What Does Incorporated Mean?
What is an incorporated business exactly?
What are the essential elements you should know!
In this article, I will break down the question What Does Incorporated Mean so you know all there is to know about it!
Keep reading as I have gathered exactly the information that you need!
Let me give you a full explanation of what it means to be an incorporated business!
Are you ready?
Let’s get started!
What Does Incorporated Mean
In business, “incorporated” means to form, run, or operate a business as a corporation that is formally recognized by your state.
In other words, when you for a “corporation”, it is said that your business is “incorporated” (meaning that you operate your business as a corporation).
For example, if Mary is a sole proprietor running a small business from her house and things are going well, she may decide to incorporate a company so she can continue doing business under the company.
When Mary turns her sole proprietorship into a corporation, we can say that Mary is now incorporated.
To better understand what it means to incorporate a business, let’s look at the meaning of incorporation.
What Is Incorporation
The term “incorporation” generally refers to the process of forming a new corporation.
A corporation is a legal entity recognized by the state where you have filed your incorporation papers.
The main reason why business owners incorporate a company is to create a legal separation between themselves and the business so they can take advantage of the limited liability protection.
To incorporate a corporation such as a c-corporation or an s-corporation, you will typically need to:
- Determine in which state you will want to incorporate
- Choose your company name
- Identify who will own your corporation and who will be named as directors of the corporation
- Select your registered agent
- Complete your incorporation papers (typically called articles of incorporation)
- File your articles of incorporation with the state and pay your filing fees
Once you’ve completed the incorporation process, the state will form a new corporation where you can continue your business operations under it.
What Is A Corporation
To incorporate typically refers to the creation of a corporation.
So what is a corporation?
A corporate is a legal entity recognized by the state where it was formed having the following features:
- The corporate entity is a separate legal entity from its shareholders (the owners)
- The shareholders have limited liability (limited to their investment)
- The corporation can own assets and liabilities (or be sued)
- The corporation can file its own taxes
- The corporation will generally pay for its own taxes (although it may be possible to have the profits and losses pass through to the shareholders in some cases)
- When the shareholder dies, the corporation continues (it can have a perpetual life)
Operating An Incorporated Company
When a company is formed, it must comply with the state laws and do things like:
- Adopt bylaws
- Hold regular board of director meetings
- Hold regular shareholder meetings
- Keep corporate records (generally in a corporate minute book)
- File annual reports (or periodical reports) with the state
- Pay annual filing fees
After a company files its articles of incorporation with the state, it is required to hold regular and ongoing shareholder and director meetings to make important decisions about the company.
Generally, the first shareholder and directors meeting will be held shortly after the state confirms the incorporation of the company (this is called the first organizational meeting).
For a company to maintain its status as an incorporated business or incorporated entity, it must ensure that it respects all the laws and regulations to keep its status in good standing.
If the corporation is no longer in good standing, it can lose the benefits offered by incorporated companies.
Types of Business Structures
You can choose to operate a business using different types of business structures.
The most common types of business structures are:
- Corporations (C-Corp and S-Corp)
- Limited liability companies (LLC)
- Sole proprietorship
- General partnership
- Limited partnership
- Limited liability partnership
Although there are other types of business structures such as cooperatives, trusts, nonprofit corporations, or other, you should carefully assess the nature of your business to determine which structure is best for you.
You can consult with a business lawyer for advice.
Why Is Business Incorporation Important
Many choose to incorporate a business to take advantage of the limited liability protection offered by corporations.
In essence, if you start a business as a sole proprietor (without incorporation, forming an LLC, or another type of business entity), you will be personally responsible for the business debt and financial obligations.
If things go well, then there’s no big deal.
However, if things don’t go as well in your business, you will be personally held responsible towards your creditors and they may take recourse against your home, investments, and personal property.
To avoid such a catastrophic outcome, many will “incorporate” a business so they can benefit from the “limited liability protection” offered by the corporation.
In fact, a corporation is a separate legal entity that will be responsible for its own debt and its own financial obligations.
You, as the business owner, will own shares in the corporation but you will not be accountable for the liabilities of the corporation.
Your personal liability is limited to the extent of money you invested in the corporation (hence, limited liability).
In essence, entrepreneurs and small business owners will tend to incorporate so they can protect their personal assets in case something goes wrong with the business.
What Is An Incorporated Business Takeaways
So there you have it folks!
What does it mean to be incorporated?
What does it mean to incorporate a business?
In simple terms, the term “incorporated” means that you have formed a “corporation” as recognized by the state where your incorporation papers were filed.
A corporation is a legal entity that is separate and distinct from its owners that is legally able to own assets, assume debt, and operate a business.
“To get incorporate” also refers to the process of forming a corporation under the relevant state laws.
The way you form a corporation is by:
- Choosing your business name
- Identifying your business address
- Selecting your registered agent
- Completing the incorporation paperwork (the person signing is called the incorporator)
- Choosing the members of the board (or directors)
- Identifying the shareholders
- Filing your articles of incorporation with the sate
- Paying your filing fees
Once your corporation is formed, you have an “incorporated business” or “incorporated company”.
I hope I was able to answer your questions, such as what does incorporation mean, or what does it mean when a company is incorporated.
My Investing, Business, and Law Blog
By the way, on this blog, I focus on topics related to starting a business, business contracts, and investing, making money geared to beginners, entrepreneurs, business owners, or anyone eager to learn.
I started this blog out of my passion to share my knowledge with you in the areas of finance, investing, business, and law, topics that I truly love and have spent decades perfecting.
You may find useful nuggets of wisdom to help you in your entrepreneurship journey and as an investor.
I’d love to share the insider knowledge that I’ve acquired over the years helping you achieve your business and financial goals.
Now, let’s look at a summary of our findings.
What Does Incorporated Mean In Business
If you enjoyed this article on What Does Incorporated Mean, I recommend you look into the following terms and concepts. Enjoy!
You May Also Like Related to What Is An Incorporated Company
What are articles of incorporation
What are bylaws
What is a C-Corporation
What is a credit union
What is a DBA
What is a fictitious name
What is a General Partnership
What is a holding company
What is a Limited Liability Partnership
What is a Limited Partnership
What is a nonprofit organization
What is a parent company
What is a private company
What is a public company
What is a registered agent
What is a sole proprietorship
What is a statutory corporation
What is a trust company
What is an LLC
What is an S-Corporation
What is the owner of an LLC called
Related to Incorporations And Business Entities
C Corp vs S Corp
Certificate of incorporation
Letter of good standing
Limited liability protection
LLC vs DBA
LLC vs Inc
Private equity entity
Real estate company
S Corp vs LLC
Shareholder vs director
Statement of information
Types of businesses