Difference Between Corporation And Incorporation

, , Leave a comment

Incorporated entities, organizations or businesses that have been registered, use the extension Corp. (short for Corporation) and Inc (short for Incorporation) in their business name.

Incorporation is the broad term which defines the process of choosing the legal structure upon which the business is keen to operate. A business could legally run as a Limited liability Company (LLC), a Cooperative, a Non-profit organization or a Corporation, a S-Corporation or a C-Corporation.

Once a business structure is chosen and registered, the company is bound to use the extension in the business name in all paperwork pertaining to the business (either Corp. or Inc.). It cannot use the names interchangeably.

Some of the advantages of incorporating a business are that it lends credibility to a business as it creates a separate corporate identity, the business has an unlimited life but a limited liability that protects the personal assets of the business owner or shareholders. An incorporated entity can borrow funds and claim tax benefits.

Incorporating a business falls under the purview of a state government. Businesses can choose the state for operating a business and file for incorporation with the government depending upon a number of factors like the policies and taxation structure applicable to businesses operating out of that particular state.

There is a significant amount of investment in the form of incorporation fees and maintenance expenditures that is required to be borne by the businesses hence nascent or new businesses may feel the strain.

Importantly, a business structure that takes into consideration its business objectives, its risk taking capacity and tax responsibilities, is bound to succeed. These factors need to be taken into consideration while incorporating a business.

Corporation refers to those business entities that have a discrete legal entity, one that is different than the legal entity of its owners. A Corporation has the ability to function as an individual, to conduct all the activities that an individual can perform, except for the right to vote. These activities could be buying and selling of assets, borrowing funds, seek legal counsel and help in case of altercations or disputes. Such entities are liable to generate income and pay the requisite taxes. A Corporation can sign and enter into contracts with other businesses/individuals and hire workforce. In case of a breach of contract or law, the corporation can be tried in a court of law and punished if found guilty mostly in forms of fines.

A corporation is typically formed by shareholders or joint owners coming together and electing a board of directors through votes. The board of directors is then responsible for running and managing the corporation. While corporations could be non-profit organizations as well, most of the corporations have the intent to make profits and increase the wealth and returns of the shareholders. The investment in the organization is in the form of a stock. A person becomes a shareholder by buying a stock of the organization.

The liability in the case of a corporation is limited in nature, which means that the shareholders of the company can get a share of the profits that the organization makes, in the form of dividends or increase in the stocks held, but the same shareholders would not be held liable in case the company runs into debts. The creditors or lenders may liquidate the assets of the corporation to honor any outstanding loans or debts, but it cannot attach the personal property of the shareholders to recover the deficit amount. Only in certain rare cases, where the shareholders of the company are found guilty of breaching the law the liability can be extended to them personally.

A corporation, though has all the legal powers of conducting business as an individual, can outlive any of the individuals who are the shareholders or owners of the organization.

Tea Time Quiz

[forminator_poll id="23176"]
 

Leave a Reply