What Does it Mean to Incorporate?
Incorporating a business means turning your sole proprietorship or general partnership into a company formally recognized by your state of incorporation.
When a company incorporates, it becomes its own legal business structure ─ set apart from the individuals who founded the business.
Through incorporation, the company’s owner or owners create a separate legal entity to transact business.
This new business entity ─ Corporation or Limited Liability Company (LLC) ─ transforms the way the business is seen through the eyes of the law and often has more credibility with potential customers, vendors and employees.
Why is Incorporating Important?
The primary benefit to business incorporation is limited liability.
When you own a small business, you will invest a lot of money into not only getting it launched, but in keeping it running smoothly as well.
As the owner, you are responsible for any debts and losses your business may accumulate along the way.
However, once you incorporate, you are typically only held responsible for the amount of money you personally invest.
Your personal assets typically cannot be used to satisfy the debts and liabilities of your business.