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Limited Liability Corporation
Ah, good stuff. The primary benefit of using a corporation is limited liability advantage. Since it is considered a separate entity from shareholders, a corporation creates a barrier between corporate liabilities and assets of shareholders. The only risk shareholders take is loss of their investment in corporation.
Assume I own a home worth $800,000 in San Diego and invest $10,000 in a new business. The business is incorporated in California and is going to dominate VHS tape market. Alas, my fortune teller apparently had an off day when she told me to invest and company goes bankrupt in six months. I will lose my $10,000 investment, but not my $800,000 home. If business had been formed as a partnership, I would lose investment and some or all of my home depending on business debts.
Considering it was originated in distant past, corporate entity is still remarkably relevant in modern times. Although proliferation of limited liability company has taken some wind out of sails, corporation remains a staple of business environment.
Richard A. Chapo is with SanDiegoBusinessLawFirm.com - This article is for information purposes only. Nothing in this article is intended to address the reader’s specific situation nor does it create an attorney-client relationship.