Economic question...please help

Question

Explain how a corporation is a legally separate entity?

If you could explain what the question is asking and then answer it, that would be great. Thanks

Answer 1

One of the benefits of a corporation is that share holders will not be held personally responsible if the company does something illegal. The only risk normal share holders have is the money they invested in the corporation. Single, or partnerships will be solely left responsible for all civil and criminal lawsuits ex.( slip and fall). If you owned one share of a corporation, you are considered a part owner, but you won't get sued if someone gets hurt from the product.I hope this is what you were looking for.

Answer 2

Corporations are a separate legal entity from its owners and as a result the liability for the actions of the corporation are limited to the corporation.

For example, if you own your own company as a sole trader and you borrow a heap of money to fund an expansion of your business and you fail to see a return, can't pay the interest etc.... the bank can put the company in default and you as the owner are fully liable for the outstanding loan amount even if the business doesn't have a dime and may have to sell your house or other assets (if you have any) to repay the loan.

However, if it was a corporation that was in default the investors who have shares in the corporation (effectively part owners) can't be liable for the outstanding monies personally.

Go to your country's accounting organsizations website (CPA, CA etc....) for a more precise definition. In Australia www.business.gov.au is pretty helpful.  

Answer 3

because the government didnt make it its up to the citizens to decide if that corperation goes up in flames or makes loads of money