Are the shareholders of a corporation protected from personal liability?

Question

Some friends and I are looking to start a small business and are looking at forming a corporation or a Limited Liability Company. I know that personal liability is limited in an LLC. But is this true of a corporation two?

Answer 1

Under UK law, If an incorporated entity is subject to insolvency proceedings, the shareholder liability is limited to any share capital. If the shareholders have any alloted share capital not paid up this is also payable.  For example to start a UK plc the minimum share capital is £50,000, a percentage of which must be paid to the company. If the shares have a nominal value of £1 and only 30p is paid up, on insolvency the shareholders are liable to pay the difference between the nominal share value and the paid up sum ie 70p. If the nominal share value is paid up in full to the company on purchase, there will be no additional liability in the event of insolvency.

Hope this makes sense / is helpful! I think the US law for an LLC will be the same.

Answer 2

Yes.  Further, I cannot conceive of any way someone would make a liability claim against a shareholder.  What could a shareholder possibly do wrong, that would cause someone to experience a loss?

Answer 3

Generally not,but in your situation you may be. This is because you said you and friends were thinking of starting a business. If you operate the corp you can be liable to some degree. A lot will depend on the state you are in. Same is true of an LLC.

There real difference between the two is LLCs are normally better for partnerships and have more flexibility tax wise. Take a look   at this site about-small-business.com ; it is pretty basic, written very simple terms, it should help.