Are you starting a business and trying to decide between incorporating or forming a corporation? If so, you need to understand the key differences between the two. Incorporations and corporations have differences in terms of structure, taxation, and other areas. Keep reading to learn more about the key differences between an Inc vs Corp.
Inc vs Corp Explained
Corp stands for corporation while Inc stands for incorporated. Incorporation is the process of legally forming a business entity, such as a Limited Liability Company (LLC) or corporation. This means that your business will be recognized as a separate legal entity from yourself, opening it up to more opportunities and increased protection. Incorporating can also help to limit personal liability, as it separates your personal assets from those of the business.
It can be helpful to think of corporations as a type of business entity, while incorporation is the process of creating a business entity, which could be a corporation, LLC, sole proprietorship, etc.
What Is a Corporation?
A corporation is a type of business entity that exists separately from its owners, known as shareholders or stockholders. Corporations can enter into contracts, own property, and conduct business on their own behalf, separate from the individuals who own it. A corporation is established by filing articles of incorporation with the state in which it will be operating.
One of the key advantages of a corporation is limited liability for its shareholders. If the corporation incurs debts or legal liabilities, the shareholder’s personal assets are generally protected. Additionally, corporations have perpetual existence and can continue to operate even if ownership changes or key individuals leave the company.
Corporations can be either publicly traded, meaning their shares are sold on a stock exchange, or privately held, in which case the shares are held by a small group of people or even just one individual. Large and well-known corporations, such as Coca-Cola, Microsoft, and Amazon, are all publicly traded and have millions of shareholders.
Overall, corporations are a popular business structure for those seeking limited liability and the ability to raise capital through the sale of stock. However, corporations are also subject to increased regulation, including regular reporting requirements, and may face higher taxes compared to other forms of business entities.
What Does it Mean to Incorporate a Business?
Incorporating a business is the process of forming a legal entity separate from its owners. Incorporation offers many benefits to entrepreneurs, including reduced personal liability, enhanced credibility, and increased opportunities for growth and investment. You can incorporate a business as a corporation, LLC, partnership, or any other type of legal entity.
Incorporating a business provides many benefits such as tax advantages, easier access to funding, greater business credibility, and unlimited life span, meaning the company can continue to operate even if the original founders are no longer involved. Additionally, a business that is incorporated is usually able to attract investors, partners, and customers more easily.
Benefits of Incorporating a Business
One of the main benefits of incorporating a business is that it provides protection of personal assets. This means that the owners of the business are not personally liable for any debts or liabilities the business may incur. In a sole proprietorship or partnership, the owner’s personal assets can be at risk in case of any legal action or debt. By incorporating the business, the owner’s personal assets are protected and there is limited liability.
Another benefit of incorporating a business is that it provides credibility to the business. When a business is incorporated, it has a separate legal existence and is seen as a more stable and credible entity compared to unincorporated businesses. This can lead to increased trust and confidence from customers, vendors, and investors.
Incorporating a business also provides tax benefits. A corporation is taxed as a separate entity, which means that it has its own tax ID number and is taxed on its profits. This can lead to lower tax rates and more deductions compared to sole proprietorships or partnerships. Additionally, owners of a corporation can receive certain tax benefits such as health insurance deductions and retirement plans.
How to Incorporate a Business
To incorporate a business, entrepreneurs must follow specific legal requirements and considerations.
Step 1: Research Types of Business Structures
There are a few different types of business structures to consider when incorporating. The most common types are C corporations, S corporations, and Limited Liability Companies (LLCs). C-corps are taxed separately from their owners, and profits can be distributed as dividends. S-corps are “pass-through” entities, meaning that profits and losses are passed through to the owners’ personal tax returns. LLCs, on the other hand, offer a combination of limited liability protection and pass-through taxation.
Ultimately, the type of business structure you choose will depend on your specific goals, financial situation, and preferences. It is important to research the pros and cons of each structure and consult with a legal or financial professional before making a decision.
Step 2: Draft Articles of Incorporation
Drafting Articles of Incorporation is a critical part of incorporating a business. This legal document specifies the company’s name, location, purpose, and the number of shares of stock that the company is authorized to issue. It also outlines the company’s governance structure and outlines the rights and responsibilities of its officers and directors.
In many cases, LLCs or Limited Liability Companies will also draft Articles of Organization, which serve a similar purpose. Articles of Organization specify the rules by which the limited liability company will operate and outline the rights and responsibilities of its members. This document is legally binding and must adhere to specific guidelines established by the state in which the LLC is formed.
Step 3: File Articles of Incorporation
You may need to file your Articles of Incorporation with the state authorities where you intend to incorporate your business. Depending on the state and the type of corporation, there may be additional requirements and regulations that need to be observed.
Choosing to Incorporate Your Business
The decision to incorporate a business or not depends on many factors, including legal liability, tax considerations, and the business’s growth potential. Business owners should carefully consider the advantages and disadvantages of both options before making a decision. It may be helpful to consult with a lawyer or financial advisor to determine the best course of action for your specific business needs.
One of the most simplified ways to incorporate your business in any state is to use doola, the online business resource platform. Gain access to seamless business formation, bank account creation, compliance, taxes, and more. Explore all the business resources doola has to offer so you can focus on growing your company.
What are the advantages of setting up a corporation?
Setting up a corporation can offer a variety of advantages, such as limited liability protection and the ability to raise capital more easily.
What is the process for setting up a corporation?
The process for setting up a corporation typically involves filing paperwork with the appropriate state or federal government, obtaining a corporate tax ID, and creating corporate bylaws.
Is there a fee associated with creating a corporation?
Yes, there are typically filing fees associated with setting up a corporation. Use doola for a breakdown of what to expect when creating a corporation.
Are there any tax implications associated with setting up a corporation?
Yes, there are tax implications associated with setting up a corporation. Corporations are required to pay both federal and state taxes, and may also be subject to additional taxes, such as an excise tax. Learn more with doola.