Incorporation is the series of steps involved in creating a corporation. At the end of this process, there is a separate legal entity that is owned by one or more shareholders. This entity is usually identified with the letters “Inc.” or “Limited” after its name. The exact process followed varies by country; at a minimum, incorporation can be achieved by filling out an online form that states the name of the business, its reason for existence, location, and number of shares authorized and outstanding. The entity must also have articles of incorporation. The state in which an organization is incorporated will require that a status report be filed once a year, along with a fee. The number of steps needed to incorporate a business is a prime factor in determining the ease of doing business in a country.
Incorporation is highly advantageous, for several reasons. First, it protects the shareholders from the liabilities of the business; that is, they are only liable for the amount they have invested in the entity. Second, they can sell their shares to other investors. Third, a corporation can theoretically last forever, and so does not terminate with the death of an owner. And finally, the entity can sell additional shares and/or take on debt in order to finance its operations. For these reasons, most larger organizations are formed through the incorporation process.