A corporation or an LLC provides a level of liability protection to the people who are involved in the company. The issue is forming properly, issuing stock properly, putting sufficient capital into it ($10,000 would be great to have at the start), then keeping up the corporate formalities. These formalities include: filing tax returns, having annual minutes, issuing stock, issuing additional stock, and keeping track of the money that goes into the company in the form of loans or as equity. If you don’t do all of these formalities, you would be piercing the corporate veil. This allows someone to file a lawsuit against the individual shareholders in the company and say that the corporation should not be there because it was not fair, not sufficiently capitalized, or not maintained as a corporation. When you do have a corporation, make sure you keep up all the formalities (filing all of your tax returns and issuing stock). When they try to form corporations on their own, a lot of people do the formalities but not properly and, effectively, they’re putting themselves at risk of unlimited liability, which they were hoping to protect themselves from by having a corporation or an LLC.
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