Incorporation is the legal process used to form a corporate entity or company. A corporation is the resulting legal entity that separates the firm assets and income from its owners & investors.
Incorporation is the way that a business is formally organized and officially brought into existence. The process of incorporation involves writing up a document known as the articles of association & enumerating the firm’s shareholders. Also, the assets & cash flows of the business entity are kept separate from those of the owners & investors, which is called limited liability.
How it works?
£ Protects the owner’s assets against the company’s liabilities.
£ Allow for easy transfer of ownership to another party.
£ Often achieves a lower tax rate than on personal income.
£ Usually receives more lenient tax restrictions on loss carry forwards.
£ Can raise capital through the sale of stock.
Incorporation effectively creates a protective bubble of limited liability, often called a corporate veil, around a company's shareholders and directors. As such, incorporated businesses can take the risks that make growth possible without exposing the shareholders, owners, and directors to personal financial liability outside of their original investments in the company.