Incorporation is the legal process used to form a corporate entity or company. When a company is incorporated, its owners are not personally responsible for any lawsuits or other legal claims made against the company.
Basic Steps to Forming a Corporation
- File formal paperwork, usually called “articles of incorporation".
- Pay a filing fee.
- Create corporate bylaws.
- Hold the first meeting of the board of directors.
The articles of incorporation typically include:
- Your corporation’s name
- Business purpose
- Number of shares and types of stock issued
A corporation can be created by a single or multiple shareholders who pursue a common goal, either for-profit or non-profit. The process of ending a corporation is called liquidation. An involuntary liquidation can be triggered by unpaid creditors, followed by bankruptcy.
Issuing stock to the shareholders is one of the first formal corporate actions after forming a corporation. Record the shares issued to each shareholder and the price paid. A share of stock represents a unit of ownership.
Advantages of Incorporation
Choose a business name for your corporation. Sell shares and raise money easier than other structures. The corporation value will be based on the business, making selling easier.
Incorporation formally organizes a business, offers protection for the owner’s personal assets, and often leads to easier access to capital. It legally separates the business entity from its owners, providing limited liability and a structure for raising funds through the sale of stock. Tax liabilities are also distinct from those of a sole proprietorship.
Starting a Corporation
Learn to start a corporation in 2024 by consulting our guide. Use the latest browser for the best experience. Whether for taxes, investors, or reputation, incorporation may benefit your business. It’s a legal structure separate from its owners. We’ll walk through the process and answer common questions.