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What is the difference between a corporation and an incorporation?
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Understanding Corporation vs Incorporation
You’re looking to start a business and you hear the words corporation and incorporation and wonder what they mean.
What’s the difference between a corporation and incorporation, you wonder?
A corporation is a legal entity used to operate a business whereas incorporation is the process of forming a new corporation.
Keep reading as I will provide you with a more specific breakdown of the meaning of incorporation vs corporation.
Before I tell you the differences between a “corporation” and “incorporation”, let’s first define each of these business terms.
What Is Corporation
A corporation is a “legal entity” that is formed to operate a business where the business owners own shares in the entity.
The shareholders will then elect a board of directors who is in charge of overseeing the corporation’s business operations.
The board of directors will then hire corporate officers to run the day-to-day operations of the business.
The main advantage of operating a business as a corporation is that the shareholders (or business owners) benefit from limited personal liability.
Since the corporation is an entity of its own and distinct from the shareholders, the corporation’s creditors will not be able to pursue the shareholders individually for business debt.
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What Is Incorporation
Incorporation refers to the “process” of forming a corporation.
In other words, the steps you need to take, the documents you need to file, the fees you need to pay, and so on, are all part of the incorporation process allowing you to create a new corporate entity.
Incorporation typically involves many steps, such as completing the corporation’s articles of incorporation, filing the articles of incorporation with the Secretary of State or related state agencies, paying the filing fees, and getting a certificate of incorporation.
Once the corporation is formally created, the final step is to call an organizational meeting where the corporation’s shareholders are named, the board of directors appointed, share certificates issued, minute book adopted, and so on.
Every jurisdiction will have a slightly different incorporation process.
As a result, you’ll need to verify the local statutes and incorporation rules to ensure you are forming a corporation in compliance with the local requirements.
Now that we have defined the meaning of incorporation and corporation, let’s look at their main differences.
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Corporation vs Incorporation Differences
What is the difference between a corporation and incorporation?
A corporation has a very different meaning than incorporation.
Here are the main differences.
Corporation Features
A corporation is an actual legal entity.
In fact, there are different types of legal entities that could be created to operate a business such as a corporation, limited liability company, partnership, or other.
A corporation is one type of business entity that provides key benefits to the business owners such as limited liability protection, flexible ownership structure, more funding options, and more.
On the other hand, incorporation refers to the process of forming a new corporation.
Since incorporation is a process, it has nothing to do with the actual entity itself.
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Incorporation Features
Incorporation refers to the process of creating a new corporation that a business owner will use to operate a business.
The incorporation process involves a number of steps, such as:
- Finding a corporate name that is unique
- Determining the state where you will form the corporation
- Completing the incorporation papers in the selected state
- Paying the incorporation fees
- Getting a certificate of incorporation
- Holding an organizational meeting
Once the corporation is formed, the incorporation process is completed.
From then on, the corporation must observe various requirements to maintain a good standing status.
Key Differences
Here are certain key characteristics of corporations
- A corporation is a business entity created through the incorporation process
- It offers the business owner (the shareholder) limited liability protection
- The corporation can exist perpetually
- The corporation is the word you’ll use to refer to your business entity throughout its life
- The corporation is a separate legal entity
- The corporation can own assets and have liabilities, sue and be sued
- The corporation must respect registration laws to remain in good standing
Here are the main characteristics of incorporation:
- Incorporation is the process of forming a new corporate entity
- Incorporation refers to the accomplishment of several steps to create a new corporation
- The incorporation process starts by drafting the corporation’s articles of incorporation
- The incorporation process ends when the state formally creates the new business entity and the corporation holds its organizational meeting
- The incorporation process is a one-time action and is completed only once
- The incorporation process must respect the laws of the state or jurisdiction where the corporation is being formed
Corporation vs Incorporation FAQs
What is a corporation?
A corporation refers to a specific type of legal entity.
A corporation can be differentiated from other types of legal entities such as limited liability companies, partnerships, associations, cooperative,s and others.
A corporation can be a C-Corporation which is taxed as a separate legal entity or an S-Corporation allowing the business revenues to flow through to the shareholders.
A corporation qualifying to be an S-Corporation can make that once the legal entity is formed.
Most large public companies operate as corporations.
What is incorporation?
In business, incorporation refers to the process of forming a new corporate entity.
In essence, incorporation refers to a series of steps that a business owner, entrepreneur, or company founder must complete to have a new corporation formed.
For many startups and small business owners, the incorporation process is typically the first step taken to turn their business idea into reality.
At the end of the incorporation process, a new business entity is formed providing its shareholders with limited liability protection.
What is the main difference between a corporation and incorporation?
The main difference between a corporation and incorporation is that a corporation refers to a type of business entity whereas incorporation refers to a process for creating a corporation.
A corporation can be used for any type of business.
No matter the nature of business, the corporation will shield its shareholders from business liability.
What does it mean to be incorporated?
To be incorporated is typically a phrase used to refer to the fact of having a business operated under a corporation.
In other words, when someone says that he or she is incorporated, it means that they are running their business through a corporation (that can be a C-Corp or an S-Corp).
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Do you need to incorporate in different jurisdictions?
No, once you incorporate a corporation in one jurisdiction, other jurisdictions will recognize your business entity.
However, if you’re looking to expand your business operations to different states, you’ll need to follow the local rules requiring the registration of your corporation in those states.
Typically, there’s a process that you’ll need to follow to qualify or register a foreign corporation in a state that is different from the state where the corporation was formed.
How many people do you need to form a new corporation?
In the United States, you need at least one person to form a new corporate entity.
Every jurisdiction will have varying requirements when forming a corporate entity.
However, in the United States, an individual can form a corporation alone without having other business partners.
The beauty of a corporation is that you have a flexible ownership structure where you can ultimately issue shares to new business partners, investors, employees, or other key stakeholders.
What are the incorporation steps?
The incorporation steps are typically the following:
- Find a name for your corporation
- Create your articles of incorporation
- Submit your articles of incorporation to the state
- Pay your incorporation fees
- Establish your head office
- Name your board of directors
- Hold your organizational meeting
Takeaways
So there you have it folks!
What’s the difference between a corporation and incorporation?
Since both terms use the word “corporation”, it creates some confusion.
The term corporation refers to a legal structure separate from its business owners or shareholders.
Incorporation refers to the steps you need to take to register a new corporation.
Through the incorporation process, you are able to form a new corporation offering the shareholders limited liability from business creditors.
Now that you know the differences between a corporation and incorporation, good luck with your research.
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