When it comes to the legal world of business, there are a lot of terms that can be confusing or easily misused. One of the most common mix-ups is between the words “corporation” and “incorporation.” While they may sound similar, they actually have distinct meanings and implications for businesses.
Let’s clear up which of the two is the proper word to use. The answer is…both! Corporation and incorporation are both legitimate terms, but they refer to slightly different things.
So, what does corporation mean? At its most basic level, a corporation is a legal entity that is separate from its owners (or shareholders). This means that the corporation can enter into contracts, sue or be sued, and own property in its own name. The owners of the corporation are typically not personally liable for the corporation’s debts or legal issues.
In contrast, incorporation refers to the process of creating a corporation. This involves filing certain paperwork with the state government, typically the Secretary of State’s office. Once the paperwork is approved, the corporation is officially “incorporated” and can begin operating as a separate legal entity.
Now that we’ve defined our terms, let’s dive into why this matters for businesses. Understanding the difference between corporation and incorporation is essential for anyone who is starting or managing a business. It affects everything from the legal protections available to the owners, to the tax implications of the business structure. In the rest of this article, we’ll explore these topics in more detail and help you make an informed decision about which option is right for your business.
Define Corporation
A corporation is a legal entity that is separate from its owners or shareholders. It is created by filing articles of incorporation with the state government. Once established, the corporation can engage in various business activities, such as buying and selling goods and services, hiring employees, and entering into contracts. The owners of a corporation are not personally liable for the company’s debts or legal issues.
There are two main types of corporations: C corporations and S corporations. C corporations are taxed as separate entities from their owners, while S corporations are pass-through entities that allow the profits and losses to be reported on the owners’ personal tax returns.
Define Incorporation
Incorporation is the process of creating a corporation. It involves filing articles of incorporation with the state government, which outlines the company’s purpose, structure, and ownership. Once the articles are approved, the corporation is considered a separate legal entity from its owners.
Incorporation provides several benefits to business owners, including limited liability protection, perpetual existence, and the ability to raise capital through the sale of stock. It also gives the company a more professional image and can help attract investors and customers.
| Aspect | Corporation | Incorporation |
|---|---|---|
| Definition | A legal entity separate from its owners or shareholders | The process of creating a corporation |
| Liability | Owners are not personally liable for company debts or legal issues | Provides limited liability protection to owners |
| Taxation | C corporations are taxed as separate entities from owners; S corporations are pass-through entities | Not applicable |
| Benefits | Professional image, ability to raise capital through sale of stock, perpetual existence | Provides benefits of a corporation |
How To Properly Use The Words In A Sentence
When it comes to legal terminology, it’s important to use words correctly to avoid confusion or misunderstandings. In this section, we’ll explore how to use the words “corporation” and “incorporation” properly in a sentence.
How To Use “Corporation” In A Sentence
The word “corporation” refers to a legal entity that is separate from its owners. Here are some examples of how to use “corporation” in a sentence:
- The corporation’s profits have increased by 20% this year.
- She works for a large multinational corporation.
- The corporation was founded in 1995.
As you can see, “corporation” is typically used to refer to a specific entity or organization. It’s important to note that “corporation” is a noun and should not be used as a verb.
How To Use “Incorporation” In A Sentence
The word “incorporation” refers to the process of forming a corporation. Here are some examples of how to use “incorporation” in a sentence:
- The company is in the process of incorporation.
- After incorporation, the company will be able to issue stock.
- The articles of incorporation outline the company’s purpose and structure.
As you can see, “incorporation” is typically used to refer to the process of forming a corporation. It’s important to note that “incorporation” is a noun and should not be used as a verb.
More Examples Of Corporation & Incorporation Used In Sentences
When discussing the differences between corporation and incorporation, it can be helpful to see these terms used in context. Here are some examples of how they might be used in a sentence:
Examples Of Using Corporation In A Sentence
- The corporation announced record profits this quarter.
- She works for a large multinational corporation.
- My friend started his own corporation last year.
- The corporation’s board of directors voted to approve the merger.
