Financial Accounting I

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Incorporation

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Financial Accounting I

Definition

Incorporation is the legal process through which a business entity becomes a corporation. This process provides the business with a distinct legal identity separate from its owners.

5 Must Know Facts For Your Next Test

  1. Incorporation allows a company to issue stock to raise equity financing.
  2. A corporation can enter into contracts, sue and be sued, and own assets in its name.
  3. Incorporated entities benefit from limited liability protection for their shareholders.
  4. The incorporation process involves filing articles of incorporation with the state government.
  5. Corporations must adhere to regulatory requirements such as holding annual meetings and maintaining corporate records.

Review Questions

  • What are the primary benefits of incorporating a business?
  • Which document needs to be filed to begin the incorporation process?
  • How does incorporation affect the liability of shareholders?
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