Incorporation can help businesses develop at any stage—especially if they want to grow and gain access to financial benefits. It offers businesses a range of advantages in the marketplace, from protection for personal assets to opportunities for growth and scalability, potential tax benefits, and increased credibility with stakeholders.

In January 2025 alone, there were more than 392,000 business applications in the US, with more than 54,000 of those being corporate applications. This signals a continued interest in structured, growth-oriented business ventures. Below, we’ll discuss how incorporating can help businesses.

What’s in this article?

• What does it mean to incorporate a business?
  
• Do you have to incorporate your business?
  
• What are the key advantages of incorporating?
  
• How Stripe Atlas can help
  

What does it mean to incorporate a business?

Incorporating a business means transitioning from a sole proprietorship or partnership to a corporation, a legal entity that’s distinct from its owners. This process requires formal documentation, which is typically filed with the local secretary of state or equivalent governing body. These are the changes that occur during incorporation:

• A legal entity is formed: When a business incorporates, it becomes its own legal entity. From a legal standpoint, the corporation is separate from the people who own or run it. This distinction has implications for liability, taxes, and operations.

• The business is registered: The business has to file articles of incorporation. This document includes foundational details such as the corporation’s name, address, and information about shares of stock.

• The ownership structure changes: Corporations issue shares of stock, which represent ownership in the company. These shares can be distributed among a small group of individuals or, in the case of public corporations, traded on stock exchanges.

• The system of governance changes: Corporations are managed by a board of directors and must adhere to certain governance protocols. They often have officers, such as a CEO, CFO, and COO, who handle the day-to-day operations.

• Specific regulations must be met: As a separate legal entity, a corporation must comply with specific laws and regulations at the local, state, and federal levels. This often involves annual reporting, fee payments, and other administrative responsibilities.

• They’re subject to different tax laws: Corporations follow distinct taxation rules. Depending on the jurisdiction and corporation type, they might be subject to double taxation, where both the corporation’s income and dividends paid to shareholders are taxed. However, they might also have access to tax advantages that aren’t available to unincorporated entities.

Do you have to incorporate your business?

No, you don’t have to incorporate your business. Incorporation is a choice, one that depends on the needs and goals of your business. Many businesses operate successfully as sole proprietorships or partnerships without ever incorporating. But there are several advantages that are available to only incorporated businesses.

What are the key advantages of incorporating?

Incorporating offers businesses several benefits from lower taxes to a higher potential for growth and recruitment. Here are the ones that motivate businesses to incorporate.

1. Reduced personal liability

Personal liability is an important consideration for anyone who starts a business. Unincorporated businesses, such as sole proprietorships and partnerships, blur the distinction between the business entity and its owner or owners. This lack of separation means that any legal or financial challenges that the business faces can affect the personal belongings of its owner or partners.

For instance, imagine that a customer sues an unincorporated business for damages. Without the protective barrier of incorporation, the owner’s personal savings, property, and other assets can become targets for restitution. Similarly, if the business incurs significant debt it cannot repay, creditors might pursue the owner’s personal assets as a means of recovery.

The process of incorporation creates a distinct legal entity, separate from its founders, shareholders, or directors. This separation acts as a protective barrier, sometimes called the “corporate veil.” When legal or financial issues arise, the assets of this separate entity are at risk and the personal belongings and assets of shareholders and directors aren’t.

However, cases of fraud or certain types of negligence can “pierce the corporate veil.” In those situations, individuals behind the corporation can be held personally liable.

2. Business tax benefits

Taxation is typically one of the biggest considerations for businesses when they evaluate operational structures. Corporations are recognized as separate legal entities and might be subject to lower tax rates. Depending on the jurisdiction where your business is incorporated, corporate income tax rates can be more favorable than individual income tax rates, leading to substantial savings—especially for businesses with high revenue.

Another significant benefit for corporations is the ability to carry forward losses. If a corporation incurs a loss in a given year, it can use this loss to offset profits in subsequent years. This feature can be advantageous for startups or businesses that experience a challenging period, allowing them to mitigate the tax impact of more prosperous years with the losses from less favorable ones.

Deductions present another area where corporations might have an advantage. Corporations often have access to a broader set of deductions or more substantial ones, from employee benefits to operational costs, and these can reduce a corporation’s taxable income considerably.

