anonymous partnership", for stock corporations. Pursuant to the Albanian legislation, the possible business structures are:

Sole proprietorship (person fizik) - A business owned and managed by one individual who is personally liable for all business debts and obligations.

Limited liability company (LLC) - A hybrid legal structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership.

Corporation - A legal entity owned by shareholders.

Non-profit - An organization engaged in activities of public or private interest where making a profit is not a primary mission. Some non-profits are exempt from federal taxes.

Singapore
Singapore
Singapore , officially the Republic of Singapore, is a Southeast Asian city-state off the southern tip of the Malay Peninsula, north of the equator. An island country made up of 63 islands, it is separated from Malaysia by the Straits of Johor to its north and from Indonesia's Riau Islands by the...

uses Pte. Ltd., meaning "private limited", which is the equivalent of an incorporated entity in the U.S.
In Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...

, the process of incorporation can be done either at the federal or provincial level. Companies which incorporate with the federal government will generally need to register extra-provincially in the province that they elect to do business. Similarly, a provincial corporation may need to register extra-provincially if they are to have offices outside of their home province. Incorporations are effected quite quickly, depending upon the jurisdiction of registration, as several provinces and the federal government have started to allow for electronic filing. Incorporated Canadian companies can generally use either Limited, Incorporated or Corporation in their name, however this may vary province to province.
Dubai
Dubai
Dubai is a city and emirate in the United Arab Emirates . The emirate is located south of the Persian Gulf on the Arabian Peninsula and has the largest population with the second-largest land territory by area of all the emirates, after Abu Dhabi...

uses "LLC" to denote a limited liability company. Listed companies use "PJSC" to denote public joint stock company.
In Turkey
Turkey
Turkey , known officially as the Republic of Turkey , is a Eurasian country located in Western Asia and in East Thrace in Southeastern Europe...

Ltd. Şti. (which stands for Limited Şirketi) is a common form to denote limited liability companies.

External links

How to Incorporate Your New Business - a wikiHow
WikiHow
wikiHow is a web-based and wiki-based community, consisting of an extensive database of how-to guides. wikiHow's mission is to build the world's largest and highest quality how-to manual. The site started as an extension of the already existing eHow website, and has evolved to host over 127,000...

article.

The source of this article is wikipedia, the free encyclopedia. The text of this article is licensed under the GFDL.