Incorporation is the legal process used to form a corporate entity or company. It separates the firm’s assets and income from its owners and investors. Corporations can be created in nearly all countries. They are usually identified by terms like "Inc." or "Ltd.".
The process involves writing the articles of incorporation and listing the shareholders. This is called limited liability.
Pros and Cons of Incorporation
Incorporation has pros and cons. It requires more time for reporting and regulatory requirements. Due to fees and legal costs, it may be more expensive. The bylaws and board limit flexibility. Funds may be double-taxed.
However, it protects personal assets. With limited liability, owners are not personally responsible for business debts. The business can outlast original owners, giving it durability.
Incorporation Steps
Steps include:
- Choosing corporate structure
- Deciding state to incorporate
- Naming business
- Drafting articles of incorporation
- Filing with Secretary of State
- Paying fees
Once satisfied, the Secretary of State issues a Certificate of Incorporation. This certificate is the birth certificate of the company. It has a corporate identity number and date of legal birth. On this date, the company can enter contracts. The certificate proves incorporation occurred.