Incorporation ( Business )

Incorporation is the forming of a new corporation (a corporation being a legal entity that is effectively recognized as a person under the law). The corporation may be a business, a non-profit organization, sports club, or a government of a new city or town.

In the United States

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 are personally and jointly responsible for all the liabilities of a business such as loans, accounts payable, and legal judgments. In a corporation, however, stockholders, directors and officers 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 (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, 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 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 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 scores, a corporation can acquire its own credit rating, and build a separate credit history by applying for and using corporate credit.

Steps Required for Incorporation

• The articles of incorporation (also called a charter, certificate of incorporation or letters patent) 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 or partnership. 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 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 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 neeed 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. The current Companies House record is five minutes to vet and issue a certificate of incorporation for an electronic application.

Types of Companies

There are many different types of UK companies:

• 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)