Have you ever felt confused while reading a legal document and come across the term “incorporate”? You’re not alone. Understanding what incorporate means is essential to understanding a variety of contractual documents, and it’s surprisingly simple.
What Is Incorporation?
Essentially, when a business incorporates, it forms a separate legal entity from its founders. This means that the corporation—which could be a limited liability company, a for-profit corporation, or another legal entity—is legally responsible for its own actions and debts. In many cases, the corporation is considered an individual in the eyes of the law.
How Does Incorporation Help a Business?
Incorporating a business has many advantages. For example, it limits the liability of company founders and directors. Since it’s the corporation (and not individual company members) that own assets and are responsible for debts and obligations, founders are protected from personal liability in scenarios where the company is sued or goes bankrupt. Furthermore, incorporating can make taxes simpler and give businesses greater access to a variety of financing options.
What Type of Business Is a Good Candidate for Incorporation?
Any type of business may benefit from incorporating. In fact, some types of businesses, such as small online retail operations and tech startups, are often better off incorporating. Ultimately, the pros and cons of incorporation depend on specifics, such as the size, structure, and industry of the business.
Incorporating your business is an important decision that should be carefully considered. By understanding what incorporation means, you can make the right choice for your business.