Difference Between Incorporation and Registration
The difference between incorporation and registration should be understood when forming a business. Both are options for making your business legal.3 min read
The difference between incorporation and registration should be understood when forming a business. Both are options for making your business legal. The main difference is that incorporation creates a separate legal entity. Creating a corporation also protects the business owner from losing personal assets if the company is sued. Business registration does not offer the same protection of personal assets. The reason you register a business is more for the business license, which is needed to operate in some areas.
Incorporating Your Small Business
Incorporation is defined as forming a new business structure that becomes a recognized person or entity under the law. This is a charter that a governmental jurisdiction grants to a group of people so they can conduct business as a legal entity instead of individuals. A Certificate of Incorporation must be filed during this process, where a name is chosen, a document is signed, and it's sent to the Delaware Secretary of State's office.
Corporations located in the United States must pay a fee depending on which state they're in, which can range from $25 to $1,000. They must also decide on an operating name. A corporate name should have a legal ending, such as "Ltd.," "Inc.." or "Corp." The incorporation process includes an SS-4, which is an application needed to obtain an Employer Identification Number (also known as EIN). The IRS assigns this ID to be used for paying taxes and to identify the business to the government. When opening a bank account for the company, it's necessary to have an EIN. You also need this to pay your employees when the company is at the hiring stage.
The next step is company formation, which needs start-up expertise and legal precision. Formation happens right after incorporation happens. Company formation is where a series of decisions are made and documents and processes are adopted to reflect what was decided on. This makes sure that a new C corporation has the traits and structures that are expected of them by investors.
An experienced lawyer can help the company make sure they're on the correct path and go through all the steps properly. However, there are a few disadvantages of bringing in a lawyer. These include not having a guaranteed liability protection, having a large amount of paperwork to fill out, and having to pay fees. It takes a longer time and more money to incorporate a business, but there are also distinct advantages. They include the following:
- Personal assets are protected
- Ownership is transferable
- Fewer taxes are paid
- Durability is increased
- Retirement plans are easier to form
- A separate credit rating is given no matter what the owners' personal score is
Registering Your Small Business
When a company is registered, it's done at the government office in the local area where you'll operate in. There are several advantages to registering a business with a federal, international, or state certification board. It makes it easier and quicker for possible customers to find and research you. Registering is a cheap type of marketing, and is an easy process. The business can usually be registered in just a few minutes by going online.
The costs to register are different but tend to be affordable since they expire each year and need to be renewed again. If your company isn't in the state it's registered in, it needs to file for a foreign qualification in the state where business will be conducted. This gives the state the ability to tax and regulate the company.
A number of agreements will also have to be signed. They include:
- employment agreements
- participant agreements for consultants, advisors, and Board members
- intellectual property assignments
- other routine agreements for daily operations and governance
Getting your business registered may come with certain perks. Some of these include special credit cards or wholesale discounts. In fact, registration may positively affect your credit score. However, be careful of the risks associated with certain business credit cards. Being registered may also make it easier to get bank credit, but like with business credit cards, you should use caution. There are pitfalls from being in too much debt.
If you need help with the difference between incorporation and registration, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.