Incorporated businesses in Common Law countries are entities that have registered with the relevant authority (usually local government branches) to legally become a corporation or company. They are recognized as a separate legal entity from their owners.
This legal entity status is important, because it gives the business certain rights, responsibilities, privileges, and liabilities distinct from those of its owners.
Table of Contents:
Key Characteristics of Incorporated Businesses:
Incorporation laws and regulations vary by country and even within countries (like in different states in the US). The process involves registering with the relevant government body, drafting legal documents (like articles of incorporation), and fulfilling ongoing compliance obligations.
Separate Legal Entity:
After incorporation, a business becomes a separate legal entity from its owners (shareholders). This means the business can own property, enter into contracts, sue and be sued in its own name. This is often referred to as separate legal personality.
Limited Liability:
Shareholders in a company typically have limited liability, which means their personal assets are protected from the business's debts. Their financial risk is limited to the value of their investment in the business. So, if a shareholder owns 100 USD in shares, they will only lose that initial investment if the company goes bankrupt.
Perpetual Existence:
Incorporated businesses like companies and corporations have a perpetual existence, which means they continue to exist even if the owners or shareholders change, retire, or pass away. This is not the case with sole traders (sole proprietorships) or partnerships, where the business can cease to exist in such events.
Ownership and Control:
Ownership in a company or corporation is usually determined by share distribution.
The board of directors usually has control and management of the business.
The board of directors is elected by the shareholders.
Directors manage the business’ overall strategy, and day-to-day operations are managed by officers appointed by the board.
Taxation:
Incorporated businesses are taxed as separate entities.
In many jurisdictions, this leads to corporate taxation; profits earned by the corporation are taxed at the corporate level, and dividends paid to shareholders are taxed again at the individual level, known as double taxation.
However, some corporate structures like S-Corporations in the US allow profits to be passed through to shareholders' personal tax returns, avoiding double taxation.
Regulatory Compliance:
Companies are subject to various government regulations, including the requirement to file annual reports, maintain certain records, and adhere to corporate governance standards.
Raising Capital:
Incorporated businesses can raise capital more easily than unincorporated businesses, typically through the sale of stocks and bonds. This ability to tap into capital markets can be a significant advantage for business growth and expansion.
Limited Partnerships (LLP) Factsheet
A Limited Liability Partnership (LLP) consists of two or more individuals who have registered their partnership to do business together. It is a distinct legal entity separate from its partners. |
Key Characteristics:LLP: Business structure mixing partnership & corporation elements. Legal Entity: LLP is separate from partners; it can own assets and sue/be sued. Liability: Limited for partners; shields personal assets from partnership debts and other partners’ negligence. Management: Set out in partnership agreement; details roles, profit-sharing, control. Taxation: Partners report profits/losses on personal taxes. Formation: Governed by specific jurisdiction laws; varies per region. Common Use: Preferred by professionals (lawyers, accountants) for flexibility and liability protection.
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Advantages and Disadvantages of Limited Partnerships (LLP)
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Disadvantages:
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Comparison Table
Here's a comparison table outlining the key differences between Incorporated Businesses and Limited Liability Partnerships (LLPs):
Incorporated Businesses Glossary of Terms
Download the FREE Business and Legal English Vocabulary Glossary of Terms for Incorporated Businesses below:
Vocabulary Builder Exercise: Understanding Business Structures in English
An incorporated business is a company that has officially registered with the government and is recognized as a __________ __________ __________, meaning it is seen as its own person in the eyes of the law.
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This type of company enjoys limited liability, which means the owners' personal assets are protected; they are not personally responsible for the company's debts beyond their __________ in the company.
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An important feature of incorporated businesses is their perpetual existence. This means the company continues to exist even if the __________ or __________ change.
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The board of directors plays a crucial role in managing the company, as they are responsible for the __________ __________ and ensuring that the company follows all __________ __________.
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Double taxation is a scenario where the company's profits are taxed twice: first at the corporate level, and then again when __________ are paid to shareholders.
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A Limited Liability Partnership (LLP) is a special type of partnership that offers benefits of both partnerships and corporations, such as __________ __________, which shields personal assets from the business's debts.
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In an LLP, __________ __________ allows partners to create a customized management structure, making it a flexible option for professionals like lawyers and accountants.
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However, one downside of LLPs is the administrative load, meaning there are more __________ tasks and __________ to comply with compared to simpler business structures.
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For a complete understanding of business structures, make sure to also explore our Unincorporated Businesses Factsheet, which includes an engaging Audio Fact Sheet to help you grasp the nuances of operating without corporate status in common law countries.
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