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Simple English definitions for legal terms
incorporate
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A quick definition of incorporate:
Term: Incorporate
Definition: Incorporating means creating a new company or organization. This is done by filling out special paperwork called the Articles of Incorporation and submitting it to the government. The Articles of Incorporation includes information about the company, like its purpose, location, and how many shares it has. Once the company is created, it becomes its own separate thing and the people who started it are no longer personally responsible for everything that happens. The company is usually identified by the letters "Inc." or "Ltd."
A more thorough explanation:
Definition: Incorporate (incorporation) is the legal process of creating a company or corporation. This involves filing the Articles of Incorporation (also known as the corporate charter) with the Secretary of State and listing the corporation's shareholders. The Articles of Incorporation typically include the corporation's purpose, the number and type of shares, its location, and its original capital structure. Once the corporation is established, its assets and income are separate from the personal assets and income of the shareholders. The corporation is usually identified as "Inc." or "Limited (Ltd.)".
Example 1: John wants to start a business selling handmade candles. He decides to incorporate his business to protect his personal assets from any potential lawsuits. John files the Articles of Incorporation with the Secretary of State and lists himself as the sole shareholder of the corporation.
Example 2: Sarah and her friends want to start a tech company. They decide to incorporate their business to raise capital and protect their personal assets. They file the Articles of Incorporation and list themselves as shareholders. The corporation is identified as "Tech Inc."
These examples illustrate how incorporating a business creates a separate legal entity that is distinct from its shareholders. This separation protects the personal assets of the shareholders from any liabilities or debts incurred by the corporation. Additionally, incorporating a business can make it easier to raise capital and attract investors.