Incorporation

Incorporation

A legal process through which a company receives a charter and the state in which it is based allows it to operate as a corporation.

Incorporation

The process by which a business becomes a legal entity separate from its owner(s). Incorporation presents a number of advantages: becoming a separate legal entity means that the business itself makes or loses money, which protects owners from liability for its debts. Likewise, a corporation is taxed on its earnings separately from its owners, and, in many countries, the corporate tax rates are lower than personal tax rates. The process of incorporation involves writing articles of incorporation and registering them with the appropriate government entity in order to receive a corporate charter, which confers corporate legal status.

Incorporation.

When a business incorporates, it receives a state or federal charter to operate as a corporation. A corporation has a separate and distinct legal and tax identity from its owners.

In fact, in legal terms, a corporation is considered an individual -- it can own property, earn income, pay taxes, incur liabilities, and be sued.

Incorporating can offer many advantages to a business, among them limiting the liability of the company's owners. This means that shareholders are not personally responsible for the company's debts. Another advantage is the ability to issue shares of stock and sell bonds, both ways to raise additional capital.

You know that a business is a corporation if it includes the word "Incorporated" -- or the short form, "Inc." -- in its official name.

incorporation

see COMPANY FORMATION.

incorporation

see COMPANY FORMATION.