While the terms are often used interchangeably, there’s a key distinction between incorporation and corporation. Incorporation refers to the legal process of forming a new business entity, while a corporation is the resulting legal structure that exists after incorporation is complete.

Before you incorporate your business, it’s essential to understand the difference—especially if you’re planning to use a service like LegalZoom to help set up your company quickly and correctly.

What Is a Corporation?

Derived from the Latin word “corpus,” meaning “body,” a corporation is a group of individuals legally recognized as a single entity. Under U.S. law, corporations are considered “people” for many legal purposes, including the Equal Protection Clause of the Fourteenth Amendment.

Corporations can sue, be sued, enter into contracts, and own property. They also enjoy many of the same legal rights as individuals—like freedom of speech and due process. However, they are distinct in that their liability is typically separate from their owners.

That said, there are limits. A corporation generally isn’t liable for the actions of its employees unless those actions were authorized by the business. This distinction protects owners and shareholders from being personally responsible for most business liabilities.

There are five primary types of corporations:

  • C-Corporation: The default corporate structure. Profits are taxed at the corporate level and again when distributed to shareholders (double taxation).
  • S-Corporation: A tax designation that allows profits (and losses) to pass through directly to shareholders’ personal tax returns, avoiding double taxation.
  • B-Corporation: Also known as a benefit corporation, this structure prioritizes positive social and environmental impact in addition to profit.
  • Professional Corporation (PC): Designed for licensed professionals like doctors, lawyers, or architects, PCs allow these groups to incorporate while maintaining liability protection.
  • Nonprofit Corporation: These are organized for charitable, educational, or public purposes and enjoy tax-exempt status under IRS rules.

What Is Incorporation?

Incorporation is the legal process of creating a corporation. It typically involves filing Articles of Incorporation with the Secretary of State in the jurisdiction where you plan to operate. These documents outline the corporation’s name, business purpose, registered agent, and names of directors.

Once the paperwork is filed and approved, your business becomes a separate legal entity. That means your personal assets are protected from the liabilities and debts of the business. Incorporation also unlocks potential tax advantages and makes it easier to raise capital by issuing shares.

Many entrepreneurs use a service like LegalZoom to handle incorporation paperwork and compliance automatically. It’s a faster, more affordable alternative to hiring a traditional business attorney.

For these reasons, incorporation is a common and often necessary step for growing businesses.

The Basics of Incorporating Your Business

Now that you understand the difference between incorporation and a corporation, let’s walk through the foundational steps to incorporate your business. This process might sound intimidating at first, but tools like LegalZoom can simplify everything—from choosing the right business structure to filing your paperwork properly.

1. Choose a business structure

The first step in incorporation is deciding on a legal structure. Common options include sole proprietorships, partnerships, limited liability companies (LLCs), and corporations.

Each type offers different levels of liability protection, tax treatment, and administrative complexity. Choosing the wrong structure can lead to complications down the road, so it’s wise to explore your options or consult a service like LegalZoom to determine the best fit.

Sole proprietorships and partnerships are simple and low-cost but offer no personal liability protection. These are typically better for freelancers and consultants operating with low risk.

LLCs provide personal liability protection while remaining relatively easy to manage. They’re ideal for businesses that need protection without the formality of a full corporation.

Corporations—both C-corps and S-corps—offer strong legal protection and appeal to those seeking outside investment or planning to go public. However, they require more rigorous governance and paperwork.

Need help deciding? LegalZoom offers guided tools that help you select the right structure based on your goals, liability risk, and tax preferences.

Once you’ve decided, you’ll also need to choose between C-corp and S-corp if forming a corporation. C-corps are the standard and allow unlimited shareholders and multiple stock classes. S-corps avoid double taxation but have restrictions, including a 100-shareholder limit and a single stock class.

2. Choose a business name

Your business name will appear on legal documents, banking records, and your website—so it’s worth spending time to get it right. It should be memorable, legally available, and compliant with state naming rules.

Here are a few best practices to follow:

  • Choose something unique and easy to remember. Use tools like Shopify’s business name generator if you’re stuck.
  • Check availability in your state’s business name database to ensure the name hasn’t been taken.
  • Follow your state’s naming requirements. Some states require using terms like “Corporation,” “Incorporated,” or “Limited.”
  • Check for domain availability to ensure your website address aligns with your brand. Try to secure the .com version if possible.

Need help registering your business name and verifying legal availability? LegalZoom can handle this as part of their formation packages.

