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by Answerbag Staff on April 12th, 2010

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What is business incorporation?

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  • by Kathy Adams McIntosh on April 12th, 2010

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    Professionally Researched. (What's this?)

    When an entrepreneur decides to open a business, she must first decide how to structure her business. There are several options for her to choose from, the most common being incorporation.

    Business Structures

    Businesses may be structured as sole proprietorships, partnerships or corporations. Sole proprietorships and partnerships offer the owners more control over the business. They also open the owners up to an unlimited liability from anyone with a claim against the business.

    Corporations

    Corporations operate as independent legal entities. They pay income taxes on their income like any other taxpayer. One advantage to the owners is that their liability is limited to the amount they have invested.

    S Corporation

    An S Corporation is a unique form of corporation. Owners' liability is limited to the amount they have invested, similar to any other corporation. However, an S Corporation is not taxed as a separate entity. However, there are stricter operational processes which an S Corporation must follow.

    Limited Liability Corporation

    Limited Liability Corporations (LLC's) are also unique business structures. Similar to standard corporations, the owners are only liable for the amount of money they have invested. At the same, time the business only exists for the time that the investors choose to be. When there is an ownership change, the LLC dissolves and a new one is created.

    Changing Business Structure

    After the entrepreneur has chosen a business structure and opened the doors of her business, she may change her mind at a later date. When circumstances change and a different structure would be more suitable for her, all she needs to do is file the proper paperwork with the state.

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    Business Incorporation

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