Does Every Corporation Have to Be Incorporated?

“Corporation” and “incorporation” are two terms you’ll often hear when you start your entrepreneurial journey. Although people use them interchangeably, these words have distinct meanings and functions in business.

A “corporation” is a legal entity owned by shareholders and managed by a board of directors. Meanwhile, “incorporation” refers to forming a separate legal business entity.

Corporations must be incorporated to establish their legal status. However, not all businesses that incorporate can be classified as corporations.

Below, we’ll discuss the difference between “incorporated” and “corporation” and explore how these terms are related.

Corporation vs. Incorporation: What’s the Difference?

People often confuse the terms “incorporation” and “corporation” because of their similarities. However, it’s important to remember that they mean different things.

A corporation is one of the many entities you can form when setting up a business. These legal entities operate independently from their owners, meaning they can enter into contracts, own properties, and be sued using their own names.

This arrangement gives shareholders limited liability for any debt or lawsuit the corporation incurs. If you form a corporation and it becomes indebted, creditors can only pursue its assets, not yours.

Incorporation, on the other hand, is forming a legal entity for your business. It’s the primary process you’ll go through to establish entities like corporations.

The requirements and procedures for incorporation vary depending on the entity you’re forming and the state where you’re forming it. But generally, incorporation involves filing formation documents with the Secretary of State and paying the applicable filing fees.

Does “Corporation” Mean “Incorporated”?

If you form a corporation for your business, it means you have formally incorporated it. However, just because you’ve incorporated your business doesn’t mean it can be classified as a corporation.

As we’ve mentioned earlier, there are other entities you can create through incorporation.

Other Entities You Can Form Through Incorporation

In addition to corporations, incorporating can also form the following entities:

Limited Liability Companies (LLCs)

Limited liability companies (LLCs) combine a corporation’s limited liability with a sole proprietorship’s pass-through taxation.

LLCs, known for their flexible management structure, offer a reassuring alternative. Unlike corporations, which must have directors, officers, and shareholders, LLC members can tailor their management structure to their specific needs.

They can manage the LLC themselves or appoint managers to oversee the company’s daily operations. These management structures are identified as member-managed and manager-managed structures.

LLCs are also popular for their pass-through tax status. By default, LLCs are considered pass-through entities, meaning they do not pay income taxes. Everything they earn and lose is passed through to their owners, who report these amounts on their tax returns.

This setup allows them to avoid double taxation, a tax structure where businesses are taxed twice, which is common among corporations.

S Corporations

An S corporation is a special type of corporation with pass-through taxation. These entities were originally incorporated as traditional corporations qualified to receive the S corp tax election.

According to the IRS, a corporation will only be treated as a pass-through entity if it meets the following criteria:

• Must be a domestic corporation
• Must have no more than 100 shareholders
• Must have one class of stock
• Must only have the allowable shareholders
• Must not be an ineligible corporation, i.e., financial institutions, insurance companies, and domestic international sales corporations

How to Establish A Corporation

Establishing a corporation is relatively easy. It only involves the following steps:

Choose a corporate name.

The first step in establishing a corporation is choosing a unique name. States require corporations to have a corporate name that is not in use. Your corporation’s name should also fulfill the following guidelines:

• It must end with “corporation” or one of its equivalent abbreviations.
• It must not include any prohibited terms without approval from regulating agencies.
• It must not use any terms that establish a connection with a government agency.

Appoint a registered agent.

A registered agent is a person or company designated to receive legal correspondence on behalf of a business. It’s one of the many requirements corporations and LLCs must fulfill to maintain good standing with the state.

Anyone can be your corporation’s registered agent so long as they meet the following general requirements:

• Registered agents must be 18 years old or older.
• Registered agents must have a physical street address within the state.
• Registered agents must be available to receive legal correspondence during regular business hours.

Can you appoint yourself as your corporation’s registered agent? Yes, but this approach is generally viewed as a bad idea. 

Registered agents serve as the state’s official point of contact for your business. They must be available during regular business hours to receive important notices, or you risk missing important mail.

File your articles of incorporation.

Once you’ve designated a registered agent, you can file your corporation’s articles of incorporation with your Secretary of State.

These are the primary documents you’ll need to form your corporation. They include basic information about your business, such as:

• Your business’s name.
• Your business’s address.
• The purpose of your business.
• The name and address of your business’s registered agent.
• The names and addresses of your business’s shareholders.
• The duration of your corporation, if applicable.

After you submit your articles of incorporation, you must pay your state’s filing fee.

Obtain an employer identification number (EIN).

Lastly, you must obtain an employer identification number (EIN) from the IRS. An EIN is a unique nine-digit code the IRS uses to identify businesses for tax purposes.

Your corporation will need an EIN to file taxes, hire employees, and open bank accounts. You can get it through the IRS website for free.

Incorporate Your Business Today

While “corporation” and “incorporation” are terms people use interchangeably, they represent different aspects of business formation.

A corporation is a business entity known for its liability protections, while incorporating is the process by which entities like corporations are legally formed.

Understanding how incorporation works is vital, regardless of whether you incorporate your business as a corporation or an LLC. NCH is here to assist you if you’re having trouble choosing the right entity for your growing venture.

NCH specializes in business formation in Nevada. Our team can help you identify which entity best suits your business. We’ll evaluate your needs and goals, ensuring you pick an entity with the right balance of liability protection and tax advantages.

To learn more, visit our website here or call us at 1-800-508-1729 to schedule a consultation with one of our specialists.