An incorporated business is created by the filing of Articles of Incorporation with a state. The articles must include the corporate name (which usually must contain the word "corporation" or some like abbreviation) and the purpose of the business. A corporation has a legal obligation to act in the best financial interests of the shareholders, a responsibility called "fiduciary duty." An incorporated business has four major attributes.
1. It is a separate legal entity, created and governed by state laws and subject to some federal laws, particularly those governing taxation and regulation.
2. An incorporated business limits the personal liability of its shareholders, who, in general, cannot be held liable for the debts of the corporation.
3. A corporation creates double taxation because it is taxed first as a separate entity, and its earnings are taxed again when passed on to employees and shareholders as wages or dividends.
4. A corporation has centralized management in the form of officers and a board of directors that have some autonomy from the shareholders, who are merely part owners by way of capital investment.
The combination of the fiduciary duty of corporate management and the limited liability for shareholders allows corporations to undertake risks.