You should understand the difference between incorporating and registering a company before getting into business. The primary difference is that incorporation makes your business a separate legal entity, while registration is more like a license for the business to run but without a separate legal identity.
Incorporating Your Company
Incorporation is the process of forming a new corporate entity. This entity has a separate identity under the law, meaning you won’t be personally liable for company debts. Every country has a body responsible for company incorporation, such as the Accounting and Corporate Regulatory Authority (ACRA) in Singapore. You’ll need to meet the requirements to incorporate your business, and afterward, you’ll receive a certificate of incorporation.
Registering Your Company
According to this comprehensive guide by SmallBusinessHQ, Registering implies submitting details about your business to the authorities. For example, you’ll need to register to get a tax identification number or a value-added tax (VAT) registration number.
Registering your company helps you get found on corporate registries. The process is usually simple and takes less than 24 hours.
Let’s see the differences between incorporated and registered businesses in some important areas.
Limited Liability
A registered firm is attached to the identity of its shareholders. Hence, the shareholders are personally responsible if there’s any liability or judgment against the firm.
In contrast, an incorporated firm has its own separate legal identity. If there’s any liability or judgment accrued by the firm, the shareholders won’t be personally liable. That makes incorporation preferable for people investing significant sums of money into their company.
Name Protection
A registered firm does have name reservation or protection. Anybody else can start a firm with the same name, and you don’t have any recourse.
On the other hand, incorporated firms offer protection for your company name. If someone creates their own corporate entity with a similar-sounding name, you can pursue legal action and potentially force them to drop the name.
Tax Benefits and Deductions
A registered firm is taxed at the personal tax rates of their owners. There’s little flexibility for the owners to reduce their tax liabilities, e.g., by deducting their corporate expenses.
An incorporated firm is its own separate legal entity with a distinct tax rate. The owners are only taxed if they collect dividends, salaries, or any other income from the corporation. They can reduce corporate tax liability by deducting some approved business expenses.
A registered business can not hold properties, bonds, stocks, and other investment assets in its own name, but incorporated firms can.
Renewal
Business registration requires renewal at some point. Licenses are only granted for a specific period, and the owner has to reapply after the expiration.
Incorporated entities only need to register once. Once you get the certificate of incorporation, it’s valid for as long as your country’s legal system remains active.
Flexibility
Registered firms have limited abilities to change their structure. For instance, changing the name and address and adding new partners will be difficult.
Incorporated companies can easily change their details. You can change the name, legal structure, office address, directors’ and officers’ information, etc., with little hassle.
Conclusion
We have explained the major differences between company registration and incorporation. In summary, the latter offers more protections and advantages over the former.
