Corporations and S Corporations

This option provides personal liability protection for all of its shareholders. However, if certain formalities are not adhered to, the protection can be lost. The corporate structure is simple: shareholders own the business, shareholders elect a board of directors who oversee the long term objectives, and directors appoint officers who run the daily business. In many small businesses the share holder is also a director and officer. Very often they are also employees. Nonetheless, the law respects the different capacities, even if the same person occupies all three positions.

The key fact to remember is that the corporation is a distinct and separate entity from its shareholders. This distinction is what provides for the protection. While the corporation may be liable for corporate debts, the shareholders are not.

Unfortunately, the protection provided for by a corporation is not perfect. It can be given away, taken away or, simply, may not apply. For example, if your corporation is paying your personal expenses, or corporate funds and personal funds are put in the same account, the corporate protection is often revoked. Alternatively, a corporate owner may be required to sign a personal guarantee in order to enter a lease or purchase contract. In these cases, the owner has given way his corporate protection. Finally, corporations are run by people and people commit wrongful acts. If you as the worker commit the wrongful act (improper construction, repairs, accidents, etc.) you will be personally responsible for the damage you cause. However, if your employee commits the wrongful act, you are generally protected from personal liability. Although not perfect, corporate entities provide one of the best levels of protection to the business owner.