Incorporation is the legal process of creating a new corporation. A corporation is a legal entity that is separate from its owners. The owners of a corporation are called shareholders.
Incorporation can be a complex and expensive process, so it is essential to consult with an experienced attorney before doing it.
What Does It Mean to Be Incorporated?
Having an incorporated company means that you form and operate your business as a corporation that is recognised by your government
A corporation can own property, enter into contracts, and sue or be sued in its own name. A corporation has many of the same rights as an individual but also some special privileges and responsibilities.
Under some business structures, incorporating a startup protects the founders from personal liability in the event that the business fails. This protection is called "limited liability." If your business fails, your personal assets (such as your house or car) cannot be taken away to pay your business debts.
Incorporation also makes it easier to raise money from investors because incorporation shows that the startup is a serious business.
You also get some special tax benefits when you incorporate. Some people choose not to incorporate because they think it will make their business seem "too big" or because they don't want to go through the hassle of incorporating. But if you are serious about your business, incorporation can be a great way to protect yourself and your investment.
Types of Startup Incorporation
There are several types of incorporation that a startup can choose from, each with its advantages and disadvantages. One of the most known business structures is the LLC or limited liability company. This type of incorporation protects the founders if the company is sued. However, raising capital for an LLC can be more complicated than for a C corporation.
C corporation is the most common type of incorporation for startups. It offers the ability to raise capital easily and allows granting shares/equity to employees as part of a benefits package - something that Capboard helps startups with. If you want to learn more about employee equity plans, check out our guide on ESOP. However, it is crucial to note that a C corporation is subject to double taxation.
Another option is the S corporation. This type of incorporation offers tax benefits, but there are strict limits on the number of shareholders.
It's important to understand that your business may benefit from a different type of incorporation — for example, sole proprietorship, partnership, and limited partnership.
Getting professional advice on the topic and researching more may be needed to make an informative decision. Make sure to also check official government websites that can provide valuable information.