Definition
A corporation is a structure that designates a standalone entity that’s separated from its owners with its own rights, privileges and liabilities. Incorporation refers to the legal process of forming this corporate entity or company, establishing it as an entity separate from its owners. Therefore, while ‘corporation’ is the outcome, ‘incorporation’ is the process of achieving this structure.
Key Takeaways
- Corporation and Incorporation are two terms related to company formation, but they possess significant differences. While a Corporation is a type of business entity characterized by the ownership of its shareholders, Incorporation refers to the process a business undergoes to become a legally recognized entity, separate from its owners.
- Incorporation provides protection to business owners from personal liability. This means that the personal assets of owners are safeguarded in the case of a lawsuit or bankruptcy. On the other hand, a Corporation is a business entity that can sell shares of stock, which can be beneficial for raising capital and spread the ownership.
- Differentiation between the terms also lies in geography. In the United States, for example, businesses choose to incorporate and the resulting entity is called a corporation. However, in some regions like Canada, incorporated businesses are commonly referred to as ‘Incorporations’ rather than ‘Corporations’.
Importance
The terms Corporation and Incorporation both hold significant importance in the finance world, as they relate to different aspects of a company’s legal structure.
A corporation is a type of business entity that is legally separate from its owners, providing them with protection from personal liability for the company’s debts and obligations.
Incorporation, on the other hand, is the process through which a company is legally established, enabling it to be recognized as a corporation.
Understanding the distinction between these terms is crucial as it helps to determine the liability of owners, tax obligations, as well as operation and management structure of the entity.
It ultimately influences the strategies for growing and protecting a business.
Explanation
Corporation and Incorporation are often used interchangeably, but they signify distinct stages in a company’s life. Incorporation is the process by which a new business or an existing entity applies to become a corporation. Essentially, it is a legal process undertaken by a company to identify and separate itself as its own entity, away from its owners or investors.
This process, which includes registering the business, helps protect its owners’ personal assets from any business debts or liabilities. Besides, it gives companies continuity, even if ownership changes, and helps in raising capital. On the other hand, a Corporation, often termed as a ‘legal person’, is the resultant body or structure after the successful conclusion of the process of incorporation.
A corporation has rights and obligations similar to that of a person. It can own property, enter into contracts, initiate legal proceedings, and be subject to lawsuits. The main purpose of forming a corporation lies in providing limited liability to its shareholders.
In a corporation, the liability of each shareholder is limited to the extent of their investment, safeguarding them from personal financial risk. Moreover, corporations also allow for efficient transfer of ownership through the selling and buying of stock, and they have the potential for perpetual existence.
Examples of Corporation vs Incorporation
Starbucks Corporation vs Starbucks, Inc: In the real world of corporations and incorporations, one primary example can be Starbucks. Officially named Starbucks Corporation, this entity benefits a lot from being a corporation, such as in terms of limited liability, easy transfer of ownership, and the ability to quickly raise capital. If Starbucks was an incorporated business (Starbucks, Inc.), it would still have many of the same benefits, but might be seen as a smaller-scale business, as the term “Inc.” usually conveys the image of a smaller company compared to “Corporation”.
Amazon.com, Inc. vs Amazon Corp.: Amazon.com, Inc. is one of the largest and most successful companies in the world. Named as an incorporation, Amazon enjoys all the benefits of being an incorporated entity such as limited liability, continuity and easy capital raising. But if Amazon was named as Amazon Corporation, it would be no different in function since corporations and incorporations have the same legal benefits.
Visa Inc. vs Visa Corporation: When considering the credit card company Visa, it currently operates under the name Visa Inc., benefiting from its structure as an incorporated entity with limited liability for shareholders. But if it was Visa Corporation, it would not make a significant difference in the functionality or structure because Corporation and Incorporated mean essentially the same thing. However, the term “Corporation” is often associated with larger businesses that operate internationally, which may have influenced the perception of the company’s size or global reach.
FAQ: Corporation vs Incorporation
What is a Corporation?
A corporation is a legal entity that is separate and distinct from its owners. It can enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets and pay taxes. It is often referred to as a ‘legal person’.
What is Incorporation?
Incorporation is the process of legally declaring a corporate entity as separate from its owners. It involves the creation of a corporation by filing the necessary documents with a specific state’s secretary of state.
What is the main difference between a Corporation and Incorporation?
The main difference lies in their definitions. A corporation is the actual structure that outlines the way a business is run. This structure is outlined by the corporation’s bylaws. On the other hand, incorporation refers to the process of creating a corporation.
What are the benefits of Incorporation?
Incorporation provides many benefits such as protecting the business owner’s personal assets from liabilities of the company, tax efficiencies and improved credibility.
What are the benefits of forming a Corporation?
Forming a corporation can provide business owners with a variety of benefits, including legal liability protection, additional credibility, tax advantages, ability to issue stock and perpetual existence.
Related Entrepreneurship Terms
- Business Structure
- Limited Liability
- Shareholders
- Articles of Incorporation
- Corporate Taxation
Sources for More Information
- Investopedia: This website breaks down major financial and business concepts, including the difference between a corporation and incorporation.
- Entrepreneur: Known for its articles on entrepreneurship and business, this site can provide comprehensive explanations on corporations vs incorporations.
- The Balance: A site dedicated to personal and professional finance advice, with comprehensive guides on all kinds of finance and business terms including corporation and incorporation.
- BizFilings: This site offers resources and services for businesses wanting to incorporate or form an LLC, and have a lot of articles detailing the differences between corporation and incorporation.