3. File the necessary paperwork

Next, you’ll need to file formation documents with your state. This typically includes Articles of Incorporation (or a similar document, depending on your structure). These outline your business name, principal address, purpose, and the identities of your incorporators or members.

If you’re incorporating in a state different from where you live, you’ll also need to apply for a Certificate of Authority to do business in your home state. This step ensures you comply with local regulations and tax laws.

If this paperwork sounds overwhelming, you can streamline the entire process by using a formation service like LegalZoom. They’ll help you select the right entity type, prepare your documents, and file them with the correct state agencies.

4. Create corporate bylaws

Once incorporated, corporations are expected to establish bylaws—internal rules that outline how the organization will be managed. These cover topics like board structure, meeting frequency, voting rights, and how shares are issued.

While bylaws are not always legally required, they’re essential for maintaining clear internal governance and minimizing future disputes. If you’re unsure how to draft them, LegalZoom offers customizable templates and legal support to help you create solid bylaws from the start.

You can also consult with an attorney to customize bylaws for your industry or specific operating needs—but for many businesses, LegalZoom’s bundled formation services offer a faster, more affordable solution.

5. Find legal and financial assistance

At this stage, it’s important to line up ongoing legal and financial support. You’ll want an accountant to help you with business taxes and an attorney or trusted advisor to guide you through compliance and legal risks.

LegalZoom can connect you with independent attorneys through its affordable business legal plans, which provide document review, contract drafting, and compliance help for a low monthly fee—ideal for new businesses that can’t afford in-house counsel.

Also, don’t forget to set up a business bank account and look into business insurance. Online banks like Brex and Divvy offer useful tools like expense tracking and virtual cards. These platforms often cater to startups and fast-growing businesses.

Brex offers a corporate card with no personal guarantee, and Divvy provides a spend management platform with detailed budget controls. Both are good choices if you’re managing team expenses or need more financial visibility.

Finally, LegalZoom also provides EIN registration, operating agreements, and compliance reminders—making it a full-service option for entrepreneurs who want peace of mind during the early days of running a business.

4 Tricks for Incorporating Your Business

Especially for first-time business owners, incorporating can feel overwhelming. Most of us didn’t learn this in school, and there’s a lot of jargon involved. The good news? There are simple workarounds—and resources like LegalZoom can take the guesswork out of the process.

Here are four tips to help make incorporating easier and more strategic.

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

For many businesses, forming an LLC can provide the same liability protection and better tax flexibility than incorporating as a C-corporation.

LLCs avoid double taxation—profits pass directly to members, who pay personal income tax, instead of being taxed twice like C-corps. If you elect to have your LLC taxed as an S-corporation, you can even reduce self-employment taxes in some cases.

Filing IRS Form 2553 is required to elect S-corp status. LegalZoom can help you form your LLC and file the appropriate IRS paperwork as part of their service bundles.

2. You should probably file in a different state than where you live.

Some states—like Delaware, Nevada, and Wyoming—have favorable tax laws and fewer corporate regulations. Incorporating in these states can reduce long-term compliance costs and liability exposure.

If you plan to incorporate out-of-state, you’ll also need to register as a foreign entity in your home state. This is something that can get complicated fast, but LegalZoom can handle both filings in one go.

While larger corporations may incorporate offshore in places like the Cayman Islands or Bermuda, this typically isn’t necessary—or practical—for smaller or early-stage businesses.

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

Most states require corporations and LLCs to file annual or biennial reports and pay associated fees. These reports typically include contact information, business activity, and updates to officers or directors.

You’ll also need to maintain a registered agent on file who can receive legal notices on behalf of your business. If you don’t have someone in mind, LegalZoom offers registered agent services in all 50 states.

Keeping accurate records and staying current with filings is essential. Failure to do so can result in fines—or worse, the dissolution of your business entity.

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

Corporations must follow formal rules, including holding annual meetings, keeping minutes, and issuing stock. LLCs are a bit more flexible but still require operating agreements and internal documentation to maintain legal protections.

Compliance doesn’t have to be a headache. LegalZoom’s compliance services send reminders and help you stay on track with reports, minutes, and recordkeeping—all in one dashboard.

What to Do Next

That covers the key differences between incorporation and corporations—and the steps you need to take to get started. Whether you decide to form an LLC or incorporate as a C-corp or S-corp, the benefits of separating your business legally and financially are well worth the effort.

If you’re unsure about the best route forward, talking to a business attorney or accountant can help. But if you want a faster and more affordable way to incorporate, check out LegalZoom. They’ve helped over 2 million businesses form legally and stay compliant with ongoing support.

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