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); 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. LegalZoom can form your LLC and include the federal elections so you don’t miss key dates.

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.

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.