Definition

Incorporation literally translates to 'the creation of a corporation.' (Online Dictionary Reference - http://dictionary.reference.com/browse/corporation) A corporation is business entity that has its own rights, liabilities and privileges, separate from that of its members.

Basic Business Entities

There are many types of business entities outside of the parameters of a corporation that individuals can choose from to organize their business ventures, including a sole proprietorship, partnership and limited liability company.Within the realm of corporations, there exist closed corporations, C corporations and S corporations.

Closed Corporations

Closed corporations typically have less than thirty shareholders who are involved primarily in board-level decision making. Closed corporations also issue stock, but the transfer and sale of stock is heavily controlled.

C Corporations

C corporations, as the most common in the U.S., have a smaller decision-making board of directors, and allow for a much higher level of stock to be issued. These types of corporations typically pay two sets of taxes - corporate and personal - and shareholders pay separate taxes on their dividends.

S Corporations

S corporations are relatively similar to C corporations, except that they hold a special status with the Internal Revenue Service which doesn't require them to pay as much in taxes. S corporations are required to only tax their stock dividends, while the corporation itself is not required to pay taxes.

Source:

WiseGeek.com: Benefits of Incorporation

WiseGeek.com: What is a Corporation

ClickandInc.com: Incorporation FAQ