Summary: Company registration is the process of creating a legal business entity. This includes all different forms of business structures and means of registration.
Company Registration
Company registration is the process of creating a legal business entity. This includes all different forms of business structures and means of registration. However, what all company structures have in common is that they all need to go through the process of officially recording their names and existence in the official company registers of the jurisdictions where they register.
Registering a company changes it from an informal to a formal entity. Also, it brings it to the attention of governmental bodies that monitor and assess business actions and compliance with the law.
Why is a company registration necessary?
An unregistered business can be seen as illegal in most jurisdictions. Lack of registration means that the business is operating without official oversight and, therefore, likely not complying with tax, labor, and business laws as it should.
On the other hand, registering a company means making it an official business, and can produce the following benefits:
- Legitimization: Registration legitimizes the business in the eyes of its partners and, especially, customers. Customers are much more likely to trust registered businesses over unofficial ones that offer no official accountability. Potential partners are more likely to collaborate with registered businesses that have legal accountability.
- Funding: Potential investors are far more likely to want to work with registered businesses than unregistered ones. Official financial institutions like banks and credit unions won’t proffer loans to unregistered businesses as they lack financial accountability. Private investors will likewise have no legal recourse to funds they lend to unregistered companies. Even loans from friends and family can be secured more easily by registered businesses.
- Hiring: A business must be registered to legally hire employees. This requirement is designed to protect workers from exploitation and ensure that the employee protections enshrined in law are respected.
- Contracts: Unregistered businesses can’t officially offer services or enter into legally binding contracts with other companies, individuals, or institutions. Without registration, these businesses don’t exist as legal entities which have rights before the law. Registration identifies entities and provides them with enforceable rights that protect both them and the parties they contract with.
- Intellectual property (IP): Registering a company gives it protections for its intellectual property. It can register brand names and trademarks and be protected against infringement by competitors.
- Banking: Without business registration, a company won’t be able to open up a business account with any financial institution. This can prevent the business from receiving payments for its goods and services.
- Branding: A legally registered company doesn’t have to lurk in the shadows but can produce goods and services out in the open. Registration can allow a company to build a brand and establish an identity that helps it resonate with customers and drive sales.
What are the differences between company registration and incorporation?
Incorporation and registration, though often used interchangeably, are different. Incorporation is, in fact, a type of business registration that entails registering a company as a corporation. Typically, this means that it will have to choose a name, define corporate bylaws, define a board of directors and corporate officers, and divide ownership into shares.
Registering other types of companies, however, doesn’t require these same activities. Registering a company may or may not create a new legal entity. It doesn’t need to redirect ownership of the company into the hands of shareholders or create boards. For example, when expanding overseas, companies can register a branch, rather than incorporating a new company in that country.
In short, registration is simply the act of officially recording the name and existence of a business with the appropriate authority, while incorporation is the creation of a specific type of company structure.
What sorts of company structures can be registered?
Around the world, numerous company structures are defined and registered by different governments. These structures are separated by important legal distinctions that dictate what actions they are allowed to take, how they are owned and operated, and what their limitations are. The common company structures that can be registered in the US include:
- Sole proprietorships: A sole proprietorship is a business owned and operated by a single person. This person may register the business under their own name or register a new name for “doing business as.” However, registering a sole proprietorship does not create a new legal entity. Instead, the business and the sole proprietor are considered the same person for legal and tax reasons. Any profit generated by this kind of business must be claimed on the owner’s personal income tax, which is usually assessed higher than corporate tax. In addition, in a sole proprietorship, the owner’s liability for debts or damages is unlimited.
- Joint ventures: A joint venture is a business created by combining two or more legal entities. These entities share responsibility for ownership and management while also sharing the risks and returns of the venture. Joint ventures may or may not be incorporated.
- Partnerships: In a partnership all individuals who sign up to a partnership agreement have unlimited liability. To do distinguish from limited partnerships, these are sometimes called general partnerships.
- Limited partnerships (LP): In a limited partnership, individual partners have different amounts of liability. At least one partner must have limited liability for debts and damages, and at least one partner must have unlimited liability for the same in an LP.
- Limited liability companies (LLC): An LLC is a registered business with owners who have limited liability, but it isn’t a corporation. An LLC is privately owned and operated by partners and is a hybrid company sharing aspects of a partnership and a corporation. LLCs may pay corporate tax or pass-through taxes, paying profits to their owners and then taxing their personal income accordingly.
- For-profit corporations: Corporations that are registered as having a profit-driven business goal must be incorporated. They need to have bylaws, a board of directors, and officers. Their ownership is divided into shares, and shareholders vote for or appoint the board of directors with this power. Corporations pay corporate tax in most countries. When expanding internationally, for-profit corporations can register their presence either through subsidiary incorporation or opening a branch of the global corporation.
- Nonprofit corporations: A nonprofit corporation is run by a board of directors and managed by officers. However, since it is designed to produce no profits, the corporation has no ownership and, therefore, no stocks or shareholders. Its purpose must be to provide mutual benefits for a group, create public benefits as in the case of a charity, or for religious practice.
- Cooperatives: Cooperatives are owned and managed by a group of people who participate equally in decision-making. These jointly owned for-profit entities are democratically controlled, and members have equal votes for electing the board of directors.
What is involved in registering a company?
The steps necessary to register a company differ according to the jurisdiction in which it will be performed and the type of entity that will be produced by registration. In most cases, the following activities are required:
- Choosing a business structure: After an assessment, one of the structures above will prove to be the most applicable for a new company. The process and requirements for each structure will be different and should be studied carefully.
- Selecting a name: Every registered company in a jurisdiction needs to have a unique name. The founders of the company will need to choose a name and then check databases to ensure the name is available.
- Filing with government agencies: Company registers can be maintained by state or federal government agencies. The company founder will need to file the appropriate paperwork for their desired structure with the appropriate agency and receive approval.
- Attaining an employer identification number (EIN): An EIN is required for tax purposes when hiring employees. If a business is registered as a sole proprietorship, the owner can simply use their own Social Security number as a taxpayer identification number.
- Applying for a business license: Companies working in different industries generally need to be licensed by relevant governing authorities. Companies with multiple activities may need to acquire multiple licenses.
- Opening a company bank account: A company can open a bank account and start doing business with a registered name and an EIN.
What costs are involved in registering a company?
While the actual processing costs for registering with government authorities are usually minimal, incidental costs can add up. Filing an application with a relevant registration body and acquiring an EIN can cost just a few hundred dollars. For more complicated companies and corporations, however, professional accounting and legal help may be required, which can increase the total cost of registering a company to a few thousand dollars.
What documents are required for company registration?
The primary document needed to register a company is an application from the registration authority. This will normally be supplemented by identity documents. For registering a corporation, an EIN application, articles of incorporation, a shareholder agreement, and bylaws are typically needed as well.
How long does the company registration process take?
The length of the company registration process can vary widely based on the jurisdiction in which it is registered, the type of entity being created, and the ownership structure being created. For simple cases, registration can take only a few days to a week, while more complicated corporations may take months. Registering a company in a foreign country will also take longer unless an experienced agency is used for support.
Authors:
Marcel is an experienced journalist and Public Relations expert with an honours degree in Journalism and bylines with a range of major brands.
