A Corporation is a legal entity that can exist under authority granted by state law. It has its own identity separate and apart from its shareholders/owners.

Incorporation is the process of separating a business owner from his or her business. There are many different reasons to incorporate your business and limited personal liability is probably number one. Regardless of the type of business you conduct, there is a significant risk of being sued in our litigious society. Lawsuits can range from claims of negligence to defective products to disputes with employees. Incorporating is a means of guarding against these potential threats.

If a court judgment is entered against your corporation or LLC (Limited Liability Company), you stand to lose only the money that you have invested in the corporation. Generally, as long as you have acted in your corporate capacity (as an employee, officer or director) and without the intent to defraud creditors, your home and personal bank accounts and other valuable property can not be touched by a creditor who has won a lawsuit against your corporation.

Incorporating your business is a method for creating a legal wall between your personal assets and business. Any judgment against your business will not impact your personal assets.

If a business has more than one owner, incorporating can offer protection from any bad judgments of your co-owners.

Incorporation is not solely about insulating your personal assets from the debts and obligations of the company. Perhaps your small business has grown as much as it can without a major capital infusion that will be necessary to evolve to the next level. Corporations are better organized and more likely to raise that capital than the partnership or sole proprietorship. In the event that you are now ready to set up retirement accounts or 401k plan(s) for your employees and yourself, it is easier to do with a corporation.

Ownership becomes easily transferable when you incorporate should you decide to sell the company at a later date or pass it on to your children.

Also, there are many tax-related advantages given to corporations and LLCs that aren't given to sole proprietors or general partnerships. A corporation can treat fringe benefits given to employees, such as medical and dental insurance, as tax-deductible business expenses. Other reasons to incorporate include credit building and investor attraction.