By Admin 
If you’re new to business terminology, the terms “corporation” and “incorporation” might sound like they mean the same thing. However, they have distinct meanings and serve different purposes. If you’re thinking of starting a business or just want to understand company structures better, knowing the difference between these two terms is essential.
What is a Corporation?
A corporation is a legal entity that exists independently of its owners, who are typically called shareholders. In simpler terms, it’s a type of business structure that can engage in business activities, own property, sue, or be sued, all in its own name. Corporations are like artificial persons created by law.
Some key features of a corporation:
- Limited Liability: Shareholders are generally not personally responsible for the debts or legal issues of the corporation. Their liability is limited to their investment in the company.
- Perpetual Existence: A corporation continues to exist even if the shareholders change or pass away. Ownership can be transferred through the sale of shares.
- Taxation: Corporations often face “double taxation,” meaning the corporation itself is taxed on its profits, and then shareholders are taxed on the dividends they receive.
Well-known examples of corporations include large companies like Microsoft, Amazon, and Tesla.
What is Incorporation?
Incorporation is the process by which a corporation is formed. It’s the legal action of setting up a company as a separate legal entity. When you incorporate a business, you are formally creating a company with legal recognition by the government. This process requires submitting documents and paying fees to the appropriate governmental authority, such as the state or country where the business will operate.
Key steps involved in incorporation:
- Filing Articles of Incorporation: This document typically includes important details like the company’s name, purpose, and the structure of its shares.
- Deciding on a Legal Structure: When incorporating, you choose the type of corporation you want to form, such as a C-Corp, S-Corp, or even a nonprofit.
- Appointing Directors: As part of the incorporation process, a board of directors is usually selected to oversee the company’s activities.
- Paying Fees: Incorporation comes with costs, which vary depending on the location and type of corporation.
Once a business completes the incorporation process, it officially becomes a corporation.
Key Differences Between Corporation and Incorporation
Understanding the difference between corporation and incorporation is essential, especially when you’re setting up a business. Here are the key distinctions between the two:
| Aspect | Corporation | Incorporation |
| Definition | A legal entity or business structure that exists separately from its owners (shareholders). | The process of legally forming a corporation. |
| Nature | It is the result or end product—a fully formed business entity. | It is the legal action or process that creates a corporation. |
| Liability | Corporations offer limited liability protection to their shareholders. | Incorporation establishes the limited liability protection once completed. |
| Lifespan | A corporation has a perpetual existence, continuing despite changes in ownership. | Incorporation is a one-time process needed to create the corporation. |
| Legal Entity | Operates as an independent legal “person” once formed. | Incorporation is the act of making the business into a separate legal entity. |
| Taxation | Corporations can face double taxation—on profits and on dividends to shareholders. | Incorporation doesn’t involve taxation itself but leads to the creation of a taxable entity. |
| Complexity | Running a corporation involves ongoing obligations such as filing annual reports and maintaining corporate formalities. | Incorporation is a procedural process requiring paperwork and fees to officially form the business. |
| Decision Making | A corporation operates under a board of directors, chosen by shareholders. | Incorporation includes choosing the directors and governance structure during setup. |
| Business Structure | Types of corporations include C-Corp, S-Corp, nonprofit, etc. | Incorporation requires selecting the type of corporation (e.g., C-Corp or S-Corp). |
How Are They Connected?
To put it simply:
- Incorporation is the process of creating a legal entity.
- A corporation is the legal entity that results from that process.
Why Understanding the Difference Matters
When you’re starting a business, understanding the difference between “corporation” and “incorporation” helps you make more informed decisions. Here’s why it’s important:
- Forming a Legal Entity: If you want your business to have the legal protections and benefits that come with being a corporation, you need to go through the incorporation process.
- Personal Liability Protection: Incorporating helps protect your personal assets from business-related debts and lawsuits.
- Raising Capital: Corporations are typically more attractive to investors because they can issue stock, which makes raising funds easier.
Conclusion
In short, corporation refers to the business entity itself, while incorporation refers to the process of forming that entity. Incorporating your business is a key step in creating a structure that can provide legal protection and enable long-term growth.