When a business incorporates, it becomes a its own legal entity, apart from the individuals who founded the company. For-profit businesses are usually the ones to adopt incorporation for business reasons, but non-profits are also eligible to become this type of legal entity. By incorporating, the organization's leader or entrepreneur creates a separate legal entity in the eyes of the law to conduct business. This new entity--the corporation--changes the way the business is viewed in the eyes of the law and the way the business can be run.
Incorporation Means Lower Taxation
After incorporation, the individual no longer conducts business, generates income or creates tax liabilities; the new corporation does. Since corporations generally have lower tax rates than individuals, this can be a significant benefit.
Incorporation Limits Liability
Incorporation means you personally aren't legally conducting business anymore; rather, the corporation is. Since the corporation is the one involved in business transactions, your liability as a businessman and corporation is legally limited.
Incorporation Allows Stock Offerings
By incorporating, you are creating a corporation, shares of which can be issued, bought or sold.
Incorporation Creates Transferability
While a business run in the name of one or more founders may be difficult to transfer upon the founders' sale or death, corporations and all their included assets and liabilities are easily transferable.
Incorporation Changes or Creates a Business Name
After incorporation, all legal documents, like contracts and bank accounts and checks, must be in the name of the corporation. Thus, incorporation can change the name of an active business. All corporation names must end with "Incorporated," often abbreviated as "Inc."
Tags: legal entity, After incorporation