As an entrepreneur, you need to set out to establish a business of your own. In order to do this, you will be required to assess the kind of legal structure you want your company to have. The term “Inc” in a company’s name is considered an option, but have you ever wondered what the term Inc. means? The term Inc. is used after a company’s name to signify that the company has been incorporated. This is done following a specific set of rules and regulations formulated to assess the process of incorporation of companies.
Did you know? Multinational firms such as Google, Microsoft, Amazon, and Apple use the word “ Inc” in their company name, signifying that the company has been incorporated.
Incorporated Meaning and Steps Towards Incorporation
The full form of Inc is incorporated. The word incorporated can be defined as the complete process of incorporation and the separation of the company from its owners and major stakeholders. In simple words, it provides the business with a separate legal entity distinct from its owners to safeguard their interests and to make sure that the business and the owners of the business are two distinctive separate legal persons in the eyes of the law.
Steps to Incorporate a Company
There are various steps needed to incorporate a company, which are:
- First, the company has to select a name for itself which some other company in that state still needs to take.
The company will then be required to choose its board of directors and the kind of shares it wishes to issue to the general public. These can be either equity or preference shares or shares with differential voting rights.
- File an article of association and memorandum of association of the company and state the bylaws with which the company will efficiently conduct its business proceedings.
- Issue shares of the company to the company to the company through IPO (Initial public offer)
Once a company follows the above-given steps, it will be considered to be running and ready to efficiently conduct its business proceedings.
Also Read: What is Certificate of Incorporation – Guide on How to Obtain Certificate of Incorporation
Benefits of Getting Incorporated
When we look closer at the meaning of Inc, we can ascertain various benefits attached to getting a company incorporated.
These benefits are as follows:
-
Separation of Ownership
The biggest advantage of incorporating a business is that it separates ownership from its owners. By law, a company that has been incorporated is a separate legal entity, so the equity holders and the company will be considered two distinct legal entities.
-
Liability is Limited
An incorporated company limits the liability of its owners and equity shareholders. It means that if the company suffers a major crisis in the future, the personal property of the owners or equity holders will not be attached to pay creditors. Even creditors won’t be able to claim any money from business owners.
-
Perpetual Succession
A company that is incorporated enjoys the benefit of perpetual succession. Perpetual succession means that the company will not be affected by the entry or exit of one or most of its members.
-
Transferability of Shares
A company that has been incorporated has transferable shares that can be easily transferred from one person to another, as mentioned in the company’s articles.
Disadvantages of Getting Incorporated
Despite having so many benefits, there are also certain disadvantages to getting a company incorporated, which are as follows:
-
Lots of Formalities and Costs Involved
Many legal formalities must be completed to incorporate a company, which is time-consuming and exhausting. Also, there are lots of costs involved in the execution of the entire process of getting a company incorporated.
-
Great Implications of Tax
An entity that has been incorporated must pay a much larger amount of tax than other entities. A company that has been incorporated hardly gets any form of tax discount from the government authorities.
-
Higher Precedence of Social Responsibility
A company that has been incorporated has a substantial impact on society. These organisations are expected and required to follow certain norms and rules set to contribute towards the betterment of society. These organisations require a substantial amount of corporate social responsibility towards the benefit of society, which at times adds a financial strain to the company.
Also Read: Learn About CSR Amendment Rules – CSR Policy & Implementation
Distinctive Study of Incorporated vs Corporation
Incorporation and corporation are two terms that are completely distinctive from each other. The difference between incorporation and corporation is as follows:
-
Meaning of Incorporation and Corporation
Incorporation is the process of separating the legal status of the business from its owners. It is referred to as the process of incorporating a new or existing business. This makes it a separate legal person in the eyes of the law. This means that the business can raise any amount of funds, hire the requisite amount of personnel and be involved in acquisitions and mergers. The personal assets of business owners cannot be claimed while paying out creditors of the business.
On the other hand, a corporation is defined as an entity established to engage in business activities. It is established when one or more equity holders agree to invest substantially in attaining mutual goals.
-
Significance of Incorporation and Corporation
Incorporation is a legal process where the business is granted the status of a corporation. It refers to the organisation’s work as a corporation until it gets the name “inc”.
-
Process of Incorporation and Corporation
A business’ incorporation process varies from country to country, depending on the local laws of the prevailing nation.
On the other hand, registering a corporation is considered uniform in most countries worldwide.
-
Status of Incorporation and Corporation
Incorporation is considered a series of steps for the incorporation of a new or ongoing business. This helps protect the interests of the business owners by ensuring that no personal property of the business owners or the equity holders of the organisation.
-
Lifecycle of Incorporation and Corporation
An incorporated company starts operating once it attains the certificate of incorporation and ends as soon as it attains corporation status. On the other hand, a corporation will continue to exist until it gets wound up or dissolved, mostly because of its inability to pay creditors’ dues.
Conclusion
The article covered the meaning of inc, incorporation definition, steps required to acquire incorporation status, benefits and disadvantages, and a comparison of incorporated vs corporation. As the business has the status of a separate legal entity, any physical or financial assets owned by the equity holders and the owners cannot be pledged to settle the liabilities of the business.
Follow Legal Tree for the latest updates, new blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and account.