A business can be managed through different types structures including a sole trader, partnership or a company. Incorporation is the process of setting up a company which has a separate legal identity from its owners.
Companies are mainly limited liability companies which means that the liability of the owners of the business is limited to the amount they invested in the shares of the company. This is different to sole traders and partnerships where the business owners have personal liability for all the debts of the business.
Companies have more formal documentation requirements than sole traders or partnerships, such as filing accounts at Companies House or registering details of people who have significant control of the company. As public records are kept in respect of companies this means that information about the business's activities, including its income and profits, are publicly available.
Public limited companies (Plc's) can offer their shares to the public whereas private limited companies (Ltd's) are not allowed to do this.
Incorporation is a relatively straightforward legal process and can be either through setting up a tailor-made new company or a ready-made company can be bought and then amended to suit the needs of the business.