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Incorporation is the forming of a new
(a corporation being a legal entity that is effectively ). The corporation may be a business, a , , or a
or . This article focuses on the proc see also
The information required differ in different states. However, there are some common information that are asked by almost all the states and so, must be included in the Certificate of Incorporation, accordingly. They are as follows:
Business purpose - It would describe the incorporated tasks a company has to do or provide. At present, only two types of business purpose clauses are used. They are:
General - General purpose clauses are accepted by some and not all states. It indicates that the budding company has been formed to carry out “all lawful business” in the region.
Specific - Alternatively, some states have made it mandatory for the business owners to furnish a more detailed explanation of the products and/or services to be offered by their companies.
Corporate name - A chosen name must be added to the Certificate of Incorporation. This should be followed with the corporate identifier like “Corporation”, “Incorporated”, “Company”, or one of the abbreviations like “Inc”. A preliminary name availability search is advisable, prior to the submission of the Articles of Incorporation. In case of online incorporation, the state will have final say with regards to the name chosen for the company and that the name shouldn’t deceive or mislead the consumers.
Registered agent - Almost all the states require every corporation to have a registered agent of their own in the state of incorporation. Registered agents will receive all the important legal as well as tax documents on behalf of the corporation. A typical registered agent will need a physical address (P.O box nos.) in the state of incorporation and should be accessible during normal business hours.
Incorporator - An incorporator is the person who prepares and files the Certificate of Incorporation with the concerned state.
Share par value - It refers to the stated minimum value, and generally doesn't correspond to the actual value. Usually, $0.01, $1.00 or no par are some of the common par values. In reality, the value of a share is based on its fair market value, or whatever amount a buyer is willing to pay for the same.
Number of authorized shares of stock - An incorporation needs to stipulate the exact number of shares they as a company are willing to authorize. Moreover, it is mandatory for every corporation, be it small or large, to have stock. A stock represents ownership in the corporation.
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
are personally and jointly responsible for all the
of a business such as loans, accounts payable, and legal judgments. In a corporation, however, ,
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
(LLCs) may hold assets such as real estate, cars or boats. If a shareholder of a corporation is personally involved in a lawsuit or , 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
is not required to be filed or recorded.
Retirement funds. Retirement funds and qualified retirements plans, such as a , may be established more easily.
Taxation. In the United States, corporations are
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 , a corporation can acquire its own , and build a separate credit history by applying for and using corporate credit.
American opinion of corporations has evolved significantly throughout history, and
cases provide a means to observe this evolution. While these cases may seem arbitrary and decontextualized when examined individually, when viewed successively and within historical context, a narrative emerges that offers an explanation for why such views are upheld.
state legislature passed a bill that would turn privately owned
into a publicly owned university with a Board of Trustees appointed by the governor. The Board filed a suit challenging the constitutionality of the legislature. The suit alleged the college enjoyed the right to contract and the government changing that contract was not allowed. Chief Justice John Marshall delivered the majority opinion and affirmed that the right to contract exists between owners of private property rather than between a government and its citizens. The case was the first case in US history that asked fundamental questions about corporate entities and the pr it also was a precedent-setting case in extending "individual rights" to corporations.
The railroad was an expensive multi-year project that greatly changed and altered both the physical and commercial landscape of the country. As with most new technology developments that have a broad impact, there are disputes about how those technologies and the businesses they thrive in fit under the umbrella of laws that govern regulations and taxation. In 1886 one such taxation dispute arose between
and . The railroad thought the tax code was misapplied to some of their property and assets. In deciding the case, a unanimous court ruled that governments must abide by the same tax code enforcement for individuals that it did for corporations. While not explicitly stated in the case, it was implied that this case extended equal protection rights to corporations under the .
The booming economy the railroad corporations helped build from the late 19th into the early 20th centuries came to a screeching halt in 1929. , as it came to be known, helped a view of corporations emerge that put them at odds with the normal working man. The election of
was a manifestation of many populist sentiments the country might have felt. In 1933 a
case came before the court, again disputing taxation. In
the court ruled that there could be a corporate tax, essentially saying the structure of business was a justifiably discriminatory criterion for governments to consider when writing tax legislation. This was a unique ruling handed down during a unique time in US history that denied a corporation freedom it sought in the courtroom.
From 1940 to 1990 the percent of total
made up by financial service professionals increased by 300%. Along with that growth there was a growth in the profits this industry experienced as well. As disposable income banks and other financial institutions rose, they sought a way to use it to influence politics and policy. In response,
passed a law limiting corporate donations strictly to issues related to their industry and nothing else. The
challenged won under the first amendment.
allowed business to use financial speech in political causes of any nature, and not just issues related to one business's specific industry. The Bank of Boston case was a huge win for businesses that sought to change politics through finance. As the economy was deregulated and the
grew healthily, corporate influence of the political landscape only augmented.
In 2010 amidst an outpouring of frustration and blame directed at
the issue of corporate contributions came before the court again. In
the court said there was virtually no distinction between monetary contributions and political speech, and because we do not limit political speech unless it is tantamount to bribery, corporations have the right as people to donate unlimited amounts of money to any political cause so long as it is not to a direct campaign.
