Updated on April 19th, 2023

10 Must Know: Corporation vs. Incorporation

By: Brad Nakase, Attorney

Email  |  Call 888-600-8654

Marco has always loved dogs, ever since his parents gave him a golden retriever puppy as a kid. Now that he’s an adult and fresh out of college, Marco wants to start his own mobile dog grooming business. He would like to one day have vans all over the country providing grooming services to dogs in need. The problem is, Marco majored in Theatre in college, and he doesn’t know the first thing about starting a business. He goes to the library to get any book he can find on the subject of starting a small company and how to take it to the big-time. He notices that some companies are corporations, which enjoy special benefits. Marco is intrigued. But he sees both the words “corporation” and “incorporation,” which confuses him. He wonders what the difference is between these terms.

When starting a business, or creating a corporation, it is common for business owners to have a lot of questions. One of the common questions is how the word “corporation” differs from “incorporation.” A corporation is the business itself, or the company. Incorporation, on the other hand, is the process of starting a corporation.

This means that a corporation, a limited partnership, and a non-profit corporation are incorporated entities – because they have gone through the process of incorporation to become corporations. They have filed a corporate charter, or founding document, with the state in which they operate. They also have a statute that determines the ownership and management structure. Corporations also have to file annual reports with the relevant state of operation.

Limited Liability Companies (LLCs), by contrast, are not incorporated. This means that they have not gone through the process of incorporation to become a corporation. Instead of a corporate charter, LLCs have an Operating Agreement to govern them. LLCs have more freedom in choosing a management structure, as well as more freedom to decide how the company will be taxed.

10.  What Is Incorporation?

Incorporation is the legal process a company goes through to become a corporate entity. There are several reasons why a business might want to incorporate. For instance, corporations can protect the personal liability of owners. This is because a corporation’s liability is separate from that of the owner. This means that if the corporation faces a lawsuit, then the owner’s personal assets (car, home, savings, etc.) are safe from judgement.

When a business is incorporated, this means that it has filed the required paperwork with its state to become a corporation.

9.  What Is the Difference Between Inc. and Corp.?

Inc. and Corp. are abbreviations that mean the same thing. Inc. means incorporated, while Corp. means corporation. When a corporation chooses its name, it can decide between adding either one of these suffixes to its name. There is no difference in meaning; both are being labeled as corporations. It is simply a personal stylistic choice.

8.  How Is an LLC Formed?

The process of forming an LLC is relatively simple, and the first step is to come up with a name ending in LLC. LLC is the abbreviation for Limited Liability Company. Once an owner has a name in mind, he or she can contact a registered agent. He or she will then fill out paperwork for the agent. The agent will then file that paperwork with the state in order to form the company. The agent will be sure to send the state’s correspondence to the owner, for a fee, of course. When the state approves of the LLC formation, the agent will forward the company’s Certificate of Formation to the owner.

7.  Is It Necessary to Incorporate Twice?

Incorporation is a one-time action. A corporation only needs to incorporate once. In order to do business in other states, it is only necessary to go on-record. Often, a corporation will be formed in one state and then do business mainly in another. If a corporation is formed in California, it can still do business in Texas or Virginia, for example. It may be required to go on-record with the state, but there is no effect on its ability to do business.

A corporation should determine, however, whether it will need a Certificate of Authority in the state in which the main business is conducted. This process is known as qualification. Its purpose is to register foreign companies with the state. “Foreign,” in this case, does not mean international, but out-of-state. This process should be done in any state in which the company operates outside of its state of incorporation.

6.  Can a Company Incorporate in More Than One State?

A company may only incorporate once, in a single state. The process of foreign qualification, as discussed above, does not mean incorporating in each state in which the company does business. That is simply a registration process. It is possible for a corporation to form multiple entities if it has subsidiaries, but multiple entities are not needed for a single corporation. In fact, to incorporate more than once creates legal issues: which entity holds the company assets, for example.

A business owner has the freedom to choose a state whose laws suit the company.

5.  How Many People Are Needed to Incorporate?

At least one person is required to incorporate a company. The person who owns the company is called the Legal Party. In a corporation, this same person is referred to as a shareholder or stockholder. In an LLC, this individual is called a member. The person who starts a company, known at the Legal Party, can function as sole director, officer, or shareholder of a corporation. They can also be the sole member of an LLC. An LLC that only has one member is called a single-member LLC. For tax purposes, it is known as a Disregarded Entity, or a “DRE.”

Essentially, in order to start a company, only one person is needed.

4.  What Is the Cost of Incorporating?

The cost of incorporating will depend on the state in which an owner incorporates his or her business. Each state will have its own fee structure, and the fee will vary based on whether the company in question is an LLC or a corporation. The fee will also depend on how quickly one wants to incorporate.

3.  What Is the Principal Place of Business?

The state where a business incorporates is called the “domestic” state, while the other states in which it does business are referred to as “foreign” states. An owner should be sure not to incorporate in other states beyond the domestic state. This would lead to having multiple companies under the same name, creating legal hurdles for an owner down the road. Instead of doing this, an owner should go “on-record” with a “foreign” state in which it is doing business. For example, let’s say a company incorporates in California. In that case, California is the domestic state. Now let’s say that company wants to do business in North Carolina. North Carolina would in that case be the “foreign” state in which the company conducts business.

