As a small business grows, there comes a time when the owner(s) should consider incorporating the business. A corporation is a separate entity recognized by the state of domicile for the business. It is as if a new life is created. The state acknowledges the existence of this entity and therefore grants limited legal rights similar to those rights possessed by the citizens of that state.
Protection of the Owner’s Wealth
Most lawyers site protection of the owner’s wealth as the only reason to incorporate. The principle is simple; if the corporation creates a legal issue (such as lawsuits, failure to comply, etc.) then the party affected can only pursue the corporation for compensation. A smart owner separates his personal assets from the corporation thus a shield is created (often referred to as a veil) protecting the owner’s assets from the affected party.