How To Become Incorporated
 

Types Of Incorporation

 

Choice of Legal Structure

 

Sole Proprietor / Sole Trader

The business is run by a single owner who assumes liability for all the debts and liabilities of his business.  Not only is the owner liable, but the personal assets of the owner and spouse are at risk.

 

 

General Partnership

 

A business run by two or more partners is known as a general partnership.  As with a sole proprietor business, the partners are responsible for all debts and liabilities of the business, plus one partner is liable for the debts incurred by the other partner in the name of the business, therefore a lot of trust is required between the partners. Alternatively the partnership can be set up a limited liability partnership which protects each partner from the other’s actions.

 

Limited Partnership

 

A limited partnership is a combination of both general partners and limited partners.  Limited partners are usually sleeping partners who invest in the business, but leave the day to day trading activities to the general partners.  With limited status, a limited partner can share in the profits of the business without risking their personal assets, their liabilities are limited to the amount of their invested capital.

 

Limited Liability Company (LLC)

 

A limited liability company provides the limited liability status of a corporation and also the favourable tax treatment of a partnership.

 

Corporations

A corporation is separate legal entity to that of its owner, it is also a separate tax entity and is therefore taxed separately from owner(s).  The IRS refer to a general corporation as a “C-Corporation.  A corporation must be registered with the secretary of state and is owned by its shareholders, whilst run by its directors, agents and managers.  An S-Corporation is a corporation that has filed to become an S Corporation with the IRS.  This change of status allows the IRS to treat the corporation like a partnership for taxation purposes...