When it comes to determining the principal place of business, it can get a little tricky. Sometimes, businesses have multiple locations. In order to figure out where the company conducts its principal business, one has to figure out where the executives make big decisions. One also has to know where the business activities are conducted. By balancing these two approaches, one is conducting a “total activities test.” Every company will have one principal place of business, and it is there that they must go on-record. Why? In the event that there is a problem and an aggrieved party needs to contact the company, there will be an address to serve the company with official papers.

2.  Why Is This Required Legally?

Going on record is really just a matter of public record. The importance is that the company has an official, physical presence established. The public will be able to find the business. A company is subject to “general jurisdiction” in both the state of incorporation and the principal place of business. This means that the courts of both these states have jurisdiction over one’s business, no matter where a legal issue occurs.

However, in some states, a business is only subject to “specific jurisdiction.” This refers only to the activities that take place in the relevant state.

In states with general jurisdiction, a business must let the public know how to get in touch with them by providing a physical presence. The physical address could be the headquarters office or the registered agent’s office. By filing this information, people can look up the company with the secretary of state or find an address where they can serve legal papers.

1.  Is It Necessary to Register in the Place of Principal Business?

Typically, states define conducting business as having a physical location in a state. This would include employees, shipping products, inventory, or holding licensing specific to that state. On occasion, a bank may request that a company be registered in order to open a bank account in the state of principal business. If a business may be classified as “micro,” meaning it only consists of one businessman, then getting registered may not be necessary.

In the end, each state has different requirements as to whether registration is necessary. It will depend often on the company’s level of activity in that state. Normally, a business will not need to worry about registering if it is only selling products, advertising, or selling services in that state. Provided, of course, that there are no offices or employees in that state.

We want to hear your story.

0 + 2 = ?

How to transfer LLC ownership?

Two common ways to transfer LLC ownership are to conduct a partial sale to a third party or sell your entire LLC to a third party.

Why Do Companies Incorporate in Delaware?

The State of Delaware offers companies lenient tax benefits and liability protection. Also, companies that incorporate in Delaware do not have to do business in the state.

Inc vs. LLC

Incs. is short for incorporated, and LLC is short for Limited Liability Company. For Inc., where the owner elected to be an S corporation, the profit and loss are passed to its shareholders, whereas income and loss in an LLC flow through to the members.

What is an LLC and how does it work

An LLC is a business entity that protects the owners with limited liability protection. An LLC also offers pass-through taxation, which means the company’s profits and losses pass through to the owner’s personal tax level.

What Is a Disregarded Entity?

A “disregarded entity” refers to an entity with one owner and not organized as an entity such as a corporation, LLC, or partnership. For federal tax purposes, the disregarded entity and the owner, who is a natural person, are not treated separate.

Breach of Fiduciary Duty in California

A breach of fiduciary duty in California occurs when an entity or person in a trustee position fails to act in the beneficiary's best interest.

5 Easy Steps: How to Dissolve a Corporation in California

When a business owner wishes to close, or dissolve, their business, he or she must file a certificate of dissolution with the Secretary of State. This certificate of dissolution lets the Secretary of State know that the business owner is terminating his or her California corporation, effectively closing it for good. Dissolution is a process that involves a number of steps.

15 Steps: Starting an Inc in California

For the business owner, there are many benefits to creating a corporation in California. Assuming it is properly run, a corporation has the ability to shield its shareholders from debts and liabilities on the business side of matters.

11 Steps on How to Start a Corporation

A corporation is a separate legal entity which can protect its owners from business liabilities and risks. There are many benefits to starting a corporation. A business owner can save money on taxes, protect his or her own assets, attract the interest of investors, or simply enhance one’s credibility among consumers and vendors.

5 Benefits: What Does it Mean to Incorporate a Business

For background, in order to incorporate a business, a founder must file paperwork with the state in which their business is located. There can either be a single shareholder or multiple involved in the incorporation process. Importantly, an incorporated business is legally a separate entity from its shareholders.

10 Must Know: Corporation vs. Incorporation

Inc. and Corp. are abbreviations that mean the same thing. Inc. means incorporated, while Corp. means corporation. When a corporation chooses its name, it can decide between adding either one of these suffixes to its name.

7 Differences Between Inc and Corp

Inc. is the abbreviation for incorporation, while Corp. is the abbreviation for corporation. Both of these abbreviations are used by entities that have been incorporated.

13 Steps Incorporation Process

Incorporation is the process a business owner must follow to turn his or her company into a corporation or a limited liability company (LLC). Incorporating a business turns it into its own legal entity with similar rights and duties as a person.

3 Steps on How to Get a Certificate of Status in California

Anyone who owns a business in California and would like to transfer his or her business to another state will need to get a Certificate of Status. This may also be known as a Certificate of Good Standing or Certificate of Existence.

How to form a corporation in California.

Forming a corporation in California requires you to file an Article of Incorporation with the Secretary of State. However, there are other things you must do to comply with corporate law when forming a corporation in California.

Sarbanes-Oxley Act Summary

Sarbanes-Oxley Act, designed to address a fraud and transparency on company shareholders that arose from corporate insider’ conflict of interest.

© Copyright | Nakase Law Firm (2019)