Corporation vs. Incorporation

Attribute	Corporation	Incorporation
Definition	A legal entity that is separate from its owners and has its own rights and liabilities.	The process of forming a corporation by filing the necessary documents with the government.
Legal Status	Recognized as a legal entity with limited liability.	The act of creating a corporation as a legal entity.
Ownership	Owned by shareholders who hold shares of stock.	Owned by shareholders who hold shares of stock.
Liability	Shareholders have limited liability, meaning their personal assets are protected.	Shareholders have limited liability, meaning their personal assets are protected.
Taxation	Subject to corporate income tax.	Subject to corporate income tax.
Formation	Can be formed by filing articles of incorporation with the state.	The process of filing the necessary documents with the government to create a corporation.
Perpetual Existence	Can exist indefinitely, even if shareholders change.	Can exist indefinitely, even if shareholders change.
Management	Managed by a board of directors elected by shareholders.	Managed by a board of directors elected by shareholders.
Transferability of Ownership	Ownership can be transferred through the sale of shares.	Ownership can be transferred through the sale of shares.

Introduction

When it comes to establishing a business entity, two common options that entrepreneurs often consider are corporation and incorporation. While these terms are often used interchangeably, they have distinct attributes that set them apart. In this article, we will delve into the characteristics of both corporation and incorporation, exploring their advantages, disadvantages, and legal implications.

Corporation

A corporation is a legal entity that is separate from its owners, known as shareholders. It is formed by filing articles of incorporation with the appropriate state authority. One of the key attributes of a corporation is limited liability, which means that the shareholders' personal assets are protected from the company's debts and liabilities. This feature provides a significant advantage for entrepreneurs who want to shield their personal wealth from potential business risks.

Another important aspect of a corporation is perpetual existence. Unlike other business structures, such as sole proprietorships or partnerships, a corporation can continue to exist even if the shareholders change or pass away. This continuity ensures stability and allows for long-term planning and growth.

Corporations also have the ability to raise capital through the issuance of stocks or bonds. This makes it easier for corporations to attract investors and secure funding for expansion or other business initiatives. Additionally, corporations have the advantage of being able to offer stock options to employees, which can be an effective tool for attracting and retaining top talent.

However, corporations also come with certain disadvantages. One of the main drawbacks is the complexity and cost associated with their formation and ongoing maintenance. Corporations are subject to more stringent regulations and reporting requirements compared to other business structures. They must hold regular shareholder meetings, maintain detailed financial records, and comply with various legal and tax obligations.

Furthermore, corporations are subject to double taxation. This means that the corporation itself is taxed on its profits, and then shareholders are taxed on any dividends they receive. This can result in a higher overall tax burden for both the corporation and its shareholders.

Incorporation

Incorporation, on the other hand, refers to the process of forming a corporation. It involves filing the necessary documents, such as articles of incorporation, with the appropriate state authority. Once the incorporation process is complete, the business becomes a separate legal entity, distinct from its owners.

One of the primary advantages of incorporation is the limited liability protection it offers to the owners, who are now referred to as shareholders. This means that the shareholders' personal assets are generally not at risk in the event of the company's debts or legal issues. Limited liability is a crucial factor for many entrepreneurs, as it provides a sense of security and peace of mind.

Incorporation also allows for easier transfer of ownership. Since a corporation has shares that can be bought and sold, ownership can be transferred without disrupting the company's operations. This flexibility is particularly beneficial for businesses that anticipate changes in ownership or plan to attract investors in the future.

Moreover, incorporation can enhance the credibility and reputation of a business. Being an incorporated entity often instills confidence in customers, suppliers, and potential partners, as it signifies a higher level of professionalism and commitment to legal compliance.

However, similar to corporations, incorporation also has its drawbacks. The process of incorporation can be time-consuming and requires careful attention to detail. Entrepreneurs must ensure that all necessary documents are filed correctly and that they comply with the specific requirements of the state in which they are incorporating.

Additionally, incorporation involves ongoing administrative responsibilities. This includes holding regular shareholder meetings, maintaining accurate financial records, and adhering to legal and tax obligations. Failure to fulfill these obligations can result in penalties or even the loss of the limited liability protection.

Conclusion

In summary, while corporation and incorporation are related terms, they have distinct attributes that entrepreneurs should consider when establishing a business entity. Corporations offer limited liability protection, perpetual existence, and the ability to raise capital, but they come with higher complexity, cost, and double taxation. On the other hand, incorporation provides limited liability, ease of ownership transfer, and enhanced credibility, but it also requires careful attention to detail and ongoing administrative responsibilities. Ultimately, the choice between corporation and incorporation depends on the specific needs and goals of the business, as well as the entrepreneur's tolerance for complexity and willingness to comply with legal and regulatory requirements.