How do I Form a Company?

N. Madison
N. Madison

The steps a person has to take to form a company depend on the type of enterprise he is hoping to form as well as his definition of what a company is. Some people may consider a company any kind of business that sells goods or services. Others may consider a company a business that exists as a separate entity from its owners. No matter what type of company or business a person decides to start, however, he’ll usually need to check the laws in his area, secure a license where required, and in some cases, file the necessary paperwork to establish the legal structure of his business.

An S corporation allows a company to pass income and losses on to their shareholders.
An S corporation allows a company to pass income and losses on to their shareholders.

One of the simplest forms of companies a person can establish is called a sole proprietorship. When a person operates a sole proprietorship, he is the sole owner of his company. He usually has the sole right to the profits he earns through his business dealings as well as the sole responsibility for any liabilities created in the course of running his business. If, for example, a sole proprietor is sued by his debtors, his personal property may be at risk. To set up this type of company, a person usually makes sure his proposed business is a legal activity in his jurisdiction and applies for a business license if one is required in his area; he may also have to secure a license or permission to use a fictitious name.

A partnership is a type of company in which two or more people are the legal owners of the business. In many countries, there is no paperwork to file to form a partnership. People who wish to do so, however, usually create a partnership agreement that outlines the rights and responsibilities of each member of the partnership. As with a sole proprietorship, an aspiring business owner may be required to apply for a business license and register a fictitious name as well. It's important to note that all members of a partnership are usually personally responsible for the partnership's business debts and liabilities.

A corporation is a more complicated type of company. When a person or group of people decides to form a corporation, he creates a business that is a separate entity from those who start it. The company is owned by stockholders and is usually taxed separately from the owner's personal income. The benefits of forming a corporation may depend on the country in which a person starts a business, but one major benefit is that this type of business usually shields the owner or owners from personal liability.

An individual or group of individuals who wants to start a corporation usually has a good deal of paperwork to file. To form a company in this manner, a person usually has to file articles of incorporation or similar paperwork with the authority in his area, adopt bylaws, choose officers, and choose and register a name for the corporation. There may be other requirements as well, depending on the country in which the corporation is formed.

In some countries, a person who wants to form a company has the option of choosing to form different types of corporations. For example, in the United States, a person may form an S-corporation or a limited liability company (LLC), which are often preferred by small businesses. In places such as the United Kingdom, a person may form a corporation that is referred to as a private limited company, public limited company, or private unlimited company. Whether in the United States, the United Kingdom, or another country, forming this type of company usually involves completing required paperwork and paying fees. Additionally, an individual may seek an attorney's help to form a company, especially if his local laws are complicated.

N. Madison
N. Madison

Nicole’s thirst for knowledge inspired her to become a wiseGEEK writer, and she focuses primarily on topics such as homeschooling, parenting, health, science, and business. When not writing or spending time with her four children, Nicole enjoys reading, camping, and going to the beach.

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