What is incorporation?
Incorporation can be thought of as the act of bringing a corporation into existence. This is done by making a filing with a state. Human beings exist by virtue of living, but a corporation only exists if a state says it does. Once the corporation exists, it can hold legal rights and obligations separate from its owners.1
Incorporation is about turning a business into a legal entity.
You don't need to have a business to incorporate. Many founders incorporate with nothing more than an idea.
Incorporation is about forming a company.
Not all companies are corporations, and you can only incorporate corporations.
You can incorporate a legal entity that's not a corporation.
You can form other types of entities, but the word "incorporation" only applies to corporations.
Incorporation involves deciding how many shares each founder gets.
Issuing shares to founders actually comes after incorporation. Incorporation is just about bringing the corporation into existence. Anything the corporation might do once it exists, such as issuing shares to founders, comes afterwards.
Incorporation is all that's necessary to start fundraising or hiring.
Incorporation is just the first step in the process of forming a startup. Startups must do other paperwork, commonly referred to as post-incorporation setup paperwork, before they can fundraise or hire.
- 1.
In law, a human is only one type of person. The law defines other types of legal people (also referred to as legal persons) that humans (also known as natural people or natural persons) can create. By allowing corporations to be considered legal people, the law makes it possible for them to hold legal rights and obligations separate from their owners.