Corporations can sometimes receive specific tax credits that aren’t accessible to unincorporated entities. These credits, which directly reduce the tax owed, can cover a range of activities from research and development to environmental initiatives.

To use these tax advantages, corporations have to comply with more rigorous reporting requirements and be diligent in their recordkeeping. But when they’re used effectively, the potential tax benefits can far outweigh the administrative overhead.

3. Permanence and transferability

When you establish a corporation, your business has the potential to outlive its founders and original shareholders. This often overlooked advantage of continuity offers stability that might be harder to achieve with other business structures.

For example, if a thriving business with hundreds of employees and active contracts is a corporation and its owner decides to retire or pursue other ventures, the owner can simply sell their shares to another party. The transition might be noticeable at the shareholder level, but for employees, customers, and partners, nothing changes.

By contrast, in sole proprietorships and partnerships, ownership changes often require renegotiating contracts, re-establishing relationships, and sometimes even restructuring the business model. For long-standing customers or clients, this can disrupt day-to-day operations, create uncertainty, and potentially jeopardize relationships that took years to build.

Additionally, the process of selling shares in a corporation is well established and recognized globally, and there are many stock exchanges, brokers, and regulatory frameworks designed to facilitate this. Corporations also offer a clear exit strategy, which is especially attractive for venture capitalists and angel investors who anticipate a return on their investments through the sale of their shares at a future date.

4. Credibility and growth potential

Incorporating a business can help bolster its reputation and credibility in the eyes of stakeholders. The process signals to the external market that a business is committed to long-term growth and has undertaken the necessary formalities to solidify its presence in the industry.

From a customer’s perspective, a corporation might have a higher level of reliability compared to an unincorporated entity. For instance, corporations undergo more rigorous reporting processes, which could make them more accountable for their products or services.

Suppliers also might prefer working with corporations on long-term contracts or collaborations. Because of corporations’ formal structures, they have less flexibility and are therefore less likely to experience abrupt changes. This can lead to more favorable terms or a greater willingness to negotiate agreements.

Investors often choose corporations when they consider where to allocate their funds. This is because the act of incorporating demonstrates a commitment to growth and sustainability, and corporations offer clearer mechanisms for shareholder rights and protections, which can make the investment seem less risky.

For businesses with ambitious growth plans, such as those that are seeking substantial external investments or considering an initial public offering, incorporation is often a non-negotiable requirement. External investors and capital markets demand the transparency, governance structures, and shareholder protections that come with a corporate status.

5. Greater access to capital

Corporations have structural advantages that put them in a strong position when they seek capital. One is the ability to issue shares of stock. When a corporation sells shares, it offers pieces of ownership in the business to investors. These investors, motivated by the prospect of dividends or appreciation in share value, provide the corporation with the needed capital. Investors can buy or sell shares quickly on stock exchanges, providing owners with a level of liquidity that’s hard to match in other business structures.

Another avenue that’s open to corporations is the issuance of bonds. Unlike shares, which offer pieces of ownership, bonds are essentially loans from investors to the corporation. The company commits to paying back the principal amount of the bond after a set period, along with periodic interest payments. This mechanism offers corporations a method of raising substantial funds without diluting company ownership.

With more capital at their disposal, corporations can invest more heavily in research and development, pursue ambitious projects, acquire other businesses, or expand into new markets.

6. Easier ownership transfer

The structure of a corporation offers a major advantage when it comes to the transfer of ownership. Shares, which are modular units of ownership by design, can be sold or transferred with relative ease, making the entire process more transparent and manageable. When someone buys enough of them, they acquire a proportional stake in the company.
Sole proprietorships and partnerships don’t have this modular system in place. Transferring ownership often means re-examining agreements, assets, and liabilities and possibly renegotiating contractual obligations. This can be a complex, drawn-out process.

Meanwhile, the share-based system in corporations is supported by a robust legal framework. There are clear rules about how shares can be sold, what rights they confer, and how disputes related to them are resolved. This clarity is often absent in the less formalized structures of sole proprietorships and partnerships, where ambiguity can cause disputes.

