What is Incorporation?
Incorporation means to form a corporation. A corporation is a legal form of business organization. It is sometimes referred to as a "C Corp" in reference to a section of the IRS code governing corporate taxes.
How Does Incorporation Work?
Corporations have several distinguishing characteristics.
- A stock. is owned by shareholders, and their ownership is represented by shares of
- A board of directors, which is a group of people elected by the shareholders to oversee the corporation's managers and represent the best interests of the shareholders. has a
- They have unlimited lives; that is, corporations don't "die" or "expire" unless they do so intentionally or go bankrupt and liquidate their assets.
- The shareholders have limited liability. That is, the liabilities of the corporation do not extend to the shareholders. If the corporation goes bankrupt or defaults on a loan, the corporation's creditors almost always cannot repossess the shareholders' personal assets or seek from the shareholders themselves.
- Corporations pay income on their taxable income, even if they distribute some of that income directly to the shareholders.
- Corporations are legal entities that exist separate and apart from their shareholders. In fact, they are usually afforded the legal rights of people. That is, they can own assets, borrow money and sue or be sued.
Why Does Incorporation Matter?
To incorporate means to form one of the dominant business structures in the United States, and this is often because the largest advantage to incorporating is the equity capital, among other things. However, incorporating a business means agreeing to more governance and regulation than other business forms, and this makes them more expensive to operate.the structure brings to the company's owners. Incorporation's encourages and in turn makes it easier to raise
One of the biggest complaints about incorporating is the double taxation of profits it brings: the must pay income on its , and shareholders also must pay income on that same income if the pays that income out as dividends.
Although some duty of a is to enhance shareholder value. This duty is most often executed through the maximization of profits.are nonprofit entities, perhaps the most important, prominent and sometimes controversial