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How do you define incorporation in simple terms?
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In this article, I will break down the definition of Incorporation Definition so you know all there is to know about it!
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What Does Incorporation Mean
In business, the term incorporation is used to refer to the process of forming a new business entity.
In other words, when a person or company files the required paperwork to create or constitute a new business entity (such as a corporation), we refer to that process as “incorporation”.
For example, Mary has filed the necessary paperwork with the government in order to have a new company created for her.
In this context, Mary is undergoing an incorporation process.
This means that Mary is doing what’s necessary to officially create a new company so she can have her business operation under the company instead of her personal name.
The incorporation process typically works as follows:
- You select a company name
- Prepare the company’s articles of incorporation
- File the articles of incorporation with the state or government
- Appoint a registered agent
- Prepare the company bylaws
- Appoint the company directors
- Issue your corporation stock
- Obtain your company’s EIN
Every jurisdiction will have its own unique requirements, so the incorporation process may differ from one place to another.
Operating An Incorporated Business
When a company is incorporated further to the successful completion of the incorporation process, then the business owner or company founder can do business under the company.
Doing business under the company consists of the company generating its revenues, acquiring its own assets and liabilities, paying its own expenses, and filing its own income tax returns.
By having a separate legal entity, corporations protect shareholders allowing them to benefit from limited personal liability.
In other words, a corporation is responsible for its own assets and liabilities where business creditors cannot personally pursue shareholders for the corporation’s debt or liability.
How do you define incorporation?
According to Investopedia, the definition for incorporation is as follows:
Incorporation is the way that a business is formally organized and officially brought into existence.
This is a good and simple definition of the term incorporation.
The Merriam-Webster dictionary defines incorporation as:
Creation or formation of a legal corporation
Essentially, incorporation means:
- The process of
- A new company
Incorporation Legal Definition
In law, the term incorporation refers to the legal process of forming a new business entity by filing the necessary documents and paperwork with the relevant governmental authority or agency.
In fact, corporations are legal entities separate from the business owner or the shareholders.
For a corporation to be formed, a person must file the necessary documentation with the state or government and pay the applicable fees to initially create it.
In essence, when a new company is to be formed, a person will need to go through the incorporation process that is unique to the jurisdiction in which the company is being formed.
Every jurisdiction will have its own legal requirements to satisfy for the government to officially form a new business entity and recognize it as a separate legal entity.
Then, once a corporation is formed, the business entity must be kept “alive” by filing periodic paperwork and observing the ongoing maintenance requirements.
Define Incorporation Takeaways
So there you have it folks!
What does incorporation mean?
In business, the term incorporation is used to refer to the process of forming a new company by filing the required paperwork with the relevant government agency and paying the associated fees.
In law, incorporation refers to the legal process where a business entity is formed and recognized as an entity under the law.
For business owners and entrepreneurs, there are many benefits in incorporating a company to do business.
Particularly, through the incorporation process, you can create a new business entity that is separate and apart from you giving you limited liability protection.
In other words, the business owner or shareholders will not be personally held liable for the company’s liabilities and financial obligations (with exceptions of course).
This is called limited liability protection.
Now that you know what is the meaning of incorporation, good luck in getting a new company formed!
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Understanding The Incorporation Definition
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