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What is a corporation, and what are the benefits of incorporating?

Forming a corporation may seem like a rite of passage for many ambitious entrepreneurs – adding that "Inc." or "Corp." designation after the company's name is almost a validation of their hard work and dedication growing the organization. However, incorporating your business involves creating a new entity and is a formal filing with the Secretary of State, and should not be taken lightly. It can be a challenging task, one that business owners may be wise seek to advice from their accountant or attorney before pursuing, as well as consider using a corporate service company to prepare and file the legal documents. 

Defining "corporation"

The U.S. Small Business Administration defines a corporation (sometimes called C corporations or C corps.) as a legal entity owned independently by a number of shareholders. This independence effectively separates the company from its ownership, meaning that for legal purposes, the business is considered its own standalone individual.

What are the benefits of incorporating?

Incorporation protects ownership from some of the legal liability inherent in owning a business, including incurred debt. Under this structure, owners are also free to file their personal taxes separately from the organization itself, limiting their exposure to certain tariffs and ensuring the business' income is taxed at a separate, often more accommodating, corporate rate.

Flexibility is another benefit to forming a corporation, as this designation ensures ownership can change hands or restructure relatively easily. By developing a corporation, businesses can also make a stake of the organization available for investment through public stock offerings. This can be a great way to generate additional revenue.

Of course, there are plenty of factors that can derail incorporation, and it's important business owners work with an incorporation service company that has experience in all areas of the preparation and filing process.  Incorporating in Delaware is popular due to the state's favorable business climate, but is not always the best choice for every business, and research and guidance prior to starting the incorporation process is always advisable.