INCORPORATION

Incorporation refers to a legal state of federal law that surrounds the act of incorporating a business.

What is Corporate Incorporation?

Incorporation refers to the legal process of forming an entity or company when a business decides to form a corporate structure. Corporations are a separate set of entities from the owners. This separation offers a level of liability protection to the shareholders or owners in a corporation and is often referred to as a corporate veil.

Incorporation is used to form a company or a corporate entity. A corporation is a legal entity that separates the firm’s income and assets from its investors and owners.

Corporations are identified by the use of terms like "Inc." or "Limited (Ltd.)" in their names. It legally declares a corporate entity separate from the owners.

Why Incorporate?

There are various advantages to incorporating a business. An incorporated company can be held responsible and liable for legal obligations and debts apart from the owners. If the incorporation is issued, the owner’s assets cannot be held liable in the suit. The courts and creditors can go after anything that the business owns because a corporation can own its own property and assets.

Shareholders invest in a corporation and create financial ties. In the event of any financial or legal trouble with the corporation, the shareholders tend to lose only as much they put into the company.

The corporate structure offers various advantages, like:

•           Ease of investment transfers and ownership

•           Different stock options

•           Option to sell shares

•           Opportunities for growth utilizing global and local stock offerings

•           Highly structured business management

POINTS TO REMEMBER

•           Incorporation is the way of formally organizing a business and officially bringing it into existence.                                                                                                       

•           The incorporation process involves writing the articles of incorporation and enumerate the shareholders of the firm.                                                    

•           In incorporation, the cash flows and assets of the company or business entity are separate from the investors and owners, which is known as the limited liability.                                                                                                            

How Incorporation Works

1.         Incorporation helps in protecting the assets of the owners against the liabilities of the company.                                                                                          

2.         It allows for easy ownership transfer to another party.                                         

3.         Incorporation helps in achieving a lower tax rate on personal income.                         

4.         Incorporations receive lenient tax restrictions on carrying forwards loss.                   

5.         It raises the capital through the stock sale.                                                                      

6.         Incorporated businesses take the risks of making growth possible without exposing the owners, shareholders, and directors to financial liability.            

7.         Incorporation creates a bubble of limited liability, known as the corporate veil, around the directors and shareholders.

CONCLUSION

Incorporations are widely used legal vehicles for business operations. Small companies have single shareholders, while publicly traded companies have a thousand shareholders who are entitled to receive the company’s profits in the form of dividends.