Business partners Melinda and Joseph are discussing which legal structure to choose for their business. They are leaning toward creating a corporation. What is one advantage of a corporation for these partners? (1 point) Responses They would have lower setup costs. They would have lower setup costs. They would follow fewer government regulations. They would follow fewer government regulations. They would have protection from personal liability. They would have protection from personal liability. They could set the business up without assistance from a lawyer.
They would have protection from personal liability.
One advantage of a corporation for Melinda and Joseph is that they would have protection from personal liability.
One advantage of choosing a corporation as their legal structure for the business is that they would have protection from personal liability.
To understand this advantage, let's break it down:
A corporation is a separate legal entity from its owners/shareholders. This means that the business itself is responsible for its obligations and liabilities. As a result, if the corporation incurs debts or faces legal issues, the personal assets of Melinda and Joseph (the owners) would generally be protected. Their personal liability would be limited to the amount they have invested into the corporation (i.e., their ownership shares), and their personal assets would not be at risk.
This is different from other legal structures like partnerships or sole proprietorships, where the owners have unlimited personal liability for the business's debts and legal issues. In those structures, the owners' personal assets can be used to settle business obligations.
It's important to note that certain exceptions can "pierce the corporate veil" and hold owners personally liable, such as if the owners engage in fraudulent activities or personally guarantee business debts. However, in general, a corporation offers protection from personal liability for its owners.
To recap, one advantage of choosing a corporation for Melinda and Joseph's business is that it would provide them with protection from personal liability, as the corporation itself would be responsible for its obligations and debts.