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    You are at:Home»Business»What Dose Incorporating A Busieness Mean?

    What Dose Incorporating A Busieness Mean?

    RockyBy RockyJuly 10, 2023No Comments4 Mins Read
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    Anyone can start up a business in their garage. However, there’s a difference between a typical business and one that’s incorporated. Incorporation means the business is formally recognized by the government. It creates a legal distinction between the company and its owner. This article will explain incorporation, its advantages, and the steps to incorporate a firm.

    What Is An Incorporated Business?

    It is a company registered with the state to become a separate legal entity. Incorporation entails filing legal paperwork with the government to grant your company this separate identity. An incorporated entity is aptly called a “corporation.”

    Advantages of Incorporation

    • It creates a legal distinction between a business entity and its owners. This situation implies that the owners won’t be liable for financial losses, corporate debts, and judgments.
    • It makes it easy to transfer company ownership to another person or corporation.
    • Incorporated businesses command more trust in the eyes of customers and fellow businesses. This happens because other parties are sure you have legal backing and can head to the courts in case of disputes.
    • You can sell shares of an incorporated firm to raise money from external investors. 

    Types Of Corporations

    S-Corporation

    An S-corp is a corporate entity that passes all its finances directly to shareholders. It passes its taxable income and losses directly to shareholders, and the owners can deduct losses from their personal tax liabilities. This structure is, however, limited to firms with fewer than 100 shareholders.

    C-Corporation

    A C-corp is similar to an S-corp because it also passes its finances directly to shareholders. It can have an unlimited number of shareholders, unlike an S-Corp that’s limited to 100. However, C-corps are subject to double taxation; corporate profit is taxed, and distributions to shareholders are taxed again. The firm must also have an appointed board of directors responsible for corporate decisions.

    Limited Company

    This type of corporation gives the owners limited liability, meaning they are not personally liable for corporate debts and losses. The firm has a separate legal identity. A limited company can opt for pass-through taxation like an S-corp or double taxation like a C-corp.

    How To Incorporate A Business

    The steps to incorporate a company in the UK include:

    1. Choose a legal structure

    We listed the most common legal structures in the above section. You can choose the one that suits you best.

    1. Reserve a Name

    You need to pick a name that differentiates your business from others. It must be a name not already registered by another firm or similar to an established brand or trademark. 

    1. Choose Directors

    Every incorporated firm in the UK must have at least one appointed director responsible for day-to-day management and corporate strategy. A director must be at least 16 years old and not have been disqualified from holding a directorship due to previous conduct.

    1. Choose Shareholders

    Every firm must have at least one shareholder. You’ll choose a share capital (total number of shares) and allocate different amounts to each shareholder. The higher the shares a shareholder owns, the greater their influence over corporate affairs.

    1. Documentation

    You’ll need to prepare several documents, including

    • Valid identification for directors and shareholders, e.g., a driver’s license or government-issued identity card.
    • Proof of residence for directors and shareholders.
    • Proof of a registered office address.
    • Articles of incorporation: A legal document outlining the rules governing the firm.
    • Memorandum of association: A legal document signed by all shareholders declaring their intention to form a company.
    1. Submit Application

    With the above requirements ready, you can fill out Form 1N01 and submit it to Companies House. You can submit the form online or by post. Online applications can be processed in as little as 24 hours, while postal applications can take up to ten days.

    Companies House will review your application and decide whether to approve it. If approved, you’ll get a Certificate of Incorporation confirming that your business has been registered. 

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