Although people often use the terms interchangeably, there’s a crucial difference between incorporation and a corporation. Incorporation is the legal process of creating a new business entity; a corporation is the separate legal structure that exists after that process is completed and recognized by the state.

Before you file anything, make sure you understand that difference—especially if you plan to use a formation service like LegalZoom to set up your company quickly and correctly with the right paperwork, bylaws, and compliance reminders.

What Is a Corporation?

From the Latin “corpus” (body), a corporation is a group of people recognized in law as a single “person.” In the U.S., corporations are legal persons for many purposes, which means they can own property, enter contracts, pay taxes, and exist beyond the lives of their founders.

Corporations can sue and be sued, raise money by issuing stock, and enjoy many rights similar to individuals—such as due process and freedom of speech. Critically, they provide limited liability: owners (shareholders) are generally not personally responsible for corporate debts and obligations when proper formalities are followed.

There are limits to that protection. A corporation is typically liable for the actions of its employees and agents when those actions are within the scope of their work (the “respondeat superior” rule). Personal acts outside the scope of employment usually don’t create corporate liability, and courts can “pierce the corporate veil” in cases of fraud or failure to observe corporate formalities.

Common corporate types include:

  • C-Corporation: The default structure. Profits are taxed at the corporate level and again when distributed to shareholders (double taxation). Allows unlimited shareholders and multiple classes of stock—often preferred by venture-backed startups.
  • S-Corporation: A federal tax designation that lets profits and losses pass through to shareholders’ personal returns, avoiding double taxation. Eligibility rules apply (generally U.S. individuals and certain trusts only, one class of stock, and a 100-shareholder limit).
  • B-Corporation: A statutory “benefit corporation” form that requires pursuing public benefit alongside profit. (Separate from “Certified B Corporation,” a third-party certification by B Lab.)
  • Professional Corporation (PC): For licensed professionals (e.g., doctors, lawyers, architects). Offers liability protection for business obligations; professional malpractice remains personal. Some states also allow a PLLC alternative.
  • Nonprofit Corporation: Organized for charitable, educational, or public purposes. May qualify for federal tax exemption (e.g., 501(c)(3)) if IRS requirements are met.

What Is Incorporation?

Incorporation is the state-level process of bringing a corporation into legal existence. You typically file Articles (or a Certificate) of Incorporation with the Secretary of State, designate a registered agent, name initial directors, and set your authorized shares and principal office address.

Once approved, your business becomes a separate legal entity. That separation protects your personal assets from most business liabilities, can unlock tax planning options, and makes raising capital easier by issuing equity and attracting lenders or investors.

Many founders use a service like LegalZoom to prepare and file formation documents, supply bylaws and organizational minutes, and serve as registered agent—streamlining steps that otherwise require a lot of back-and-forth with state agencies.

For growing businesses, incorporation is often the natural next step once you need liability protection, outside funding, or a formal ownership structure.

The Basics of Incorporating Your Business

Now that the difference between incorporation and a corporation is clear, here’s how to incorporate from the ground up. Services like LegalZoom can guide you through selecting a structure, preparing filings, and keeping you compliant year-round.

1. Choose a business structure

Start by selecting a legal structure. Common choices include sole proprietorships, partnerships, limited liability companies (LLCs), and corporations.

Each option differs in liability protection, tax treatment, ownership and governance, and compliance burden. Picking poorly can create tax surprises or limit future fundraising, so take time to evaluate the tradeoffs—or use guided tools to narrow your options.

Sole proprietorships and general partnerships are simple and low cost but offer no personal liability protection. They’re typically best for low-risk freelancers or temporary projects where formal separation isn’t needed.

LLCs provide limited liability with flexible management and default pass-through taxation (single-member LLCs are disregarded; multi-member LLCs default to partnership taxation). They’re a popular middle ground for small to midsize businesses.

Corporations (C-corps and S-corps via election) offer strong liability protection and a well-understood governance model that investors prefer. They require more formalities—boards, bylaws, minutes, and stock records—than LLCs.

Need help deciding? LegalZoom provides question-based guidance that maps your goals, risk tolerance, and tax preferences to the right entity type.

If you choose a corporation, you’ll also decide between C-corp and S-corp tax treatment. C-corps allow multiple stock classes and unlimited shareholders. S-corps avoid double taxation but have eligibility limits and require timely IRS election (generally within 2 months and 15 days of the tax year start); late-election relief may be available under IRS Rev. Proc. 2013-30—talk to your tax pro before filing.