(also called a ,
or ) 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 the word "Computers" is the and the "Inc." is the legal ending. The legal ending indicates that it is in fact a
and not just a
or . Incorporated, limited, and corporation, or their respective abbreviations (Inc., Ltd., Corp.) are the possible legal endings in the U.S.
Usually, there are also
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.
Main article:
Corporations can only deduct net operating losses going back two years and forward 20 years.
Assuming a corporation has not sold
to the public, conducting corporate business is straightforward. Often, it amounts to recording key corporate decisions (for example, borrowing money or buying real estate) and holding an annual meeting. These formalities can often be supplanted by written agreement and do not usually need a face-to-face meeting.
Main article:
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 turnaround by the national registrar of companies, the . The current
record is five minutes to vet and issue a
for an electronic application.[]
There are many different types of UK companies:
The legal concept of incorporation is recognized all over the world.
In the United States, there are many ways that a corporation can be identified. The four forms that are valid in all 50 states and the District of Columbia are "Corporation", "Incorporated," and the abbreviations "Corp." and "Inc." Some states allow the use of "Company" and some have additional optional names. A complete list of which names are allowed in each state can be found at .
("Gesellschaft mit beschr?nkter Haftung", meaning "limited liability business association"), as well as the
("Aktiengesellschaft", meaning "business association with shares"), are the entities most similar to the corporations in the U.S.
In the , with the exception of an
or corporation which requires no designation as part of its legal company name, the titles
(limited company) or
(public limited company) are used for corporations.
and , the term " ((French)), (société à responsibilité limitée, company with limited liability)" or
(société anonyme, anonymous corporation) or
(Société par actions simplifiée, simplified anonymous joint-stock corporation) is used.
use the title
(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")).
there is the title
(standing for Spó?ka Akcyjna, polish for stock parnership) for stock corporations or Sp. z o.o. (Spó?ka z ograniczon? odpowiedzialno?ci?, Partnership with limited liability) for limited companies. There is also Spó?ka komandytowa (Sp. K.), a partnership where at least one partner is fully liable and other one have limited liability and Spó?ka komandytowo-akcyjna (Sp. K. A.) - partnership where at least one partner is fully liable and other one is a stock shareholder not being liable.
uses the title A/S for stock corporations (: Aktieselskab, : Aksjeselskap), while Sweden uses the similar AB (: aktiebolag).
uses Oy (Finnish:Osakeyhti?), Oyj for stock corporations (Osakeyhti?, julkinen) and Ay (Avoin yhti?) or Ky (Kommandiittiyhti?) for private enterprises.
In , the term
is used for a company that is private, an entity similar to
is used for
or a public , a similar entity to a
in the U.S.
uses "Srl" or "Società a Responsabilità Limitata" (limited liability company), and "SpA" or "Società Per Azioni" (stock corporation).
uses Sdn. Bhd. (: Sendirian Berhad), meaning "private limited", which is the equivalent of an incorporated entity in the U.S.
uses P.T. (: Perseroan Terbatas), 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. (: Terbuka), appended after the corporation name.
uses s.r.o. ("spolo?nos? s ru?ením obmedzen?m" meaning "business with limited liability") and a.s. ("akciová spolo?nos?" meaning "business with shares").
In , the most commonly used title of a corporation is "S.I.A." (: Sabiedrība ar Ierobe?otu Atbildību) for "limited liability company", or "LLC", and "A/S" (: Akciju Sabiedrība) for "joint stock company", or "JSC". The title "S.I.A." and "A/S" are put before the name of the corporation.
uses "UAB" (: U?daroji Akcin? Bendrov?) for "limited liability company" and "AB" (: Akcin? Bendrov?) for "joint stock company", and, like in Latvia, they also appear before the corporation's name.
uses "Sh.p.k" (: Shoq?ri me P?rgjegj?si t? Kufizuar) for "limited liability company", "Sh.a." (Albanian: Shoq?ri 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.
uses Pte. Ltd., meaning "private limited", which is the equivalent of an incorporated entity in the U.S.
uses WFOE (or WOFE), to refer to a Wholly Foreign Owned Enterprise (WFOE). This is the most popular form of business entity for foreign investors wanting to set up a company in China, it is a limited liability company.
In , 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.
uses "LLC" to denote a limited liability company. Listed companies use "PJSC" to denote public joint stock company.
Ltd. ?ti. (which stands for Limited ?irketi) is a common form to denote limited liability companies.
, Retrieved 13 March 2015.
Dartmouth College V Woodward, 1819
Santa Clara County V Southern Pacific Railroad, 1886
Liggett V Lee, 1933
Cracks in the Pipeline Part One: Restoring Efficiency to Wall Street and Value to Main Street
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Citizens United V FEC, 2010
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Learning center
C-Corp, S-Corp or LLC?
C-Corporation (C-Corp)
A C-Corporation is the traditional and most common type of corporation. Forming a C-Corporation allows the company to have an unlimited number of shareholders. This is beneficial to companies which will require many investors, as well as companies who envision offering stock publicly. An inherent benefit of all Corporations and LLCs is that they shield their shareholders from personal liability arising from business debts and business lawsuits.
