Forms Of Incorporation: A Simple Guide

Incorporation is a legal process leading to the formation of a corporation. Before incorporating your business an important question which arises in your mind is: There are various forms of incorporation available, which form should be suitable to my business?

To answer your question we have compiled a comprehensive guide to almost all forms of incorporation. To see the types of offshore investing companies click here.

A brief introduction and pros and cons of mostly used forms of incorporation are given below:

* Sole proprietorship:

- This is the most famous form of small enterprises worldwide. If you own a small or a part time business, dont want to expand it, and want to be free from the hassle of filing returns and maintaining records, a sole proprietorship is for you.

- The disadvantage of this type of business is worth noting. Sole proprietors are personally liable for all the debts of the business.

* Partnership:

- One of the most important forms of incorporation is partnership. When you want to inject investment in your business and dont have enough capital, you can add a couple of friends or other willing investors into your partnership business and share your profits and losses accordingly.

- A partnership is preferred when there is a family business and all of the family likes to be involved in the decision making process. Alternatively, when close friends bringing different skills to the business want to work together.

- A major disadvantage of this form of incorporation is unlimited liability.

- There is another disadvantage. There is no perpetual succession. In many cases a partnership is dissolved when any partner leaves or dies and a new partnership needs to be constituted whenever a new partner is needed to be inducted!

* Limited Partnership:

- This type of partnership is available in some countries nut not in others.

- A limited partnership has all the characteristics of a normal partnership except that the liability of the partners is limited to the amounts of the capital invested by them; hence there is no personal liability.

- This makes limited partnerships attractive and more practical than simple partnerships. However there is a limit to the number of partners that can participate in the company.

* Corporation:

- A company incorporated under the applicable company laws of a specific jurisdiction is known as a corporation or a company; it can also be referred to as company corp. Main characteristics of a company corp. are as follows:

- Limited liability

- Perpetual succession

- Separate legal entity

- Can sue and be sued in its own name

- Proper records are required to be kept

- Annual, semi-annual and quarterly returns are usually required to be filed with the registrar of companies, in most countries.

There are various types of corporations. Each type has its own advantages and limitations, some of these types are listed below:

- Private limited companies

- Public limited companies

- Company limited by guarantee

- Unlimited company

* Corporation not for business:

- Among various forms of incorporation, corporations not for business is that type which is often used by non government organizations (NGOs) and other non profit organizations for incorporating their non-profit businesses.

- Special privileges are available to no profit corporation almost every country except some offshore ones.