ACC 538 DISC 6

Posted: August 26th, 2021

ACC 538 DISC 6

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            ACC 538 DISC 6

The primary advantage of forming a limited liability corporation is that creditors cannot sue the corporation’sowners to pay debts with their assets. The shareholders have limited liability as the business is a distinct legal entity(D’Onfro, 2017). Here, it implies that in such an eventuality, owners will have risked their investment in the corporation but not personal assets (D’Onfro, 2107). Nevertheless, there are certain circumstances where a shareholder may be personally held liable and limited liability will not protect their assets. In situations where a shareholder disregard the corporates formalities, causes injuries and personally guarantees a loan and the company fails to honor, he will be held personally liable. Equally,in a circumstance where the company’s and personal assets are commingled, the company is inadequately capitalized, and a shareholder manipulates the company assets and liabilities (D’Onfro, 2107). Thus, the creditors can piece the corporates veil and hold the shareholders responsible in case they commit fraud in the company.       

            Subsequently, the shareholders of a limited liability corporation are the greatest beneficiaries in that they are protected from the company’s financial obligations as they are only held responsible for the extent of their company investment. However, corporations also benefit from limited liability as they can issue company shares to the shareholders to raise funds for expansion without incurring debt obligations (Mancuso, 2017; D’Onfro, 2107). Companies enjoy economic advantages which contribute to growth rate and equitable resource distribution. Besides, limited liability reduces investment risk to corporations as it encourages the shareholders to buy shares generating wealth and employment(Mancuso, 2017). Hence, it ensures that capital markets are operated smoothly and efficiently as companies are not closely monitored by the owners, further lowering investment risks.

References

D’Onfro, D. (2017). Limited Liability Property. Cardozo L. Rev., 39, 1365.

Mancuso, A. (2017). Nolo’s Quick LLC: All You Need to Know About Limited Liability Companies (Quick & Legal). Nolo.