Incorporation is the forming of a new corporation (a corporation being a legal entity that is effectively recognized as a person, albeit a fictitious one, under the law). The corporation may be a business, a limited liability company or a non-profit organization.

Legal benefits:

Protection of personal assets. Safeguarding personal assets against the claims of creditors and lawsuits. Sole proprietors and general partners in a partnership are personally and jointly responsible for all the liabilities of a business such as loans, accounts payable, and legal judgments. In a corporation, however, stockholders, directors and officers typically are not liable for their company’s debts and obligations. They are limited in liability to the amount they have invested in the corporation (eg: If $100 in stock was purchased, no more than $100 can be lost). Corporations and Limited Liability Companies (LLCs) may hold personal assets like houses, cars or boats. If one is personally involved in a lawsuit or bankruptcy, these assets may be protected. A creditor of the owner of a corporation or LLC cannot seize the assets of the company; however, they can seize their ownership shares in the corporation, as that is considered a personal asset. 

Transferable ownership. Ownership in a corporation or LLC is easily transferable to others, either in whole or in part. Some states’ laws are particularly attractive to this end.

Retirement funds. Retirement funds and qualified retirements plans, such as a 401(k), may be established more easily.

Durability. A corporation is capable of continuing indefinitely. Its existence is not affected by the death of shareholders, directors, or officers of the corporation.

Credit rating. Regardless of an owner’s personal credit scores, corporations acquire their own credit rating, and build a separate credit history by applying for and using corporate credit.

Taxation

In the United States, corporations are taxed at a lower rate than individuals. Also, they can own shares in other corporations and receive corporate dividends 80% tax-free. There are no limits on the amount of losses a corporation may carry forward to subsequent tax years. A sole proprietorship, on the other hand, cannot claim a capital loss greater than $3,000 unless the owner has offsetting capital gains.

Raising funds through sale of stock. Capital from investors can be raised for corporations easily through the sale of stock.