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Incorporation describes the forming of a new corporation. This "corporation" may also be a government of a new city or town.
Incorporation in the United States
In the United States, several legal benefits encourage incorporation:
Protection of personal assets
Safeguarding personal assets against the claims of creditors and lawsuits. Sole proprietors and general partners in a partnership are personally and jointly responsible for all the liabilities of a business such as loans, accounts payable, and legal judgements. In a corporation, however, stockholders, directors and officers typically are not liable for their company's debts and obligations. They are limited in liability to the amount they have invested in the corporation (eg: If $100 in stock was purchased, no more than $100 can be lost). Corporations and LLCs may also hold personal assets like houses, cars or boats. If one is personally involved in a lawsuit or bankruptcy, these assets may be protected. A creditor of the owner of a corporation or LLC cannot seize the assets of the company, however, they can seize their ownership shares in the corporation, as that is considered a personal asset.
Transferable ownership
Ownership in a corporation or LLC is easily transferable to others, either in whole or in part. Some state's laws are particularly attractive to this end. For example, with a Delaware Corporation, the transfer of ownership in a corporation in not required to be filed or recorded.
Retirement funds
Retirement funds and qualified retirement plans (like 401ks) may be set up more easily with a corporation. Corporations can also fully deduct the cost of paying its owner's health insurance.
Taxation
In the United States, corporations are taxed at a lower rate than individuals. Also, they can own shares in other corporations and receive corporate dividends 80% tax-free.
There are no limits on the amount of losses a corporation may carry forward to subsequent tax years. A sole proprietorship, on the other hand, cannot claim a capital loss greater than $3,000 unless the owner has offsetting capital gains.
Raising funds through sale of stock
Capital from investors can be raised for corporations easily through the sale of stock.
Durability
A corporation is capable of continuing indefinitely. Its existence is not affected by the death of shareholders, directors, or officers of the corporation.
Credit rating
Regardless of an owner's personal credit scores, corporations build a separate credit history by applying for and using corporate credit.
International Perspective on Incorporation
The legal concept of a corporation is not just an invention in the United States. Incorporation in the rest of the world is recognized. In the United States, corporations are identified by the term "incorporated" added after the business name, such as "Texas Instruments, Incorporated", or by putting the word corporation in the name of the company, as in "Netscape Communications Corporation". In Germany, the phrase Gesellschaft mit Beschränkter Haftung (German: limited liability company; business entity, Abbreviated GmbH)as in "L'Orange GmbH", or Aktiengesellschaft (German: stock corporation, abbreviated as AG) as in SUSE LINUX AG is used.
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