A corporation creates a barrier between your personal assets and the corporation's creditors. In other words, you gain 'inside-out' protection. You personally insulate yourself from the debts of the corporation. But this too has its limitations. If you own a corporation and get sued by a personal creditor, your personal creditor can claim your shares in the corporation. If you own a substantial share of the corporation the creditor can then liquidate the corporation and claim its assets. That's why we instead use limited partnerships, limited liability companies, irrevocable trusts or other protective firewalls to shelter your stock ownership in a corporation. So we rarely use corporations in our planning to protect personal assets, since the corporation offers no protective advantages over LLCs or LPs. Moreover, the corporation can impose negative tax consequences. From our view, the only place for the corporation is in business planning – and even then the corporation is less frequently the entity of choice for most small businesses.
