what is incorporation 
incorporation is the legal process used to form a corporate entity or company a corporation is the resulting legal entity that separates the firm s assets and income from its owners and investors corporations can be created in nearly all countries in the world and are usually identified as such by the use of terms such as inc or corp in their names it is the process of legally declaring a corporate entity as separate from its owners investopedia jiaqi zhouunderstanding incorporationincorporation is the broad term to describe a business registered with a state to become a separate legal entity that business entity often is owned by shareholders even if it is a corporation with a single owner that may also be overseen by a board of directors a company does not need to be incorporated to operate a business business owners may elect to operate as a sole proprietorship partnership or limited liability company llc instead these business structures treat company debt and taxes differently than compared to an incorporated entity another primary difference between legal entities and one of the most important reasons a company may want to incorporate is for the advantage of issuing stock when a company incorporates it gains the ability to share ownership of the company by issues shares of stock whereas a sole proprietorship or partnership is usually only owned by those operating the company incorporating allows a business owner to sell an ownership stake in part of the business if a business doesn t need to sell stock an llc can be a great option it offers legal protection but has pass through taxation meaning earnings are only taxed once the creation and organization of corporationsincorporation involves drafting articles of incorporation which lists the primary purpose of the business and its location along with the number of shares and class of stock being issued if any a close corporation for instance is held by a small number of shareholders and is not publicly traded companies are owned by their shareholders small companies can have a single shareholder while very large and often publicly traded companies can have several thousand shareholders as a rule the shareholders are only responsible for the payment of their own shares as owners the shareholders are entitled to receive the profits of the company usually in the form of dividends the shareholders also elect the directors of the company the directors of the company are responsible for day to day activities they owe a duty of care to the company and must act in its best interest they are usually elected annually smaller companies can have a single director while larger ones often have a board comprised of a dozen or more directors except in cases of fraud or specific tax statutes the directors do not have personal liability for the company s debts according to the u s census bureau roughly 45 000 corporations submit business licenses each month in april 2024 just over 50 900 applications from corporations were submitted 1