2. Choose a business name

Your name appears on state records, contracts, bank accounts, and your website—so choose one that’s memorable, compliant, and available. Aim for something simple to pronounce and spell, and consider how it will look in your logo and URLs.

Here are a few best practices to follow:

  • Choose something unique and easy to remember. Use tools like Shopify’s business name generator for ideas, and avoid names that are easily confused with competitors.
  • Check availability in your state’s business name database to make sure it isn’t taken and to confirm you can reserve it while you file.
  • Follow your state’s naming requirements. Many states require words like “Corporation,” “Incorporated,” or “Limited,” and restrict terms such as “bank” or “university.”
  • Check for domain availability so your web address aligns with your brand. Secure the .com if possible and confirm social handles are open.

Want help with name clearance, reservations, and DBA filings? LegalZoom can bundle this with your formation to reduce back-and-forth with the state.

3. File the necessary paperwork

File your Articles of Incorporation (or the equivalent) with your state. You’ll list the company name, principal address, registered agent, authorized shares, and the incorporator or initial directors. Keep copies for your records and set calendar reminders for any initial reports.

Incorporating outside your home state usually requires “foreign qualification” (a Certificate of Authority) where you actually do business. This keeps you compliant with local tax and reporting rules and helps avoid penalties.

If the paperwork feels daunting, a formation service like LegalZoom can assemble and file everything correctly the first time and serve as your registered agent to ensure you never miss legal notices.

4. Create corporate bylaws

Bylaws are your internal rulebook. They define board structure and officer roles, meeting frequency and voting procedures, share issuance and transfer rules, and how you’ll handle conflicts, indemnification, and recordkeeping.

Even when not strictly required by state law, well-drafted bylaws help prevent disputes and demonstrate that you’re observing corporate formalities—important for maintaining limited liability.

If you don’t want to draft bylaws from scratch, LegalZoom offers customizable templates and guidance, or you can consult an attorney for industry-specific provisions.

5. Find legal and financial assistance

Line up ongoing support. At minimum, open a business bank account, obtain an EIN, talk to a tax professional about payroll and owner compensation, and confirm licensing and insurance requirements for your industry and state.

LegalZoom can connect you with independent attorneys through affordable legal plans for document review, contract drafting, and compliance advice—useful when you don’t have in-house counsel.

Modern spend-management platforms and online business banks offer expense tracking, virtual cards, and built-in approvals that make it easier to control budgets and prep for tax season without spreadsheets everywhere.

Brex remains a popular corporate card option with no personal guarantee for many startups. BILL Spend & Expense (formerly Divvy) combines cards with granular budget controls and reimbursements—handy if you’re managing team spend in real time.

Finally, services like LegalZoom can handle EIN registration, operating agreements, and compliance reminders, so critical tasks don’t slip through the cracks.

4 Tricks for Incorporating Your Business

Incorporating can feel intimidating the first time. The jargon is real, the requirements vary by state, and there are deadlines to hit. The upside: there are straightforward ways to simplify the work—and LegalZoom can automate much of it.

Use these four tips to make smarter, faster decisions during formation.

1. You might not need to incorporate to enjoy the same tax benefits.

For many small businesses, an LLC provides the same limited liability as a corporation with simpler administration and flexible taxation. You can keep default pass-through taxation or elect S-corp treatment if it fits your situation.

LLCs avoid corporate-level tax by default. If you elect S-corp taxation and work in the business, you’ll typically pay yourself a “reasonable salary” (subject to payroll taxes) and may take additional distributions not subject to self-employment tax—subject to IRS rules.

To elect S-corp status, file IRS Form 2553 by the deadline; if you miss it, some late-election relief may be available under Rev. Proc. 2013-30.

2. Think twice before filing in a different state than where you live.

States like Delaware, Nevada, and Wyoming offer founder-friendly statutes, but forming outside your home state usually means two sets of fees, reports, and registered agents (one for the formation state and one for your home state via foreign qualification). For most small businesses that operate locally, forming where you do business is simpler and cheaper.

If you plan to raise venture capital, issue complex equity, or eventually go public, Delaware can still be worth it. If you go out-of-state, a service like LegalZoom can handle both the formation and the foreign qualification paperwork.

Offshore incorporations (e.g., Cayman Islands) are specialized and typically unnecessary for early-stage U.S. companies without cross-border structures or investors.

3. You’ll need to file annual reports and pay fees.

Most states require corporations and LLCs to file annual or biennial reports, pay franchise or excise taxes, and update officer/director or member/manager information. Due dates and fees vary widely by state.

