Corporation vs. Incorporation

The difference between corporation and incorporation

A corporation is a business or organization that has a registered charter. Through the charter it is recognized as a formal and separate legal entity. Incorporation refers to the process of setting up a corporation. There are many different types of corporations – non-profit organizations, sports clubs, businesses, or governments of new towns.

A corporation is a product of corporate law and is focused on the interests of management and the shareholders. It also takes care of the interests of employees because it is the work that they do that makes the corporation successful.

The main purpose of incorporation is to protect the personal assets against lawsuits that may arise against a corporation. The major difference between a corporation and incorporation is that those who are shareholders, directors or officers of a corporation cannot be held personally liable for any debts incurred by the incorporated organization.

During the process of incorporation, though, the shareholders, directors and officers are liable for any debts incurred and could be forced to pay then out of their own pockets. Their personal assets could be seized to make repayment. However a personal creditor of one of the shareholders does not have the right to seize any of the assets of the corporation.

There are legal benefits to becoming incorporated. These benefits include:

  • the protection of personal assets,
  • ownership in the corporation can be transferred,
  • there is a retirement fund,
  • funds can be raised by selling stock,
  • durability
  • better credit rating

When a company is going through the incorporation process, a document has to be drawn up to cove how the corporation will be governed, the amount of limited liability, and the specifics of the internal affairs. They include the Rochdale principles as well as other incorporation principles.

When it comes to taxation, a corporation can deduct the net operating expenses from the income for the previous two years or the future 20 years. In the United Kingdom the term incorporation is not used in reference to starting a new company. This situation is called company formation.