In business, to incorporate means to form a legal business entity. This is done by drawing up articles of incorporation and submitting them to the state in which the new business entity is to be headquartered. The articles of incorporation typically describe the company's business purpose, the amount of capital stock used to initially fund the company, a list of shareholders, and the contact information for the company's officers.
There are a variety of business entities you can incorporate a business as, the most common of which include a taxable corporation, a subchapter S corporation, a limited liability company and a partnership. Many of the differences between the various legal entities revolve around tax treatment. For example, a taxable corporation is subject to double taxation -- once at the corporate level, and again at the shareholder level when dividends are paid. Subchapter S corporations, LLCs and partnerships are all pass-through entities, and taxes are assessed at the individual level. Other differences revolve around legal rights and capital restrictions. Where you incorporate can also be significant, as certain states, such as Delaware, are considered more business-friendly than others. According to a June 2012 article in The New York Times, nearly half of all public corporations at the time were headquartered in Delaware. This is due to its status as a corporate tax haven, and its flexible corporate statutes that tend to favor business.
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