You must also maintain a registered agent with a physical address in each state where you’re registered. If you don’t have one, LegalZoom offers nationwide registered agent services with compliance alerts.

Stay organized. Missed filings can lead to late fees, loss of good standing, or administrative dissolution. Keep a compliance calendar and store minutes, consents, stock ledgers, and key contracts together.

4. You’ll need to follow certain rules and regulations.

Corporations should hold and document board and shareholder meetings, keep bylaws up to date, issue stock properly, and maintain a minute book. LLCs are more flexible but still need an operating agreement and consistent recordkeeping to preserve the liability shield.

Compliance doesn’t have to be painful. LegalZoom’s compliance services can centralize reminders, provide templates for minutes and resolutions, and help you file required reports on time.

Make Your Corporation Investor-Ready (Equity, Options, and QSBS)

If you expect to raise money or hire with equity, set up your capitalization and securities compliance correctly from day one. Doing this early avoids painful cleanups during due diligence and helps you move faster when an investor is ready to wire funds.

1) Structure your share pool the smart way

  • Authorized vs. issued: Authorize more shares than you initially issue (e.g., authorize 10–20 million common shares; issue only what founders receive). This leaves room for employee options and future investors without immediate charter amendments.
  • Par value: Set a low par value (often $0.00001–$0.001). In Delaware, many startups minimize franchise tax by filing via the Assumed Par Value method; talk to your tax pro about how authorized shares, issued shares, and assets affect your bill.
  • Founder vesting: Use time-based vesting with a one-year cliff (common: 4 years total). Vesting reduces risk if a founder leaves and signals maturity to investors.

Document founder grants with board approvals, stock purchase agreements, and an updated stock ledger/cap table. If you issue restricted stock to founders, calendar the 30-day deadline for each person’s 83(b) election and keep proof of filing with your minute book.

2) Create an option pool and get a 409A valuation

An employee option pool (often 10–20% post-money for startups) lets you grant equity without issuing common stock outright. Before granting options, obtain an independent 409A valuation to set a defensible fair market value for strike prices—this helps avoid adverse tax consequences for employees. (Safe harbor valuations are typically valid for up to 12 months unless a material event occurs; refresh sooner after fundraises or major changes.)

  • Plan documents: Adopt an equity incentive plan and standard option agreements with vesting, acceleration (if any), and post-termination exercise terms.
  • Rule 701 limits: Private companies that grant equity as compensation may rely on SEC Rule 701; additional disclosures are required if aggregate sales exceed $10 million in a 12-month period. Track totals and deliver required notices on time.

3) Understand SAFEs and convertible notes

SAFEs (Simple Agreements for Future Equity) and convertible notes are common for pre-priced rounds. They convert into preferred stock later, usually at a discount and/or with a valuation cap. Keep a central record of all instruments, including pro rata rights and most-favored-nation terms, to avoid surprises when you price a round.

  • Board approvals: Approve each instrument with board consents and maintain copies with your corporate records.
  • Securities filings: Coordinate Reg D notices (often Form D) and any applicable state “blue sky” filings shortly after closings.

4) Set up for potential QSBS benefits

Many early-stage C-corps may qualify for Qualified Small Business Stock (QSBS) treatment under IRC §1202, which can provide significant federal tax exclusions on gains if specific requirements are met (including a 5-year holding period and <$50M gross assets at the time of stock issuance). QSBS rules are technical and change periodically—work with your tax advisor on eligibility, documentation, and stock certificate legends.

  • Track each stock issuance date, recipient, consideration, and whether the shares were original-issue C-corp stock.
  • Maintain accurate capitalization tables from day one, including conversions of SAFEs/notes and option exercises.

5) Keep diligence-ready records

  • Minute book hygiene: File board and stockholder consents, bylaws, equity plan, grants, and 83(b) proofs together. Investors will ask.
  • Cap table software: Use a reputable platform to prevent version-control errors and to model future rounds, option refreshes, and dilution.
  • Templates and reminders: A provider like LegalZoom can supply board/stock templates, track compliance dates, and serve as your registered agent so notices and deadlines aren’t missed.

The goal is simple: make it easy for investors and new hires to say “yes.” Clean governance, clear equity terms, and consistent records build trust—and speed up everything that follows, from hiring your first engineer to closing a term sheet.

After You Incorporate: Your First 90 Days (Checklist)

Filing your formation paperwork is the starting line, not the finish. The next 90 days are where you turn a formed entity into a well-run company. Use this checklist to operationalize your corporation, protect limited liability, and avoid the easy-to-miss tasks that create headaches later.

