Limiting Personal Liability

The primary distinguishing feature of a corporation is the so-called limited liability of the officers, directors, and shareholders (the “principals”) of the company. In a properly organized, maintained, and capitalized corporation, the principals have no personal liability for debts of the corporation. If a corporation breaches an obligation or causes injury to a third party, only the corporation and not the principals are legally responsible. If the corporation does not have sufficient assets to satisfy the liability, the creditor is not entitled to seek satisfaction from the personal assets of the principals. This feature is distinct from other businesses operated as sole proprietorships, partnerships, or trusts. In those cases, the owner, partner, or trustee, respectively, has unlimited liability for debts incurred in the business. This can be used for creditor protection and limiting the shareholder liability.