7. Separate credit rating

Corporations have the ability to establish and build a credit rating separate from those of their owners. This separation means that the financial behavior and credit histories of the individual owners don’t directly impact the corporation’s creditworthiness. The corporation’s creditworthiness is determined by its financial behavior, including its payment history, debt load, and financial management.

A corporation with a good credit rating might find it easier to secure larger loans or more favorable interest rates than an individual or an unincorporated business entity. Over time, these favorable terms can result in substantial savings and financial benefits for the corporation.

Additionally, a separate credit rating can provide another layer of protection for the owners. If the corporation encounters financial challenges or fails to repay a loan, the personal credit ratings of the owners remain shielded, as long as corporate formalities are maintained and there’s no personal guarantee involved.

Maintaining a distinct corporate credit rating can also improve relationships with vendors and suppliers. Since many suppliers evaluate the creditworthiness of a corporation before they offer terms or establish long-term contracts, a strong corporate credit rating can lead to better terms, such as longer payment periods and discounts. These can increase operational efficiency and profitability.

8. Unique employee benefits

Corporations can offer benefits such as stock options, which can serve as a compelling incentive for prospective and current employees. This capability plays a significant role in the recruitment and retention strategies of many businesses, especially when they compete for top-tier talent in competitive industries.

Stock options grant employees the right to purchase a specific number of shares of the company’s stock at a predetermined price. When the value of the company’s stock rises above this price, employees can sell their shares and realize a profit.

For potential hires, particularly those at senior levels or with specialized skills, stock options can tip the balance when they choose between job offers.

Stock options can also play an important role in employee retention. The typical vesting schedule attached to stock options means that employees must remain with the company for a certain period before they can fully benefit from their options. This creates an incentive for long-term commitment and reduces the likelihood of turnover, leading to lower recruitment costs and stronger institutional knowledge and team cohesion.

How Stripe Atlas can help

Stripe Atlas sets up your company’s legal foundations so you can fundraise, open a bank account, and accept payments within two business days from anywhere in the world.

Join 75K+ companies incorporated using Atlas, including startups backed by top investors like Y Combinator, a16z, and General Catalyst.

Applying to Atlas

Applying to form a company with Atlas takes less than 10 minutes. You’ll choose your company structure, instantly confirm whether your company name is available, and add up to four cofounders. You’ll also decide how to split equity, reserve a pool of equity for future investors and employees, appoint officers, and then e-sign all your documents. Any cofounders will receive emails inviting them to e-sign their documents, too.

Accepting payments and banking before your EIN arrives

After forming your company, Atlas files for your EIN. Founders with a US Social Security number, address, and cell phone number are eligible for IRS expedited processing, while others will receive standard processing, which can take a little longer. Additionally, Atlas enables pre-EIN payments and banking, so you can start accepting payments and making transactions before your EIN arrives.

Cashless founder stock purchase

Founders can purchase initial shares using their intellectual property (e.g., copyrights or patents) instead of cash, with proof of purchase stored in your Atlas Dashboard. Your IP must be valued at $100 or less to use this feature; if you own IP above that value, consult a lawyer before proceeding.

Automatic 83(b) tax election filing

Founders can file an 83(b) tax election to reduce personal income taxes. Atlas will file it for you—whether you are a US or non-US founder—with USPS Certified Mail and tracking. You’ll receive a signed 83(b) election and proof of filing directly in your Stripe Dashboard.

World-class company legal documents

Atlas provides all the legal documents you need to start running your company. Atlas C corp documents are built in collaboration with Cooley, one of the world’s leading venture capital law firms. These documents are designed to help you fundraise immediately and ensure your company is legally protected, covering aspects like ownership structure, equity distribution, and tax compliance.

A free year of Stripe Payments, plus $50K in partner credits and discounts

Atlas collaborates with top-tier partners to give founders exclusive discounts and credits. These include discounts on essential tools for engineering, tax, finance, compliance, and operations from industry leaders like AWS, Carta, and Perplexity. We also provide you with your required Delaware registered agent for free in your first year. Plus, as an Atlas user, you’ll access additional Stripe benefits, including up to a year of free payment processing for up to $100K in payments volume.

Learn more about how Atlas can help you set up your new business quickly and easily, and get started today.