Days 0–30: Make the entity real

  • Get an EIN from the IRS and store the confirmation letter with your formation documents.
  • Open a business bank account and run all income and expenses through it—no commingling. Connect accounting software and set a simple chart of accounts.
  • Hold the organizational meeting (or execute written consents): adopt bylaws, appoint officers, set the fiscal year, and authorize share issuance.
  • Issue stock properly: board approval, subscription agreements, consideration received (cash/IP/services), stock certificates or e-certs, and an updated stock ledger/cap table.
  • 83(b) elections (if issuing restricted stock): each recipient has 30 calendar days from grant to file—no extensions. Keep proof of mailing and a copy in your minute book.
  • IP assignment: founders and early contributors sign proprietary inventions/assignment and confidentiality agreements so the company—not individuals—owns the IP.
  • Licenses, permits, and tax accounts: register for state sales tax (if applicable), payroll withholding, and unemployment insurance; obtain local permits.
  • Insurance: at minimum evaluate general liability, professional liability (E&O), cyber, and workers’ comp where required.
  • Calendar compliance dates: initial/annual reports, franchise taxes, and registered agent renewals. A service like LegalZoom can centralize reminders so nothing slips.
  • BOI/CTA status check: As of March 26, 2025, U.S.-formed companies are exempt from FinCEN beneficial ownership (BOI) reporting under an interim final rule. Only certain foreign reporting companies must file. Confirm your status if you have a foreign entity or cross-border structure.

Days 31–60: Lock down taxes, payroll, and contracts

  • S-corp election (if desired): file IRS Form 2553 generally within 2 months and 15 days of the start of the tax year (late-election relief may be available).
  • Set up payroll for any W-2 employees/officers. If you elected S-corp status and work in the business, pay a reasonable salary via payroll.
  • Standard contracts: finalize NDAs, client MSAs/SOWs, vendor agreements, and employment/contractor templates with IP assignment and confidentiality built in.
  • Accounting cadence: monthly close checklist, receipt capture, and basic KPIs (MRR, gross margin, burn, cash runway) if applicable.
  • Website notices: publish privacy policy, terms of use, and compliant checkout disclosures if you sell online.

Days 61–90: Board hygiene and multi-state compliance

  • First board meeting: ratify earlier actions, banking resolutions, equity issuances, option pool (if any), and fiscal policies. Record minutes and file them.
  • Sales tax & nexus review: evaluate where you have economic/physical nexus and register in those states before you cross thresholds.
  • Foreign qualification: if you formed in one state but operate in another, register there and appoint a registered agent.
  • Security & data posture: enable MFA, implement basic access controls, and document who has keys to banking, payroll, and accounts.

Avoid these liability killers (common veil-piercing triggers)

  • Commingling funds: paying personal expenses from corporate accounts or vice versa without documented reimbursements.
  • No paper trail: failing to keep minutes, written consents, bylaws, and a current stock ledger/cap table.
  • Undercapitalization: taking on obligations without reasonable capitalization or insurance for the risks you’re assuming.
  • Improper stock issuance: no board approval, no consideration received, or missing securities compliance.
  • Missed filings: losing good standing by skipping annual reports, franchise taxes, or registered agent renewals.
  • Personal guarantees without awareness: they’re sometimes necessary, but understand they create personal exposure separate from the entity.

Records to maintain from day one

  • Articles/Certificate of Incorporation, bylaws, EIN letter, organizational minutes/consents, and all subsequent minutes.
  • Stock ledger/cap table, board approvals, subscription agreements, option grants, and any 83(b) election receipts.
  • Key contracts (clients, vendors, employment/contractor), IP assignments, permits/licenses, insurance policies, and compliance calendar.
  • Accounting records: bank statements, reconciliations, payroll reports, and filed tax returns.

If you prefer a guided path, a provider like LegalZoom can bundle registered agent service, EIN filing, compliance alerts, and customizable templates for minutes, bylaws, and resolutions so you can focus on operations while staying in good standing.

What to Do Next

That covers how incorporation differs from a corporation—and the key steps to get started. Whether you form an LLC or incorporate as a C-corp or S-corp, separating your business legally and financially is one of the smartest ways to protect yourself and prepare for growth.

If you’re unsure which route to take, talk to a business attorney or tax professional. If you want a faster, more affordable path to formation and compliance, consider LegalZoom; they’ve helped millions of businesses form and stay compliant with ongoing support.

For more details, see our guide to business formation services and our step-by-step tutorial on how to start a business.