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How does limited liability work in a C corporation?

| Jan 29, 2016 | Business Formation & Planning |

One of the most important benefits of incorporating as a C corporation is the limited liability status that it offers to the owners of the business. In fact, this is the main reason why business owners choose to incorporate as a C corporation.

Most sole proprietors and/or partners in a business will worry about being held liable for alleged wrongdoing committed by the business and/or its employees. In fact, a sole proprietor’s life savings is always at risk of getting drained in the event of losing a lawsuit seeking financial claims over something the business did; or, getting their savings drained as a result of not being able to pay back large debts incurred by the business.

Once the business is incorporated, however, these personal liability risks go away. Shareholders in a corporation can be held liable up to the amount of money they invested in the business, but no more. Their personal assets are protected. In this sense, incorporating a business is a much cheaper option than purchasing liability insurance, which is usually extremely expensive.

There are a lot more benefits to incorporating as a C corporation. There are also some disadvantages. Sole proprietors and business partners will therefore want to consider all these advantages and disadvantages before they decide to incorporate. Ultimately, the best way to determine whether incorporating is right for you is to discuss your options with an experienced North Carolina business and commercial law attorney. Such an attorney will also be able to determine what kind of corporation will be the most appropriate to suit you and your business partners’ needs.

Source: inc.com, “C Corporation: A Definition,” accessed Jan. 27, 2016

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