The effect of incorporating a business is to create a legal entity distinct from its owners. In law, a “person” may include both a natural person and an artificial person such as a corporation. A significant consequence of being able to create an entity separate from yourself for legal purposes is that the owner is free from any personal obligations to contribute to the corporation’s debts and liabilities.

Generally speaking, there have been two main reasons for incorporating businesses. Firstly, there is the concept of limited liability which is of paramount importance because it enables business owners to place their homes and personal belongings beyond the reach of creditors of the business. Another main reason for incorporating has been to secure tax advantages.

The primary disadvantages of incorporating have to do with the cost of incorporating and the compliance with various government regulation of corporate activity.