- They formed a corporation to manage their real estate investments.
- The corporation’s stock price has been steadily rising.
- He filed a lawsuit against the corporation for wrongful termination.
- The corporation’s CEO resigned amid scandal.
- She invested in the corporation’s new product line.
- The corporation is headquartered in New York City.
Examples Of Using Incorporation In A Sentence
- Their company recently underwent incorporation.
- He hired a lawyer to help with the incorporation process.
- They decided to pursue incorporation to protect their personal assets.
- After incorporation, they were able to secure more funding.
- Their incorporation was approved by the state government.
- They chose Delaware as the state of incorporation for their business.
- Their incorporation documents were filed with the Secretary of State.
- She researched the benefits and drawbacks of incorporation before making a decision.
- They formed an LLC through the process of incorporation.
- After incorporation, they were able to hire more employees.
Common Mistakes To Avoid
When it comes to legal jargon, the terms corporation and incorporation are often used interchangeably. However, this is a common mistake that can lead to confusion and legal issues down the line. Here are some of the most common mistakes people make when using corporation and incorporation interchangeably, along with explanations of why they are incorrect:
Using “Corporation” And “Incorporation” Interchangeably
One of the most common mistakes people make is using the terms “corporation” and “incorporation” interchangeably. While both terms refer to a legal entity that is separate from its owners, they are not the same thing. A corporation is a legal entity that is created by filing articles of incorporation with the state, while incorporation is the process of creating a corporation.
Assuming That All Corporations Are Created Equal
Another common mistake is assuming that all corporations are created equal. In reality, there are several different types of corporations, including C corporations, S corporations, and limited liability companies (LLCs). Each type of corporation has its own unique advantages and disadvantages, and it’s important to choose the right type of corporation for your business.
Failing To Follow The Proper Procedures For Incorporating
Finally, many people make the mistake of failing to follow the proper procedures for incorporating. This can include failing to file the necessary paperwork with the state, failing to obtain the necessary licenses and permits, or failing to comply with other legal requirements. To avoid these mistakes, it’s important to work with an experienced attorney or accountant who can guide you through the process of incorporating your business.
Tips For Avoiding These Mistakes
If you want to avoid these common mistakes, here are some tips to keep in mind:
- Take the time to research the differences between corporations and incorporations before you start the process of incorporating your business.
- Consult with an experienced attorney or accountant who can help you choose the right type of corporation for your business and guide you through the process of incorporating.
- Be sure to follow all of the proper procedures for incorporating your business, including filing the necessary paperwork, obtaining the necessary licenses and permits, and complying with all legal requirements.
Context Matters
When it comes to deciding between corporation and incorporation, context matters. The choice between these two terms can depend on the specific situation and the legal requirements that come with it. Understanding the context in which these terms are used is essential for making the right choice.
Examples Of Different Contexts
Here are some examples of different contexts where the choice between corporation and incorporation might change:
1. Legal Structure
The legal structure of a business can be a determining factor in choosing between corporation and incorporation. A corporation is a legal entity that is separate from its owners, while incorporation refers to the process of creating a corporation. If the business is looking for limited liability protection, then incorporation might be the better option. However, if the business wants to retain more control over its operations, then a corporation might be the way to go.
2. Tax Implications
Another important factor to consider is the tax implications of each option. A corporation is taxed as a separate entity, while an incorporated business is taxed as a pass-through entity. Depending on the business’s financial situation, one option might be more favorable than the other. For example, if the business is expecting to make a lot of profit, then a corporation might be the better choice because of the lower tax rates.
3. Business Goals
The goals of the business can also play a role in deciding between corporation and incorporation. If the business is planning to go public or attract investors, then a corporation might be the better option because it allows for the issuance of stock. On the other hand, if the business is small and has no plans to go public, then incorporation might be the more appropriate choice.
4. Liability Protection
Liability protection is a crucial consideration for any business. A corporation provides limited liability protection, which means that the owners are not personally liable for the debts and obligations of the business. Incorporation also provides some liability protection, but it is not as strong as that provided by a corporation. Depending on the level of risk involved in the business, one option might be more suitable than the other.
