The term "corporation" often conjures up images of large mega-companies with lots of employees and corporate offices. However, corporations can be small--even single-owner businesses. Most small businesses that choose to incorporate are privately-owned corporations where all the corporate stock is owned by one person or a few people and all or most of the shareholders are actively engaged in running the business.

There are more formalities with starting and operating a corporation than with other types of business entities. For example, you must file incorporation papers with the state where you want to incorporate. One of the most important characteristics of a corporation is that it is a legal entity that is separate from the people who own or operate it. It can sue or be sued, own property, borrow money, and perform other business functions. A key advantage to incorporating and often the reason business owners choose to incorporate is because of the personal liability protection it provides to the owners/shareholders of the business.