The competitive and fast pace economy’s growth can be a challenging task to establish a company. However, it is an essential undertaking in achieving long-term success and stability. Establishing company incorporation can be considered one key point toward your future goal.
Company incorporation refers to the legal process of forming a new corporation or limited liability company (LLC). This company is a separate entity from its owner. Either formalizing the existing business or starting a new one, this article will guide you to learn further about the meaning of an incorporated company. Furthermore, the benefits and drawbacks are for your consideration.
What is Company Incorporation?
Company incorporation is the legal process of registering a business as a separate legal entity, distinct from its owners.
It creates a formal business structure, typically as a corporation or a limited liability company (LLC), that assumes legal responsibility for the business’s actions and debts.
This allows entrepreneurs to limit personal liability while enabling the business to enter contracts, open bank accounts, and raise capital independently.
Incorporated businesses typically include suffixes such as “Inc.” or “Ltd.” in their official names. Once established, the company becomes capable of issuing shares and onboarding investors.
This structure is favored by many growing companies, including PT PMA entities in Indonesia, which permit foreign ownership under specific guidelines.
Also read: Limited Liability Company (LLC): Definition and Characteristics
Advantages and Disadvantages of Incorporation
Now that you know the definition, let’s explore the benefits of incorporating a company:
- Separates business and personal assets. Your financial risk is confined to the amount you’ve invested in the business.
- Eligibility for corporate tax incentives and employee pension schemes.
- Enables investment and risk-sharing through issuance of shares.
- Ownership transfer and expansion are easier and legally structured.
- Perceived credibility and professionalism increase with incorporation.
Also read: The Types of Companies in Indonesia
However, incorporating also comes with certain drawbacks:
- Reduced flexibility. Governance is guided by corporate bylaws and board decisions.
- Added responsibilities like tax filing, compliance, and audited financial reports.
- There’s a risk of being taxed twice—once on the company’s earnings and again on shareholder dividends.
- Setting up and maintaining the company involves greater expenses and more complex administrative requirements.
Also read: 12 Pro Tips for Choosing Your Company Name
How to Incorporate a Business?
Now you know what is business incorporation meaning. Next, we’ll discuss about the process.
Incorporating a business consist of several steps. Here we have arranged the step especially to guide the business owners to register their corporate:
1. Filling and Submitting the Required Documents
Filling out the form to register your company is essential. Here’s a list of the necessary information you’ll need to provide on the form (each country may have different form filling):
- The name of the company. Make sure that your company’s name is unique and distinct from other companies.
- The physical location of the company
- The registered office address. Since it may have a different address from the physical office, the registered company address should also be informed. Besides, the location should be in the same state as the physical company.
- The specification of whether the company is a private, public, or unlimited entity
- The description of the company’s activities
- The approved article of the association
- Information regarding the company director (and public company secretary, if any)
- Evidence of liable capital, guarantee, or company shares
2. Selecting the Registered Agent and Paying Fee for Registration
A registered agent is a legal representative authorized to receive documents and mail on behalf of the company. It does not have to be the company’s owner as long as it resides in the same country where the company is established.
The registration fee differs based on how you register: via paper filling or web service, or whether you do the registration by yourself or engage with a consultant. In Indonesia, using the service of the notary public to notarize the company documents will be charged around 1.5% of the deed’s object value, which falls within the range of IDR 100 million to IDR 1 billion.
To register PMA company with a consultant in Indonesia, you will be charged around USD 2,500 (around IDR 37 million) to US 5,000 (around IDR 73 million).
Also read: What is a PMA Company in Indonesia? Guide for Foreigner
3. Submitting the Memorandum of Association and Articles of Association
The memorandum of association specifies the intention to establish a company. It is stated that if the company is secured by shares, then it must be accompanied by evidence that all owners hold at least one share in the company.
Meanwhile, the articles of association indicate the rules in the company that are made by the owners. These rules are necessary and should undergo agreement from all of the owners.
Additionally, the corporate bylaws also needed to be drafted. This provides a comprehensive set of instructions on how to run a business including how the board of directors operates, how shares are issued, how compensation is structured, and what voting rights are.
4. Receiving the Certificate of Incorporation
After completing all the needed documents, the company will obtain the certificate of incorporation. This denotes that the company has fulfilled all legal requirements and is now officially registered.
Additional tasks for the owners after formalizing the company consist of creating a bank account, applying for an employer ID number, and filing federal taxes and annual reports.
Start your Indonesia Company Incorporation with InvestinAsia. Visit our site to get detailed information that will help you to find guides and solutions from experts!
Also read: How to Register a Company in Indonesia: Guide for Foreigner
Other Things to Know about Company Incorporation
What is the difference between a private limited and an incorporated company?
The key difference between a limited company and an incorporated company is that a limited company is a business that limits the liability of its shareholders and investors. Meanwhile, an incorporated company is an independent legal entity whose owners are not liable for profits and losses. Only corporate with the tax that is required to be paid.
What is an example of incorporation?
Incorporation happens when a business owner decides to register their company legally and formally and make the business a separate legal entity. An example of a well-known incorporation is “Apple” company, which goes by the name “Apple Inc”. Another example is “Microsoft”, their full name is “Microsoft Corporation”.
An understanding of the meaning of company incorporation will assist you in a better understanding of the term. When considering whether or not to register your company, learning about the advantages and disadvantages can also be a good help to support your hesitation.
After reading the article about incorporation business definition, are you interested in formalizing your business? If so, you can chat us up to get started.