Ease of Transfer
A favorable aspect of the C-Corporation is the simplicity by which its stock can be sold or otherwise transferred. Transfers of C-Corporation stock have very few limitations. Furthermore, if a company will offer stock publicly, the C-Corporation is the only option. S-Corporations and LLCs are not permitted to offer ownership through public offerings.Familiarity
Familiarity with the C-Corporation often drives business owners to choose the corporation over the LLC. While an LLC is a relatively new form, the C-corporation is the traditional business type with which most business owners have previously dealt with on some level. This familiarity often leads owners to make the comfortable choice, and stick with what they know.Low Cost
A further consideration is the state filing fee. In most states, the fee to form a corporation is slightly less than the fee to form an LLC. Use our "Quick Quote" tool to see the fees charged by your chosen state.Disadvantage
The primary disadvantage of the C-Corporation is that it is subject to “double taxation.” This means that the company's profits are initially taxed at the corporate level, and then taxed again at the individual level when distributions are made to the shareholders.
S-Corporation
Since its creation, the S-Corporation has increasingly become the preferred form for many small businesses. The S-Corporation is similar in structure to that of a C-Corporation, but must meet a few further requirements. In fact, an S-Corporation is initially formed as a C-Corporation by filing the articles of incorporation with the Secretary of State. The C-Corporation can then become an S-Corporation when an extra step is taken by filing with the IRS.
Avoid "Double Tax"
The primary benefit of an S-Corporation is that it allows the shareholders to receive profits free of taxation at the corporate level. The profits will only be taxed at the individual level, thereby avoiding the &double tax& that C-Corporation shareholders are subject to. (C-Corporations are taxed at the corporate and individual level).
However, not all C-Corporations are able to take advantage of the S-Corporation status. A corporation is only eligible for the S-Corporation election if it meets the following list of ownership requirements:The company must have no more than 100 shareholders (a husband and wife qualify as one shareholder).All shareholders in the company must be individuals and not other corporations or LLCs (estates, some exempt organizations and certain trusts qualify as shareholders).No shareholders can be non-resident aliens.There can only be one class of stock in the company (this limitation disregards differences in voting rights).The company making the election cannot be a bank or thrift institution, an insurance company, or a domestic international sales corporation (DISC).Each shareholder must consent to the S-Corporation tax status (as explained in column K of IRS form 2553).No more than 25% of the company's gross corporate income may be derived from passive income.
Limited Liability Company (LLC) - with comparison of LLC to S-Corporation
Today, many businesses are forming as a Limited Liability Company (LLC) and are finding that an LLC offers the "best of both worlds" of corporate forms. An LLC allows for pass-through taxation (see "Tax Advantage" below), thereby avoiding the "double tax" of a C-Corporation, yet also affords its owners the personal liability protection of a corporation.
Tax Advantage
The popularity of the LLC is primarily based on the Tax Advantage. An LLC operates in most ways as a corporation, yet the distributions to its "members" (shareholders) are not subject to taxation at the corporate level. Instead, the distributions are "passed through" the corporate level and are taxed only at the individual level. Therefore, the LLC avoids "double taxation."Personal Liability Protection
Corporations and LLCs are separate entities from their owners. Since the two are separate, the personal assets of the owners (such as their personal residences, and personal bank accounts) are not reachable by business creditors.LLC or S-Corporation?
As mentioned above, a C-Corporation that satisfies certain requirements can choose to file as an S-Corporation. The primary benefit of an S-Corporation is that it allows the shareholders to receive profits without taxation at the corporate level. Instead, the profits will only be taxed at the individual level, thereby avoiding the “double tax” that shareholders are usually subject to.If an S-Corporation is also not subject to the "double tax," are there situations where an LLC is still preferable?
An advantage of an LLC is that the formation and ownership requirements are less stringent. Usually, an S-Corporation can issue only one class of stock, while an LLC may offer a variety of classes. The S-Corporation also limits the number of shareholders to one hundred or less, and prohibits non-resident aliens from possessing ownership in the company. Further, S-Corporation shareholders cannot be other corporations, LLCs, or partnerships. An LLC has no such limits to ownership.
The LLC also offers an advantage in management flexibility. The LLC can be "member-managed," meaning that it would be managed directly by the shareholders. Or the owners of the LLC can agree to have the business “manager-managed,” meaning that the management can be structured and delegated from the owners to managers.Why not Choose an LLC?
Although the LLC form is preferable in many ways, a C-corp or S-corp may still be the best form in many circumstances. The primary reason that a C-corp or S-corp may still be preferable is the simplicity by which the stock can be sold or otherwise transferred. A sale of an ownership interest in an LLC must meet certain requirements, while a sale of corporate stock virtually has no limitations. As mentioned above, other favorable aspects of the corporation include the public's familiarity with the form and lower state filing fees. Finally, the &pass through& tax advantage may be less beneficial to businesses that are small enough to take advantage of the 15% and 25% tax rates.
Note that although every state allows corporations to have a single shareholder, a small minority of states require that an LLC have more than one Member. The rest of the states allow a single Member LLC.
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