Frequently Asked Questions

How does forming a corporation protect a business owner's personal liability?

Forming a corporation, whether it's an S corporation or a C corporation, provides a business owner with significant protection against personal liability. This is because a corporation is a separate legal entity from its owners, also known as shareholders. This legal separation means that the shareholders are not personally responsible for the corporation's debts and liabilities. When a business owner incorporates, they create a distinct legal entity by filing Articles of Incorporation with the state government where the corporation will be headquartered. This filing usually goes to the Secretary of State. Once the corporation is formed, it is owned by shareholders who are legally distinct from the corporation itself. This distinction is crucial as it means that the shareholders' personal assets are protected if the corporation incurs debts or is sued. Both S corporations and C corporations offer this protection from personal liability. They are both separate legal entities that require a filing of Articles of Incorporation with the state. They are both owned by shareholders, have a Board of Directors, and are typically managed by executive officers.