Owners of a corporation are the share- or stockholders, according to "Corporation Law" by Franklin Gevurtz, and although they possess specific rights, they have no legal obligation to the corporation merely because of their ownership interest. A shareholder who holds a management position with a corporation does have obligations to the company that arise out of that job, but not because she owns stock.
Although shareholders of a corporation are the owners of the business from a legal standpoint, they have no personal liability for the actions and obligations of the business, according to "Law of Corporations and Other Business Organizations" by Angela Schneeman. By definition, the corporate form creates a protective legal barrier between the shareholders and the company.
A recurring misconception is that shareholders can be sued for the actions of a corporation. The reality is that even with a closely held or small corporation, one with only a handful of shareholders, the owners cannot be sued for the debts incurred or damages caused by the business's operations.
The benefits of limited liability for owners of a corporation include making this type of business attractive to investors. Investors are more inclined to put money into a business venture that not only appears to be on a financially solid course but that does not impose any liability on them.
A situation can occur with a corporation made up of a few owners that jeopardizes the protection from liability for shareholders that normally exists. There are occasions when a corporation fails to follow the regulations associated with this type of business organization. For example, the business fails to maintain corporate minutes and other types of required records. If a business claims to be a corporation, but fails to satisfy corporate legal requirements, the owners can become liable for the actions and debts of the enterprise, according to "Law of Corporations and Other Business Organizations."
A corporation best positions itself to protect the interests of its owners from liability by relying on experienced legal representation. The American Bar Association maintains resources to assist a corporation in finding a qualified attorney to oversee its legal affairs.
- "Law of Corporations and Other Business Organizations"; Angela Schneeman; 2009
- "Corporation Law"; Franklin Gevurtz; 2000
Mike Broemmel began writing in 1982. He is an author/lecturer with two novels on the market internationally, "The Shadow Cast" and "The Miller Moth." Broemmel served on the staff of the White House Office of Media Relations. He holds a Bachelor of Arts in journalism and political science from Benedictine College and a Juris Doctorate from Washburn University. He also attended Brunel University, London.