If you’re ready to form a legal business entity and you're thinking that an S Corp or C Corp is the way to go, it’s vital to understand what’s meant by the terms "incorporation" and "corporation." Although the words sound similar, there are fundamental differences in how they’re applied. Let's break it down and give you a better idea of what they mean.
What's the Difference Between Corporation and Incorporation?
Simply put, "corporation" is a noun that describes a type of business entity, while "incorporation" is a verb that describes the act of forming a — you guessed it — corporation.
A corporation is considered legally separate from its owners, employees and others, and exists as an entity in its own right. Corporations in the U.S. are known as either S Corporations or C Corporations, and each provides different benefits to stakeholders.
The main difference: incorporation is the process you go through to create a corporation, which is a separate legal entity.
Corporations Are Not Your Only Option
S Corporations and C Corporations do provide some advantages to specific types of entrepreneurs, but they also require a lot of overhead to maintain, including:
Payroll for employees
Creation of a company charter
Bylaws and meeting minutes, regularly updated
Issuance of stock ownership certificates
The requirement to hold an Annual General Meeting
The requirement to appoint officers
The requirement for a board of directors
Complex tax filings
In most cases, there’s a type of business that provides similar benefits to corporations without the administrative headaches — the limited liability company, or LLC. These types of businesses are quicker, easier and cheaper to create and maintain. It’s important to note that an LLC is not a type of corporation, but in many cases, it will meet your needs and it also offers liability protection.