Definition: Being incorporated is a business that functions as a separate legal entity. These companies have their own resources and operational structure and the owners are frequently known as shareholders.
What Does Incorporated Mean?
When an individual has a business idea it often starts as a self-centered business, where the person employs its personal finances to fund the business’ operations and receives revenues as personal income.
Nevertheless, this structure is often very limited and as the business starts growing the company needs to detach from its owner to exist as a separate legal unit. This is the moment where the business becomes an incorporated business. The product of incorporating is a corporation. These newly created entities are formed through a document called articles of incorporation or articles of association, where the company’s legal structure is extensively described to cover matters such as Directors, Shareholders, Ownership Structure and Board Meeting’s dynamics, among other elements that must be presented to incorporate the business properly.
After these document are filed and approved the company will be able to act as a separate individual, assuming its own financial commitments and limiting the shareholder’s liability normally to the extent of the company’s financial capital.
Example
Roman recently started to produce bottled lemonade to sell in retail establishments located across the city. The business started as a very small idea but the flavor was so good that he started getting orders really fast. In a few months he had to increase its production capacity by moving to a commercial location, along with buying machines to produce the lemonade massively.
This also created the necessity to look for partners who could provide financial capital to keep expanding the business as demand keeps increasing. His lawyer advised him to incorporate the business to sell a certain percentage of it to external investors. Roman agreed to this suggestion, therefore creating Romonade LLC, which will be the legal entity that owns the lemonade’s brand and commercial property including its formula.
