Today, 04:23 PM
That is, in fact, a partnership. To be a corporation you have to have a GOVERNMENT charter. Period. End of story. And yes, that's true even for non-profit corporations. You can be a church, for example, and never apply for a 501 c(3). You are tax exempt simply by being a church. But you can't apply for those gubmit grants unless you fill out the paperwork, jump through the hoops and become a corporation. Back to your example. None of the contracts these hypothetical individuals draw up can REALLY limit their liability the way a corporation can. The issue with liability isn't just with the people you contract with. It's with people you DON'T contract with! With contracts you can create something called a "limited partnership." But even with a limited partnership, at least one partner always has FULL liability. Let's say persons A, B, C and D form a limited partnership. By contract they can say "Persons B, C and D don't have liability if the partnership gets sued." But person A still has the FULL liability. I learned about all of this when I was a teenager. My aunt and I went to one of those "Start your own business" con-job "we'll sell you a business for $19.95 a month" seminars. The business we decided to buy was one where they would daily fax you a list of distressed and returned merchandise that you could sell. (Yes this was pre-internet). I started reading about corporate structures. I thought a corporation was too complicated and didn't like the idea of double taxation so I looked into limited partnerships. What I was really looking for was an LLC, but those didn't exist at the time. (We ultimately quit the business because. Yeah you would get faxes of stuff you could sell....but without a store to sell the stuff...and pre the internet where you could put up an e-commerce store...it just didn't make sense.)
Now, consider the LLC part of the equation. Once again that is something that you have to apply to a GOVERNMENT to start. It just can't be done by "contract." With an LLC or an S-Corp or any other corporate structure, if the driver for your company crashes into a Rolls Royce some full partner in your partnership is personally liable. So when the partnership runs out of assets, the unlimited partners assets become attachable. Yes you can have insurance, but insurance has limits. Sure the unlimited partner can declare bankruptcy, but that affects his PERSONAL credit. By contrast, if the LLC goes bankrupt, everybody in the LLC can walk away clean thanks to the GOVERNMENT CREATED benefit that simply cannot be created through contract. Even if you contract with ALL of your customers and EVERY institution that loans you money and say "You can't come after my personal assets", that doesn't protect you from liability from third parties that don't contract with you.
What is the ultimate benefit of this GOVERNMENT protection? Well...corporations can take risks that individuals, or even groups of individuals (partnerships) would never dare take. And that's WHY they can grow so big. Further they can be owned by investors all around the world who don't give a rip what they do in the countries where they operate. Some GOVERNMENTS are the biggest shareholders in the world.
But thank you for asking the question. I think that helps to clear up the confusion.
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