Overall, the choice between corporation and incorporation is not a simple one. It requires careful consideration of the specific context in which the terms are being used. By understanding the legal, financial, and operational implications of each option, businesses can make an informed decision that best suits their needs.
Exceptions To The Rules
While the general rules for using corporation and incorporation are straightforward, there are exceptions where they might not apply. Here are some of the exceptions along with explanations and examples:
1. Nonprofit Organizations
Nonprofit organizations are exempted from the usual rules of incorporation. These organizations are not formed to make a profit, and therefore, they do not need to be incorporated. Instead, they are usually formed as a trust or association. For example, a charity organization that is formed to help the poor and needy can be established as a trust or association. In this case, the organization does not need to be incorporated.
2. Sole Proprietorships And Partnerships
Sole proprietorships and partnerships are not considered corporations. They are classified as unincorporated businesses. A sole proprietorship is a business that is owned and operated by one person, while a partnership is a business that is owned and operated by two or more people. These types of businesses are not required to incorporate, but they can choose to do so if they wish to.
3. Limited Liability Companies (Llcs)
LLCs are a hybrid form of business that combines the liability protection of a corporation with the tax benefits of a partnership. While LLCs are similar to corporations in many ways, they are not considered corporations. Instead, they are classified as unincorporated businesses. However, LLCs are required to file articles of organization with the state in which they are formed.
Overall, it is important to understand the exceptions to the rules for using corporation and incorporation. Nonprofit organizations, sole proprietorships, partnerships, and LLCs all have different requirements when it comes to forming a business entity. By understanding these exceptions, you can ensure that you are following the correct procedures when establishing your business.
Practice Exercises
Now that we have discussed the differences between corporation and incorporation, it’s time to put your knowledge to the test. Below are some practice exercises to help you improve your understanding and use of these terms in sentences. Make sure to read each question carefully and choose the correct answer.
Exercise 1: Fill In The Blank
Choose the correct word to fill in the blank in the following sentences:
- The ___________ was founded in 1985.
- John wants to ___________ his business to protect his personal assets.
- Apple Inc. is a ___________.
- Small businesses often choose to ___________ to take advantage of tax benefits.
Answer key:
- corporation
- incorporate
- corporation
- incorporate
Exercise 2: Multiple Choice
Choose the correct option for the following questions:
- What is the main difference between a corporation and an incorporation?
- A corporation is a legal entity, while an incorporation is not.
- An incorporation is a legal entity, while a corporation is not.
- There is no difference between the two terms.
- A corporation is a type of business structure, while an incorporation is a type of legal process.
- Which of the following is an advantage of incorporating a business?
- Lower taxes
- Greater flexibility in management
- Unlimited liability
- Personal assets are protected from business debts
Answer key:
- d
- d
By completing these practice exercises, you should now have a better understanding of how to use corporation and incorporation in sentences. Remember, a corporation is a type of business structure, while incorporation is the legal process of forming a corporation. When deciding whether to incorporate your business, consider the advantages and disadvantages of this type of legal structure.
Conclusion
In conclusion, understanding the difference between corporation and incorporation is crucial for anyone involved in business or legal matters. Here are the key takeaways from this article:
- Corporation refers to a legal entity that is separate from its owners and shareholders, while incorporation is the process of creating a corporation.
- Corporations offer limited liability protection to their owners, while sole proprietorships and partnerships do not.
- Incorporating a business can provide tax benefits and help attract investors.
- Choosing between corporation and incorporation depends on the specific needs and goals of the business.
It is important to continue learning about grammar and language use to effectively communicate in any industry. By improving your writing skills, you can enhance your credibility and professionalism. Keep exploring resources and practicing your writing to become a more effective communicator.
Shawn Manaher is the founder and CEO of The Content Authority. He’s one part content manager, one part writing ninja organizer, and two parts leader of top content creators. You don’t even want to know what he calls pancakes.