What is Incorporation?

Incorporation has existed as a business practice for some time now, and despite some challenge from the creation of the Limited Liability Company legislation it is still a highly popular way of creating a company identity. Setting up as a corporation allows a business to operate with a great deal more freedom than if one were to set up as a sole proprietor or even as a simple business partnership. Although the process of incorporation is in many ways a lengthy one, there is undoubted benefit to doing it in many circumstances, and as long as those circumstances are satisfied there is every reason to choose a corporation as a way of running a business.

The typical definition of a corporation both in America and increasingly elsewhere in the world is "a body corporate (i.e. An organization of individuals) formed for the express purpose of conducting business". This differentiates it from a loose collection of individuals (or one person alone) carrying out business. It gives the company certain freedoms (for which a levy must be paid) allowing it to operate in a manner that gives the company the best chance of doing business to the best of its ability. This freedom is created by the allowance of a certain level of fiscal flexibility, and of the control of assets, allowing a person or persons to seek funding for the purpose of expanding its reach without the danger of personal dispossession. As a sole proprietor, for example, losses made by a business and defaults on a loan will impact on the individual's personal situation. As a member of a corporation, personal status and business status are kept separate.

A corporation is a worthwhile way of conducting business because, at the most basic level, it is a separate entity from the person or persons who create it. In many ways, a corporation exists in the same way as a person. It is born (or created) when its members complete the process of obtaining certification, and it dies if it loses money and becomes inoperable or insolvent. Just as a human being can be guilty of human rights violations, or a victim of the same, so can a business. In addition to this, a corporation can even be convicted of criminal offences such as fraud and manslaughter.

The identifying characteristics of a corporation, aside from those inherent in its name, include:

• Delegation of management: a corporation will be controlled by a board of directors, with rights and responsibilities for the advancement of the company within the legal framework

• Limited liability of shareholders: should a corporation fall into insolvency, its shareholders owe only what they themselves have invested.

• Investor ownership: the company, although managed by a chosen board of directors, is owned jointly by those who hold shares in it.

• Separate legal personality: where a company is held responsible for loss or injury, it can be sued. Where it is the victim of the same, it can sue.

• Transferable shares: shares in the company can be bought and sold on the stock exchanges.

Disclaimer: This article is for informational and entertainment purposes only, and should not be construed as legal advice on any subject matter.